The Hindu : Too many IPOs may trigger bearish tendencies: NCAER

Online edition of India's National Newspaper
Wednesday, Mar 17, 2004

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Too many IPOs may trigger bearish tendencies: NCAER

NEW DELHI, MARCH 16. The National Council of Applied Economic Research (NCAER) has warned that too many IPOs in a short period could trigger bearish tendencies even as the Government exceeded its disinvestment target by Rs. 900 crores mainly through public offers.

"Too many IPOs in too short a time exacerbated the fall. In fact, the Government could well have held back a couple of issues and focussed on the really important ones such as ONGC,'' the NCAER said in its latest Macrotrack report.

"That would have eased the pressure given that the Government is not the only borrower today and there were some attractive offers like Biocon and Dishman,'' it said adding the retail investors would find it hard to subscribe to more than a couple of issues, simply because his funds would be blocked.

The Union Disinvestment Minister, Arun Shourie, recently indicated that the Government could raise as much as Rs. 1.5 lakh crores every year for five years from the market by way of such issues, given the enormous market potential and investor confidence.

The six public offers in three weeks (IPCL, IBP, CMC, DCIL, GAIL and ONGC) garnered close to Rs. 14,126 crores with all of them witnessing oversubscription.

"India's first experience with big ticket public sector IPOs — Rs. 15,000 crores in just 45 days — came last month, but it was enveloped in controversy. Within ten days of announcement of the IPCL offer, the BSE Sensex lost about 450 points,'' the NCAER report said.

It said that when the issues were announced, there were apprehensions about the flood of paper in the market, and added, "the possibility that investors would trim their holdings in stocks to make cash for IPOs was real. The Government should have known this all along.''

The market's mentality has not changed over the years, the NCAER observed and said whenever there is announcement of a public offer, the first instinct of the investor is to sell at least a part of the existing holding.

The report, however, pointed out that it would be unfair to blame the fall in the market entirely on the IPOs.

"The market was in any way headed for a correction, given the furious pace at which it had run up. In fact, strategists had pointed out that a pull back was on cards, given the fact that near term valuations were stretched, reforms were likely to slowdown in the pre-election period and that there was consensus bullishness with put-call ratio at historic lows,'' it said.

Technically, therefore, a fall was in the offing, NCAER added.

PTI

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