The Hindu : Opinion / Editorials : This time it could be for real

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Wednesday, Jun 01, 2005

Opinion

Opinion - Editorials

This time it could be for real

There are reasons to believe the ongoing boom in the new issues market will be more sustaining than ever before. The primary market, which went into a near-comatose state after the last boom and bust in 1995, sprang back to life with the massive public sector divestments during the first half of last year. Blue chip public sector shares, such as those of ONGC, were lapped up by investors despite their large size and the high premium fixed. Almost all these shares have fared well after the listing. Investors, especially retail ones, have benefited. Some have booked profits within a short period while others have seen the value of holdings appreciate sharply. Either way, it is the quality of the shares on offer since the beginning of 2004 that has made many retail investors regain confidence in the primary market. Since the ONGC share issue, investors have got opportunities to invest in other top quality shares such as those of Tata Consultancy Services, the National Thermal Power Corporation, and, more recently, Jet Airways. It is rather early to draw firm conclusions but there are clear indications that as the new issues market becomes more vibrant, it will once again play an important role in capital formation. Between January 2004 and April 2005, more than Rs.40,000 crore was mopped up through public issues. According to reliable estimates, the amount raised during 2004 was equal to the aggregate mobilised over the previous nine years.

The current boom has finally ended the apparent disconnect between the primary and secondary markets. It has had its share of imperfections, but the share market has shown a high degree of resilience. The revival in the primary market reflects optimism. The capital market regulator, SEBI, and the Government are helping in this revival. The Government has promised to prosecute vigorously the promoters of the `vanishing' companies and get them punished. Regulation of the new issue market has followed a two-track approach: a number of benefits have been reaped by using the latest technology to improve the systems and procedures, wherever feasible; and the book-building approach has shortened the allotment process and led to better price discovery. Plenty of fine-tuning, if not modification of the regulatory set-up, is likely to take place in the light of new experience. Simultaneously, the process of educating investors continues. The hope is that ultimately investors will be in a position to evaluate risks and make an informed decision in any share market investment.

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