Opinion - Editorials   

The return of realism?

Two high profile public issues, those of Emaar MGF and Wockhardt Hospitals, were withdrawn in quick succession earlier this month after they failed to enthuse investors of all categories. Unprecedented in recent times, the development is attributable not just to market conditions but to an all round failure of those charged with managing the issues. However, while the withdrawal of the two issues will radically alter the IPO market, it did not quite mark the low point in r ecent primary history. That unenviable distinction belongs to the steep discount at which Reliance Power closed on the day it listed. Just four weeks earlier, the company had set new records. Its public offer, the largest ever, was sold out in less than two minutes on the day its subscription list opened, raking in a record Rs.11,560 crore. Over most of the next three weeks, even as the company hastened to complete the allotment, its share enjoyed a huge premium in the so-called “grey” market. Far more than the cues from unofficial markets, it is the iconic status that the Reliance group, despite the split, enjoys in the Indian stock markets that made many investors believe they could reap large gains on listing. That the Reliance Power stock not only slipped below its listed price but, in the process, dragged the benchmark indices down rather sharply added to the woes of the investors.

Of the many lessons to be learnt, the most important one is that the investor sentiment should not be taken for granted. In a matter of three weeks, investors who had so comprehensively supported a mega issue turned against it, with many of them voting with their feet as soon as its share price went into a discount to the listed price. Two other IPOs, which were expected to do well, flopped. Almost certainly many of the public issues on offer would be withdrawn and rescheduled. Secondly, there should be a return to the practice of fixing realistic prices on the offers and, equally significantly, relating them to the business plans of the company. Both Emaar MGF and Wockhardt hospitals entered the capital market even though their projects were in the initial stages. Reliance Power is basically implementing projects over the long-term. Thirdly, the timing of the public issue ought to receive greater attention. It is naïve to think that the new issues market can be insulated from the secondary one. Stock markets are notorious for not learning the lessons from past slumps but heeding them may well avert fiascos of the type witnessed recently.

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