24 Sept, 2011
Markets around the globe have fallen sharply over the last one year as Eurozone crisis and fear of US heading towards double dip recession loomed throughout the year. Secondary markets in India plunged in line with Global Peers. However, when the value eroded by investors in secondary market is compared with that of Primary markets, horrific picture emerges.
Here is a snapshot :-
Time Period :- 1 Year (23 Sept, 2010 and 23 Sept, 2011)
Markets around the globe have fallen sharply over the last one year as Eurozone crisis and fear of US heading towards double dip recession loomed throughout the year. Secondary markets in India plunged in line with Global Peers. However, when the value eroded by investors in secondary market is compared with that of Primary markets, horrific picture emerges.
Here is a snapshot :-
Time Period :- 1 Year (23 Sept, 2010 and 23 Sept, 2011)
Of the 56 issues launched about 75 % are trading below the issue price. That can be attributed to weekness in the markets in general. But what explains more than half of the issues losing more than 33 % over the set issue price? During the same period, Sensex fell about 19 %. Thus erosion in secondary market is far better than Primary market. However, some issues like Gravita India (247 % up), Fineotex Chem (290 % up), Lovable Lingeri (135 % up) and Rushil Decor (126 % up) proved to be superstars in the Primary market. Investors chasing similar success stories in the hope of making quick money from IPO's have been burnt severely with issues like Bharatiya Global (83 % down), Glyscoal Alloys (83 % down) and Tirupati Inks (85 % down) mercilessly destroying wealth. Even companies like L&T Finance, MOIL, Oberoi Realty and Punjab & Sind Bank failed to perform and are trading much below the issue price.
Market experts believe that many companies fail to set a reasonable price band and that makes it fundamentally week right from inception. Many open lower and even if few manage to open higher on listing day, soon start falling spirally downwards with time. When economic situations were sound, even the over priced IPO's gave handsome returns and IPO's were looked as an easy opportunity to earn quick profits. With a persistent slowdown in Economies across the globe, IPO's are loosing flavor and are looked upon as wealth destroyers. Many IPO's are in the pipeline, but going forward they may find a tepid response from the investors. But again if economy rebounds people will forget valuations and start applying for the IPO's to make quick bucks.
- Shahid Hussain
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