Surviving the IPO deluge

Our Corporate Bureau
26 February 2004

It is said that the world over, stock markets are driven by fear and greed — investors sell stocks out of fear and buy stocks out of greed. For the Indian stock markets it is now 'feel greed' time.

According to Prime Data Base, a primary equity market research firm, about 600 companiesare in the queue to tap about Rs 60,000 crores from the primary market.

The last time the primary markets boomed for promoters was in the early and mid-nineties. At that time all one needed to enter the market and raise money was to cobble up a rosy 'prospectus', which lured unwary investors with the promise of rich returns. Investors fell for it only to later realise that they had been had.

Today, there are scores of companies, which are listed in the stock exchanges, while their promoters have vanished with their projects and the money they had raised. That rang the death knell for the primary market, which continued to languish in a comatose state for several years since.

It was in June, last year, that Maruti Udyog Limited (MUL) took the bold step of approaching the market with an initial public offering (IPO). The offer was for selling 7.2-crore shares, with a face value of Rs 5 and a floor price of Rs 115. The offer was through the book building process where the investor could bid at Rs 115 or above. The various bids would lead to price discovery - the real price at which the market is willing to absorb the offer.

Given the uncertain market conditions, MUL's parent company, Suzuki Motors had underwritten the entire offer. But that was not necessary as the issue was oversubscribed by about eleven times. (See: )