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Almost 65% IPOs from 2007 still below offer price

As a market rally draws a flood of IPOs again, investors are likely to get burnt again, given the inherent nature of IPOs.

Initial public offers (IPO) are back in vogue in the calendar year 2010 as the market has hit a 21-month high. However, investors are still nursing huge losses from the previous IPO boom of 2007. In that year, a total of 83 IPOs were listed on the National Stock Exchange (NSE). Of these 83 IPOs, only 29 IPOs, which is just 35% of the total, have left investors’ capital intact; 54 IPOs are still quoting below the issue price; and 21 IPOs are down by more than 60%.

Among the 83 IPOs in 2007, nine were from the real-estate sector while eight were from construction/infrastructure or software/IT services. Real estate was the hottest sector of 2007. Of the nine real-estate IPOs, eight have inflicted losses. Orbit Corporation has been the only IPO from the real-estate sector to emerge as an outperformer. There were six IPOs each from the engineering and financial services sectors.

Among the major gainers was Power Finance Corporation. This stock has gained 218% from its issue price till 12 January 2010. PFC was followed by Everonn Education—formerly known as Everonn Systems (200%), real-estate firm Orbit Corporation (188%), Redington (175%) and ICRA (159%).

A major underperformer among the 83 IPOs issued in 2007 is Dhanus Technologies. This stock has slumped 89% from its issue price, whereas two IPOs from the garment sector—Indus Fila and House of Pearl Fashions Limited—plunged 82% and 84%, respectively from their issue price. The IPO of Broadcast Initiatives from the media sector has declined 81% from its issue price.

Alpa Laboratories Limited (down 77%) and Decolight Ceramics Limited (down 78%) were other major losers. Abhishek Corporation and Vishal Retail too slumped 76% each from their issue price. Vishal Retail, which once peaked to Rs1,001 in 2008, is now trading at Rs65 after defaulting on loan repayments in 2009.

This pattern of IPO boom and subsequent underperformance of IPOs has been a cyclical phenomenon. The irrational IPO boom of 1995-96, after issue pricing was freed from the clutches of the Controller of Capital Issues, led to the phenomenon of vanishing companies. Many high-profile companies, such as HCL Technologies and TV18, are still quoting below their offer prices.

The recent market rally has rekindled investor interest in IPOs. IPOs are a means for promoters to raise money at the highest possible price from the investors, backed by investment banks and the support of institutional investors. That is usually a recipe for a stock’s severe underperformance, post-listing.

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    Indian markets rally, ignore Asian & global developments

    Bourses poised to remain in positive territory during Thursday’s trade

    Indian markets remained highly volatile throughout the day, as they opened lower from yesterday’s close on weak global cues, followed by China’s move to curb lending. However, at the end of the day, bourses shrugged off weak global cues following strong industrial production data and on expectations that Indian firms may report good earnings in the third quarter. The Sensex gained 87 points from the previous day’s close, ending the day at 17,510, while the Nifty closed at 5,234, up 24 points.

    During the day, Asia’s key benchmark indices in Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan fell by between 0.87%-2.59%, while China’s index fell 3.09%.

    As per reports, the Chinese central bank said that China will raise the proportion of deposits banks must set aside as reserves, by 50 basis points starting 18 January 2010.

    On Tuesday, 12 January 2010, the Dow Jones Industrial Average fell 38 points while the S&P 500 and the Nasdaq Composite declined 11 points and 30 points respectively.

    In premarket trading, the Dow was trading 10 points lower.

    Back home, at 11:30 hrs, the Sensex slid by 63 points to 17,360 while the Nifty was trading below 5,200 at 5,187, down 24 points, following China raising its cash reserve ratio by 50 basis points. However, at 14:00 hrs, the Sensex was trading up 29 points from the previous day’s close at 17,451 while the Nifty was trading at 5,213, up three points.

    Cement stocks rallied during the day, following reports that cement makers are set to hike prices by Rs3-Rs5 per 50-kilogram bag from Friday, 15 January 2009, in northern, southern and western markets. ACC was up 6% while Ambuja Cement and UltraTech Cements were up 5% each.

    Banswara Syntex rose 14%, after the company bagged an order for supply of three-layer waterproof breathable fabrics for an undisclosed sum.

    Deepak Nitrite shot up 20%, after the company launched new products in the fuel additives space.

    Entertainment Network (India) was up 5%, on reports of follow-up buying after the RBI allowed foreign investors to buy further shares in the Mumbai-based media firm.

    Sintex Industries posted 2% and 12% growth in sales and operating profits in the December 2009 over December 2008 quarter. The stock was down 1%.

    IVRCL Infrastructures & Projects announced that it has bagged road projects worth Rs1,550 crore. The stock remained flat. 

    During the day, finance minister Pranab Mukherjee said that the Indian economy is expected to grow by around 7.75% in the fiscal year to March 2010, but food price inflation was a major concern. He said that the government could unload surplus wheat and rice stocks for open market sale. He also said that India’s rising expenditure for fertiliser subsidy is a matter of concern.

    Montek Singh Ahluwalia, deputy chairman, Planning Commission, said in an interview to a television channel that food price inflation was a worrying problem, but he expected prices to go down.

    Agriculture minister Sharad Pawar said that high food price inflation may start moderating in seven to ten days, following the measures unveiled by the government.

    Meanwhile, Anand Sharma, trade minister, said that the government will give financial incentives to exports of around 2,000 products including those in engineering, electronics and chemicals. He also added that the boost, to support a nascent recovery in India’s exports sector, would cost up to an additional Rs500 crore ($110 million) in the current fiscal year ending in March.

    As per a survey by leading staffing firm, TeamLease Services, India Inc still remains cautious about hiring in the January-March period. According to the quarterly report, hiring sentiment saw a marginal improvement with the employment outlook index for the January to March quarter standing at 47 index points, 1% higher than the previous quarter.

    Tomorrow the market will open higher. If the Nifty ends up above 5,250, then we won’t be surprised to see it make a new high above 5,300.

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    Sugar prices to decline within a week, says Pawar

    The Indian government has taken a slew of measures to increase availability of sugar, pulses and other commodities. It hopes that rates of the sweetener, being sold at nearly Rs50 a kg, would start declining in a week

    Under attack over the rise in prices, the Indian government on Wednesday took a slew of measures to increase availability of sugar, pulses and other commodities and hoped rates of the sweetener, being sold at nearly Rs50 a kg, would start declining in a week's time, reports PTI.

    To increase the availability of sugar, the government relaxed the norms for processing of raw sugar and allowed duty-free import of white sugar till December-end.

    A host of decisions, including selling of two-three million tonnes of wheat and rice in the open market over the next two months and asking state-owned trading firms to intensify import of pulses, was taken at a meeting of the Cabinet Committee on Prices chaired by prime minister Manmohan Singh.

    Food & agriculture minister Sharad Pawar told reporters that the prime minister would convene a chief ministers' meeting in the last week of this month to discuss the price situation and take stern action against hoarders.

    These steps, Mr Pawar said, "would definitely impact the price situation. Prices would come down in four to eight days."

    The government has come under intense criticism from all parties, including UPA partner Trinamool Congress, for rising food inflation, which soared to a decade's high of about 20% in December.

    Mr Pawar said as the Uttar Pradesh (UP) government has not allowed processing of imported raw sugar, the Union government has relaxed the Central excise duty rules enabling mills to carry out refining elsewhere.

    Nearly nine lakh tonnes of imported raw sugar are lying at Kandla and Mundra ports following the restrictions imposed by the UP government in November 2009.

    This apart, several state governments have been advised not to impose value added tax (VAT) on imported sugar. They have also been asked to take stringent measures to check hoarding and black-marketing.

    The Union government may increase the subsidy on imported edible oil from the prevailing rate of Rs15 a kg. The subsidy scheme for public distribution of imported edible oil under the states will continue till 31 October 2010. It was to earlier supposed to lapse on 31st March.

    Cooperative major National Agricultural Cooperative Marketing Federation (NAFED) and the National Consumer Cooperative Federation (NCCF) will be authorised to distribute subsidised imported oil and pulses in states that are not implementing the scheme.

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