With reference to The Ratings Soup (BT,October 16), CRISIL believes that price increase after the listing is not anappropriate metric to measure the efficacy of IPO grading because factors suchas liquidity and market sentiment, besides the fundamentals, play an importantrole in determining pricing. Since IPO grading evaluates the fundamentals of acompany, its efficacy should be measured by taking priceearning, or P/E,multiples and share price volatility over a longer period as indicators. Ourstudies show that companies with higher IPO grades command higher P/E multiplesdue to a superior earnings profile backed by strong management and corporategovernance. Their stock prices are less volatile on account of higher earningsvisibility. IPO grading is meant to aid investors in their decision making andis not a recommendation to buy, sell or hold.
Mitu Samar, Head-Communications & BrandManagement, CRISIL
Our Correspondent Replies
Since IPO grading is meant to assist noviceinvestors in making investment decisions, we found post-listing price a betteryardstick. It is something that investors can relate to. Relative P/E multiplesand share price volatility are difficult for retail investors to fathom.Besides, SEBI wants investment bankers to become more accountable and provide,while filing a new prospectus, price-based performance of IPOs they managed inthe past.
With the global economy facing the threatof a slowdown, your cover story (The Rainmaker, Oct 30) is timely for the ITindustry. Hats off to Francisco D'Souza for turning the fortunes of Cognizantaround. Right now, it may appear tiny compared to IBM and Accenture, but thebiggies had better watch out.
P. Rai, Bangalore
In Up, Up…and Down (BT, October 30), somedata may have seemed confusing. Indian exports for 2010/11 were incorrectlymentioned as $246 billion. That was the government's provisional estimate. Therevised estimate is $254 billion. Also, the number for Indian exports in theApril-June quarter - $128 billion - ncluded services exports.
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