Fever pitch

It may have been a record year for IPOs, but investors need to be cautious, as the Sensex has breached the 20,000-level.

Rajiv Bhuva        Print Edition: December 2010

Lunch hour, these days, is rush hour on Dalal Street. Ever since the Sensex breached the 20,000 barrier, 32 months after it first touched the mark, investors are gravitating towards the hallowed building that is home to the Bombay Stock Exchange or BSE.

Some are attracted by the sheer hysteria and gaze fixedly at stock prices flashing outside the Phiroze Jee Jee Bhoy Towers. The braver ones want a piece of the action and approach the hawkers who are busy doling out forms of initial public offerings, or IPOs-issues of shares.

Most people are convinced they can get richer quick. Once again, the herd is back on Dalal Street.

"We are back in business," says a visibly happy vendor as he digs into a stack of IPO forms. "It is unbelievable, but true. The boom is back," beams Umesh Pandey, a 31-year-old mid-level executive with a private bank.

In early December 2007, when the Rs 11,500 crore IPO of Anil Ambani-promoted Reliance Power was around the corner, Pandey had opened a dematerialised, or demat, account-it is like a bank account, but holds shares instead of money.

Just five days before the Reliance Power issue opened for subscription, the Sensex touched an all-time high of 21,206. Pandey prefers not to recall what happened next. The Reliance Power share price is still below the issue price, and nine months after the issue, the Sensex plummeted to 8,000 levels. "It was a steep crash," says Pandey with a deep frown.

That experience has not deterred him from participating in the IPO party this time around. Pandey has put in applications for shares in IPOs from Engineers India and SKS Microfinance. Of course, he has had plenty to choose from.

According to Prime Database, a firm that tracks primary market offerings, until September this year, 56 companies had mopped up close to Rs 40,000 crore via IPOs and follow-on public offerings, or FPOs (see Bingeing on the IPOs). This is close to Rs 45,000 crore raised in 2007-the highest in a year in the history of Indian capital markets.

By the end of this year, however, this record is bound to be broken. Coal India's Rs 15,000 crore IPO, coupled with nearly 40 offerings cleared by market regulator Sebi and expected to hit the market in the next two months, will take the 2010 closing figure for IPOs to roughly Rs 50,000 crore.

So what explains the onset of the silly season in the primary markets? Three factors. The first is high liquidity, with foreign institutional investors (FIIs) pumping $23.5 billion (Rs 1.043 lakh crore) into Indian equities in 2010-and still looking for investment candidates in one of the world's fastest growing markets.

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