Advertisement

HindustanTimes Fri,26 Dec 2014

IPO pricing remains a tricky issue

dhirendra@valueresearchonline.com   December 24, 2012
First Published: 22:03 IST(24/12/2012) | Last Updated: 22:06 IST(24/12/2012)

In keeping the primary market depressed, how big is the role played by high IPO pricing in the past?

Advertisement

Last week, SEBI chief UK Sinha strongly criticised merchant bankers for contributing to the poor state of Indian primary markets. Sinha laid out detailed numbers on the losses investors have made from IPOs over the last few years.

He pointed out that that from 2008 to 2012, there were 117 IPOs, and of those, around two-thirds were trading not only below the issue price but also below the price one would expect after adjusting for the general decline.

It’s safe to assume that most equity investors agree with what the SEBI Chairman has said. Yes, IPOs have been priced aggressively and investors have, by and large, found them to be a losing proposition.

Investors would like nothing better than to be able to make money 'automatically’ from IPOs. In fact, SEBI has floated the idea of a ‘safety net’ price below which investors (perhaps only retail) will be recompensed by issuers.

However, there are some home-truths everyone should know. The first is that equity is risk capital and everyone buying stock — whether in an IPO or the open market — should  know losses are possible.

By itself, pricing can ensure a negative outcome but not a positive one. The IPO of a great business can be rendered a poor investment by a high price but that of a poor business cannot be made a great investment by a low price.

Investors’ responsibility in choosing wisely will stay, regardless of what SEBI does.


Advertisement
more from Business Columns

Blogosphere expand and expanding

Expand and expanding. Is that an understatement? Maybe you can suggest better. What do you call a world that doubles itself every six months, writes Puneet Mehrotra.
markets
Advertisement
Most Popular
Advertisement
Advertisement
Copyright © 2014 HT Media Limited. All Rights Reserved