For companies looking to make their first public offering of shares in the coming weeks, Monday’s bloodbath on the Dalal Street could play a party-pooper.
The 1,408-point fall —the biggest-ever for the Sensex – may keep investors away from the market, at least for sometime, and force bankers to reprice some of the IPOs planned over the next few weeks, analysts and market players said.
There are at least 30 companies intending to tap the market by end of February and raise up to Rs. 20,000 crore.
That is over and above some big-ticket IPOs, which are on course and are expected to raise another Rs. 10,000 crore. These include the much-awaited Rs. 7000-crore IPO from Emmar – MGF and Wockhardt Healthcare that plans to raise Rs.1,000 crore
“Investors’ sentiment is probably at the lowest ebb,” a leading investment banker said after the Sensex tanked a record 2,000 points during intra-day trade before closing 7.4 per cent lower on Monday.
Although, the initial trigger for the fall came from global jitters over the subprime crisis in the United States,
the slide got worse with Reliance Power’s IPO. Scores of investors cashed out so that they could buy into the new IPO, the largest-ever in the history of Indian stock market.
That, in turn, forced the brokers to trigger the sale to raise margin money, which got further accentuated when some of the leading private sector banks joined the mayhem on Monday, said the investment banker.
Because these banks have significant exposures in term loan against shares as collaterals, the continuous fall since last Tuesday forced them to sell so that they can maintain 25 – 40 per cent margin, depending on the credit worthiness of stocks and clients.
The impact of stock fall could vary among upcoming IPOs. The ones in the real estate sector could be the hardest hit, analysts said. Emmar-MGF and Shriram Infrastructure are set for IPOs this month. Some of the public sector companies such as UTI Mutual Funds, Rural Electrification Corporation and OIL India are also expected to enter the market by February end to raise close to Rs 5,000 crore.
“Even if the market improves, investors’ sentiments will take some time to recover,” said the investment banker. The result: “all those IPOs coming in immediate future will face the brunt.”