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Does past record reflect efficiency?

Three years is usually enough time for a scrip to deliver. In 2007 and 2008, 123 companies made initial share sales; 29 have since either split the stock or made a bonus or rights issue. Of the remaining 94 scrips, 74 are trading below their offer price, according to numbers we crunched.

india Updated: Jun 24, 2011 23:03 IST
Saurabh Kumar

Three years is usually enough time for a scrip to deliver. In 2007 and 2008, 123 companies made initial share sales; 29 have since either split the stock or made a bonus or rights issue. Of the remaining 94 scrips, 74 are trading below their offer price, according to numbers we crunched.

The trend may have something to do with where markets were then, but can we learn something by looking at other data? Is there a relationship between a scrip's performance and the merchant banker that ran the issue? Though it is near-impossible to establish a relationship between the two, investors can use the track record of bankers as another variable in their investment decision.

We asked a simple question: If the role of a merchant banker is to bring an initial public offer, how should his efficiency be gauged? From the point of view of the company, it will be the money that it is able to raise. From the point of view of investors, it will be the returns they receive relative to the index to which the stock is benchmarked.

A merchant banker, either individually or through a syndicate, enters into a contract with the issuer to sell the shares of a company. It arrives at a price after valuing the company’s present fundamentals and future plans. However, recent data shows that a majority of them have failed in gauging the correct potential of a company. Of course, since this is risky equity, merchant bankers have no legal accountability on the question of pricing and no direct responsibility can be pinned on them.

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