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Trick or treat?

Over the last 17 years that I have tracked IPOs in the Indian market, there have expectedly been huge changes, writes Ashok Kumar.

india Updated: Nov 23, 2007 21:14 IST

Over the last 17 years that I have tracked IPOs in the Indian market, there have expectedly been huge changes. As the Indian capital markets matured, the primary market too has kept pace. But there are a few things that have not really changed.

During the Y2K boom, there was a spate of issues by IT companies from Hyderabad, which I used to refer to as 'Cyberabad' specials. A common feature in most of these IPOs was their fund requirement to set up overseas offices (without having a decent local office, mind you) and of course, the 'unofficial' whisper that their order book was fast filling due to the promoters' proximity to certain politicians.

These 'USPs' had to be taken with not a pinch, but a barrel of salt. Now, excessive salt intake is known to multiply hypertension, but the disappearance of many of these 'Cyberabad' specials post their over-subscribed IPOs must have had a more direct correlation with investors' Electro-Cardiogram (ECG) readings. In retrospect, perhaps that might have been the reason why I pouched the Apollo Hospitals stock for our clients and myself, back then!

More recently, I have noticed the use of this 'trick or treat' prop in case of infrastructure and realty IPOs.

In the case of infrastructure companies, certain small-sized companies, advised perhaps by some bright investment bankers, use the order-book prop. The trick here is to co-bid at rates that no sensible company would, to bag projects.

The pay-off here comes, not from executing these projects, but by selling a dummy in the IPO market, preening about the order-book size.

While delivering such sucker punches to retail investors is not particularly difficult, it has amused me no end to see hefty institutional participation too in these IPOs. In fact, the spillover of the unsatiated institutional appetite on listing ensures that the stock skyrockets for a while thereafter too. And yes, 'friends' in the illegal grey market keep the heat on, in the interim.

On the realty front, the term 'land-bank' has now become much abused. Those who actually read through Red Herring Prospectuses (RHPs) would be aware of the fact that quite often, the actual land owned of the 'developable' area, as claimed, in percentage terms amounts to a single-digit figure.

Now, like all good things, the ongoing party too has to end some time and then, alas, investors in such stocks will contribute to the topline of companies like Apollo Hospitals. So, should SEBI intervene? Not to my mind, for sure.

Investors in our markets get what they deserve.

Sure, investors must be protected from scams and the like, but beyond that, the principle of 'Caveat Emptor' reigns supreme, as it indeed should.

Trick or treat, anyone?

The author heads LOTUS KNOWLWEALTH

First Published: Nov 23, 2007 21:09 IST