However, the question is, if investors of an `epoch-making' IPO, whose "fixed price portion" of 4,37,500 shares was reportedly oversubscribed 50 times and "book building portion" of 39,37,500 shares was subscribed nearly 25 times, were willing to part with the share on listing for a paltry gain of around 8 per cent over their cost price, what's their faith in the company, or in the industry?

On the first day, HSSL's regional stock exchange, DSE, too witnessed wide fluctuations. The scrip reportedly opened at Rs 1100 but, dropped down to Rs 1001 before shooting up to Rs 1800! It closed the day lower at Rs 1625. On the country's premier stock exchange, BSE, HSSL opened its account at Rs 1589 on the same day. In tune with the trend at NSE and DSE, the scrip registered a high of Rs 1839 on BSE before closing at Rs 1519. Thus, though it opened with very wide margin between the exchanges, the price finally stabilized at around Rs 1600 on all three exchanges towards the close of the day.

For the 15-month period ended March 1999, HSSL posted a net profit of Rs 18.85 crore against an equity capital of Rs 6.3 crore. For the current fiscal the company has reportedly projected a profit of Rs 26.20 crore.

This, on the post-bonus and post-public offer equity of Rs 16.62 crore, yields an EPS of Rs 15.76. In other words, the market price of around Rs 1600 discounts more than 100 times even the projected earnings of current fiscal!

Can the price-earning multiple of 100 plus sustain for long? Well, today, the composite P/E multiple of software majors itself is at above 100 which is largely influenced by current market favourites like Infosys (P/E multiple of around 190), Wipro (250), Satyam (110), etc. Interestingly, in 1993, when the current bench mark of software industry, Infosys, offered shares at a P/E 7.6 times, the issue got `undersubscribed'! Moreover, in the same `large software' segment, companies like Tata Infotech, BFL Software, Pentafour Software and Rolta India, command a P/E multiple of less than 30! Hence, HSSL's long term discounting should largely be influenced by the market perception. Nevertheless, the short term prospects of the scrip solely depend on the mood of a handful of large investors.

Because, a major fallout of the book building process is the relegation of smaller investors to a lesser role in IPOs. In the case of HSSL, 90 per cent of the IPO was through the book building method while the balance 10 per cent was by way of a fixed price offer to individuals. In the book building component, only 15 per cent was reserved for the small investors applying for less than 1000 shares as against 50 per cent reserved in a normal public issue.

What's more, though the fixed price component was reserved for individual applicants, no maximum limt for the application size was prescribed. Thus, the situation was tailor-made for market operators to edge out the small applicants through sheer financial muscle. The basis of allotment of HSSL reveals that, though the company received over 50000 valid applications, more than 52 per cent of the puplic offer of 43.75 lakh shares were allotted to just 20 applicants! As we have often seen in the past, the concentration of a major portion of the floating stock in a small universe of large investors is a perfect recipe for price manipulation.

Historically too, in a boom time, merchant bankers and market operators tend to acquire a halo about themselves, which, of course, peels away when sanity returns to the markets. Remember the days of finance companies ruling the roost in the stock markets? Like the present day shenanigans of the software industry, NBFC market darling of yester years, Kotak Mahindra Finance, too once commanded a maket price of Rs 1300 at a P/E multiple of over 90 times.

Today, the same scrip couldn't find a buyer even at its book value of Rs 90!Similarly, after scaling a peak of Rs 855 at a P/E of around 60 times, the then high-flying VLS Finance Ltd (VLS) floated a public issue in 1994 which was priced at a mind boggling Rs 400 per share under the expert merchant banking supervision of SBI Capital, PNB Capital, American Express and ITC Classic. Now, nearly after five years, the VLS scrip is not able to fetch a price of even one-tenth of its offer price.

Another boom-time market favourite, Prime Securities Ltd (PSL), made its maiden issue of shares at an "auspicious" price of Rs 101! On listing, this scrip commanded a price of even Rs 250 at an incredible P/E of 100! Today, the PSL scrip is languishing below the par value of Rs 10! Yet another market favourite of NBFC boom, Alpic Finance, which was once quoted at Rs 750, can't now climb even a tenth of its peak. And, another highly rated NBFC, Lloyds Finance, which found buyers at Rs 345 in 1995 is currently going abegging at just around Rs 5!

Thus, notwithstanding the present software euphoria, there is no guarantee that the industry's high market valuation would be sustained over a fairly long time. More so, since the employee attrition is the bane of knowledge-based industries such as infotech. Disbelievers can look at the present exodus in top management at Wipro. The entrepreneurial itch in Ashok Soota and his erstwhile Wipro colleagues resulted in the birth of their venture, MindTree Consulting.

Though Wipro does have the business model to survive the resultant tremors, its valuation on the bourses has already suffered somewhat. Moreover, in the absence of a clear cut labour policy, software industry appears to be more risky than even finance companies in view of its labour intensive nature.We all kwow, what happened to our labour dominated large textile mills when the promoters refused to share the profits in the manner the work force wanted. What's the guarantee that a staff strength of 1000 workers in a software company would not form a union tomorrow and demand their pound of flesh from the comapny's super healthy bottom line? And, if it happened, what would be the plight of that company's stock?

(Arranged by INVESTAR - The Arthik News & Research Syndicate) [E-mail feedback to: investar@bol.net.in]