Tech meltdown sees investors in 50 IT stocks losing Rs 350 crore

Jai Kumar NR & Nitin Mathur

New Delhi, Aug 31: Primary market investors are suffering a capital loss of whopping Rs 530 crore in 50 information technology companies which were listed on The Stock Exchange, Mumbai (BSE) since fiscal 2000. Thanks to this, the cyber dream of thousands of investors lies shattered today and some of them have been forced to hold on to virtually worthless papers.

While a sizeable number of these software companies is not regularly traded on the bourses, some are currently quoting even below Re 1. Not surprisingly, retail investors have fled the primary equity markets facing crores of capital erosion.

Though there has been a tech meltdown, primary market investors have mainly been hit by the unjustifiable premiums/prices charged by these IT companies. That was the time when everybody was going gaga over software thereby creating an euphoria which lured the gullible investors towards these issues.

Some of the biggest culprits who had charged hefty premiums include Mascot Systems, Geometric Software, MRO-Tek, Zenith Infotech, Kale Consultants, Mindteck India, KPIT Systems, Sofsol India, IT&T, Melstar Information Technology, Software Technology, Softpro Systems, VMC Software, Aztec Software, Contech Software and Compucom Software. Notwithstanding the high premiums, these companies have failed to live up to the market expectations.

The capital loss of Rs 530.38 crore is estimated by assuming that IPO investors are still holding on to their investments. However, the loss suffered by investors could be much more in many of these companies if they had entered at a price higher than the issue price.
Majority of these companies are currently quoting at 70-95 per cent discount to their offer prices. Besides the capital loss, investors are encountering illiquidity in some of the companies which came out with IPOs at a small premium or at par.

Companies like KPIT Systems (premium Rs 80), Archana Software, Baron Infotech (par issue), CCS Infotech (par issue), Kanika Infotech (par issue), Siris Soft (par issue) and Sequel Soft (par issue) are among those which are not regularly traded on the BSE. There may be scores of other illiquid software companies which were listed only on the regional stock exchanges like Hyderabad, Ahmedabad, Bangalore, Pune, Chennai and Kolkata.

Merchant bankers like Canara Bank (four issues), Systematix Corp Services (four), Fedex Securities (six), Karvy Investors (five), Enam Financial (two) and DSP Merrill Lynch (two) together have lead managed 23 issues out of a total of 50.

Lead managed by Kotak Mahindra, Mascot Systems’ investors (premium Rs 476 on face value of Rs 4) have been one of the biggest losers as they witnessed Rs 114 crore of investment vanish in thin air. The counter hardly provided any exit opportunity for investors.
MRO-Tek was another disappointment which charged a premium of Rs 90 for a Rs 5 share. The hardware company reported an 85 per cent decline in net profits during the quarter ended June 2001.

Zenith Infotech was offered at a huge premium of Rs 105 in December 1999, but was quoting at Rs 14.7 on August 30.
Archana Software which charged a premium of Rs 10 is currently quoting at 85 paise and Integrated Hi-tech at 90 paise (par issue).