Primary market remains blighted

S R Kasbekar

The primary market continues to be comatose as indicated by the number of, and amount raised through, initial public offerings. The PRIME database notes that a dismal Rs 392 crore was raised through 15 IPOs in 2001, down 82 per cent over the Rs 2,165 crore raised through 103 IPOs in 2000. This measly amount brings back memories of the Rs 314 crore raised in 1998. In fact, the decline of the primary market seems catastrophic when compared with the Rs 8,686 crore raised in 1995 and Rs 5,569 crore in 1996. If IPOs are a barometer of investor sentiment, the current state of affairs spells trouble. What’s more, Global Technologies and Ador Powertron have had to refund application money as they could not draw in the 90 per cent mandatory subscription. Most IPOs failed to check a slide in their market price to levels below their offer price.

It is clear that the Securities and Exchange Board of India’s initiatives in lifting the IPO market have come a cropper. Sebi guidelines such as a minimum offering of 25 per cent of post-issue capital to the public (later relaxed to 10 per cent), a minimum offer of Rs 100 crore, entry norms based on net worth and profitability to ensure quality IPOs, strict book building norms, relaxation of the lock-in period to one year from the date of allotment, and streamlining of the proceeds of allotment of shares and refunds, have failed to enthuse the market.
Clearly, in the absence of prospects of fair returns, few companies were in any mood to mobilise funds. The second quarter results in 2001 underline the lacklustre showing of Indian companies and their cautious approach to expansion and/or modernisation. Life will return to the primary market only when the economy moves into a recovery phase and companies plan for growth.

The moribund primary market underlines the miserable plight of Indian investors today. In a falling interest regime, their traditional investment avenue of bank deposits no longer looks attractive. The Unit Trust disaster has left the investor in a dazed state, with his faith shaken. Poor returns on mutual funds have rendered this investment option closed for the investor. Lack of transparency in corporate transactions and unethical fly-by-night operators have made matters worse.

The primary challenge is to restore investors’ faith. The government set up in October 2001 the Investors’ Education and Promotion Fund under Section 205C of the Companies Act 1956 so as to increase their awareness and protect their investment. It is of little use in these times of investment inertia prevailing in the capital market. Now is the time for investors themselves to weigh different risk-return options before they decide to invest.