The Sensex may be witnessing a frenzied boom, but IPOs are definitely not part of the growth story. Recent data shows that nearly 34% of the total initial public offerings (IPO) that hit the market during CY 2007 are trading well below their issue price.
Out of the total 83 IPO?s listed on the bourses in CY07, 28 stocks have landed in the red in spite of the overall bullish sentiment in the market. Market experts feel that IPOs which had been aggressively priced have been hard hit. They feel that though such kind of issues succeed initially, in the long run, it is very difficult to sustain them that higher price levels.
Arun Kejriwal, director of KRIS Capital, said, ?Pricing an IPO has become a major concern now. There is no doubt that those IPOs which are trading below par right now in such a market have been aggressively priced, taking advantage of the prevailing bull sentiment.?
Interestingly, out of the 28 stocks that are trading below their issue price, 23 stocks have been listed in the first half of the year till July 2007.
And only five stocks out of the 30 listed in the second half of the CY07 are trading below their issue price.
?Only in the medium term, we would be able to judge whether an IPO is aggressively priced or not. Once these companies start declaring their results, the market would come to know about their prospects and will begin to react accordingly. So, in the medium term, good companies with sound valuations and reasonable pricing will be able to sustain the momentum and continue to trade above its issue price,? adds Kejriwal.
Applications of around 75 companies for their IPOs are pending with the regulator for approval.
Market experts fear that these issues will even be more aggressively priced in the current type of market when compared to those IPOs that had come when the Sensex was in the range of 13,000-15,000 points.