IPO mkt set to grow, but issuers require dose of realism

Davos, Jan 26 | Updated: Jan 27 2008, 04:10am hrs
Indias booming initial public offering (IPO) market is set to grow further in 2008, but issuers need to be more realistic about valuations to ensure the party goes on, a leading investment banker said.

As long as issuers demonstrate more restraint in terms of valuations and pricing expectations, I think deals can get done, Uday Kotak, vice chairman of Kotak Mahindra Bank said.

Kotak Mahindra is one of Indias leading financial conglomerates and is involved in commercial banking, investment banking, stock broking, mutual funds and life insurance. The challenge is that there is a lot of exuberance in the minds of issuers and that is where correction is required, Kotak said on the sidelines of the annual meeting of the World Economic Forum in the Swiss resort of Davos.

Companies in India are expected to raise up to $15.8 billion from new listings in 2008, almost twice as much as last years record $8.3 billion, according to data from Thomson Financial.

The stock market has been on a five-year, record-breaking bull run partly driven by foreign funds attracted by strong domestic economic growth.

Volatility has however picked up, with the index posting intra-day falls of more than 10% on two days last week before rebounding to end a turbulent week down 3%.

Kotak said value was beginning to emerge in Indian equities, with the market trading at a price to earnings ratio of about 17 times for the year ending March 2009.

These are pretty healthy levels and from a longer term point of view, the correction is making markets more robust for the future, he said.

Anil Ambanis Reliance Power last week raised $3 billion within a minute of opening. The issue, Indias biggest initial public offering, attracted bids worth a total $190 billion.

I think the message from the markets to investors in general, and issuers, is that we have got to make sure there is an element of realism in the middle of exuberance. Back to basics, Kotak said.