It?s a fickle market. Within the space of little more than a week, brokerage houses and investment advisors seem to have done a volte face on the primary market for equity, going by the sudden harshness of their tone on initial public offers (IPOs). Until just the other day, IPOs were being recommended so strongly and advice clips circulating so widely that SMS spam was becoming a problem. But then, a week is a long time in stock picks. The secondary market shake-up has had a series of aftershocks that has harmed the confidence that was returning. Value investing is back with a vengeance. At the retail level, risk aversion now appears to be the operative principle in putting down money for new listings. This has made stock analysts look very closely at every issuer company?s fundamentals and visibility of earnings. These very tenets were being blissfully ignored just a few days ago. Now, as price bands of some issues are lowered, retail investors are turning sceptical about opportunistic pricing while the going is good. Shouldn?t the offer price have been lower to begin with? That?s what they are asking. This is a signal that IPO pricing strategies would have to be much better thought out in the days ahead.
Of course, while investor enthusiasm for IPOs has fallen sharply, there are also those who argue that such a turn in sentiment is precisely the moment to make the most of bargain allotments. Also, a rationalisation of pricing norms is welcome, even though what a newly listed share is worth is never a simple question to answer in a dynamic scenario. Market regulator Sebi has been doing its bit to make the price discovery mechanism as fair as it can. The Group on Review of Issue Process (Grip) has suggested an alternative means of price discovery, by which the current price bands would be done away with, and investors will be asked to bid for shares around an indicative price mentioned by the promoter. The Grip?s suggestions on reducing the IPO process period is also one that is worth considering, given that a lot of action takes place within the 21 days it now takes from issue closing to actual stock listing. However, the biggest problem that Sebi needs to tackle is the grey market for shares soon to be listed.
