BOMBAY, 15 September 2003 — Off late, the Indian stock markets seem to be having a dream run. Two months back, the 4000-mark seemed elusive and now analysts are already hinging their sight on the 5000-mark. And this bull run looks healthy and will live longer as it is interspersed with equal number of corrections.

And if the Indian secondary markets are doing well, can the India primary markets, or the Initial Public Offerings (IPOs) markets be far behind? The good times seem to have spilled over into the IPO markets also. This time, the sleeping giant is truly awakened and maybe, in a way, the roaring success of the IPO of Maruti Udyog is directly responsible.

After Maruti’s success, the same story was repeated during the recent IPOs from two premier banks of India — UCO Bank and Indian Overseas Bank (IOB).

Investors have lapped up the Rs.2.40 billion public issue of UCO Bank which had opened for subscription on the Sept.3, 2003. UCO Bank tapped the market with 200 million-equity shares of Rs.10 each for cash at a premium Rs.2 per share aggregating Rs.2.40 billion. It has raked in an oversubscription of between eight to ten times.

IOB issue has also met with resounding success. Its IPO opened on Sept. 6 and closed on Sept. 12. The bank is offering 100 million equity shares of Rs.10 each for cash at a premium of Rs.14 per share. Till now, it has received around four times oversubscription. And this is just the tip of the iceberg. According to Prithvi Haldea of Primary Database, there are as many as 579 companies ready to enter the market and the combined capital mobilization is estimated to be Rs.500.00 billion. Of this, it is expected that, if the markets remain buoyant, around 100 companies would make it this year, raising an estimated Rs.85.00 billion. The last two financial years witnessed introduction of six public issues in each year, compared with as much as 1,423 issues launched in 1995-96 alone. Six issues came to the market last year and attracted only 700,000 applications compared with 80 million in 1993-94.

In the immediate future, Vijaya Bank is slated to enter the market with its second IPO to raise Rs.2.40 billion. Vijaya is likely to issue shares at a premium of Rs.12 to Rs.14.

And it is not just the biggies who are readying their IPOs, there are now scores of small time companies too, egged on by the success of the recent issues, which have filed in their IPOs with Securities and Exchange Board of India (SEBI). Prominent amongst them being, Chennai-based Mardia Sons Holdings is planning an IPO at par to raise Rs.33.4 million. Mardia had total income of Rs.35,00,000 in FY03.

Then there is Delhi-based Software Horizon (India) Ltd., formerly Financial Horizon (India) Ltd., which wants to make an IPO at par to raise Rs.57.7 million and wants to list on Delhi and Madras exchanges.

Chennai-based Golden Palms (India) trading in agro-based products with revenues of Rs.43,00,000 in FY03 is planning an at par IPO of Rs.55.0 million for its working capital requirements, while promoters will contribute only Rs 10,00,000.

Mumbai-based Ken Software Technologies Ltd., formerly Kamakshi Yarns, is planning an IPO at a premium of Rs.5 on a Rs.10 share to raise Rs.94.5 million and will list on Pune and Hyderabad exchanges. Interestingly, the core promoters do not have much experience in the software business. There is also Kolkata-based Brahmanand Himghar Ltd., previously Brahmanand Developments, which is looking at an at par IPO to raise Rs. 40 million for setting up a cold storage plant and will list on Calcutta exchange.

Well, looking at a few of these companies, one cannot help but hope that history does not repeat itself. IT has happened in the past that such small time companies have taken the investors for a ride and this in turn was what killed the primary markets. Hopefully, SEBI, having learnt its lessons too, would scrutinize issue documents with more care and ensure that there are proper disclosures. The companies which capitalized during the boom of 1992-96 are hardly in the reckoning today. Of the 100 100 companies, which entered the market in 1992-96, the stocks of 88 firms were trading below par.

Infact SEBI recently announced some changes in the IPO norms. And the most significant amongst all of them seems to be the new guideline, wherein promoters are required to give their background, along with their pictures and pan number. This is naturally, to prevent fly-by-night operators from entering the market like earlier.

One can only hope and pray that this time around, the IPO markets will behave in a matured way and will not be exploited once again by unscrupulous promoters. Because if this time, investor confidence is lost, it may take a very very long time to regain it.