Appetite depends on the hunger for stock, on quality and price

The IPO market depends on three things: how hungry the person is, what the quality of the food is and at what price it is served. The FIIs a...

The IPO market depends on three things: how hungry the person is, what the quality of the food is and at what price it is served. The FIIs and the retail Indian investor are very hungry. The retail investor is hungry because the equity investor has not been able to invest in the market for the last seven to eight years. There are various kinds of investors — the sort who has been scared off the market for good may not be there, but there are others who are willing to take the risk that equity brings. But they are unwilling to take the risk of fraud and dishonest promoters.

There are enough investors in this category. Apart from the old IPO hands, there is a new lot of investors who have come into the market when they began to earn in the last few years — and they are willing to take risks. Every year, 5-10 lakh people join the workforce and even if a small fraction looks at the equity market, that is a large number of equity-interested people given that the total number of retail investors today is just 60 lakh.

Also given the fact that only 1.5 per cent of household savings are going into equity today as compared to 15 per cent in the early 1990s, reaching even half of the earlier high will bring money into the market. During the 25 days between the IPCL and ONGC offers, the man-on-the-road put Rs 9,600 crore into the market in just 25 days. That is how large the appetite is.

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What about quality? Due to pressure from Sebi and a desire to not repeat the vanishing company fiasco, the quality of issues is very good. Investors want their principal safe even in an equity product and there is an implicit faith that a PSU company will not ‘disappear’ or a TCS will not vaporise.

Finally, a lot of the issues have been public sector offerings and pricing becomes a political issue, hence the pricing has been conservative (except for the earlier PSU offerings, which were not IPOs). Also when the issue size is large, there is pressure to keep the price low so as to get full subscription. I see the trend to keep prices conservative continue for another two to three months. Once the second-tier companies begin to come in, the overpricing will begin and investors will need to be careful.

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