‘In bull market investors bought IPOs not cos, now they should buy cos, not IPOs’

I don’t see all IPOs not getting subscribed. Better companies, that are priced well, will do well.

Why have they not been able to get subscriptions?

Primary market to some extent is dependent on the secondary market. They are also dependent on the sentiments of investors. Both of which are currently volatile. To that extent these factors will impact the response to primary market. Secondly, primary markets have ‘off seasons’ and ‘on seasons’ and probably what we are witnessing today is more on the off season. We have seen in the past that issues that have come in such periods have not got the best response.

Why is there a bad response from retail investors?

Retail and HNI have clearly got impacted by the secondary market in the past couple of weeks and so they are significantly and substantially abstaining from investing in the primary market.

What about and qualified institutional buyers (QIB) who take more rational calls?

QIBs have not been staying out but they have started becoming choosey. They are clearly making a rational call on valuations. If they were taking more aggressive calls on valuations a month back, they definitely have become more choosey. And all the factors that they scrutinise be it valuations, size of issue and the liquidity, the greatest scrutiny is the market response.

Merchant bankers have been asking for higher valuations in the bull market, and now when the tide has turned they are saying that they will get better priced. Why not have rational view on fair pricing at all times?

Now there will be greater scrutiny. There is going to be greater accountability on the part of issuer and market participant. In a bull market, pricing tends to be a little aggressive. It is not that IPOs have been priced aggressively and people did not get returns. It is a typical bull market syndrome when everything is looked at as good and negatives are forgotten. The market tends to accept the valuation. In a bear market there is greater scrutiny. This is the syndrome that goes in any part of the world. I see more rationality coming in the pricing of the IPOs now.

How do you see the market behaviour and the impact on coming issues?

When the market is bullish all capital market participants — issuers, investors, merchant bankers — do tend to get a little aggressive on pricing and as the market turns, everyone raises concern on valuations. What we are witnessing today is no different. Till January 11 or 12, a lot of issues were bending towards the more aggressive side of pricing and even investors picked them up.

What should investors do?

When the market was doing well investors were choosing IPOs over companies. Now, investors should choose companies and not IPOs. For the primary market in the near term, investors need to be cautious. Quality issues with good track records should be looked at.