The fact that the secondary market now offers considerable amount of value might act as a deterrent to the revival of the IPO market. "An IPO investor would have to put his money into a newly listed company where there is no track record. This would be unlikely when there is so much value in the secondary market in proven companies," said Jagannadham Thunuguntla, director, merchant banking, at SMC Global Securities Ltd.

1. After the drought, an IPO droplet
Sreejiraj Eluvangal & Sachin Mampatta
Thursday, January 29, 2009 22:56 IST
The drought in the market for initial public offerings could be coming to an end. After a
gap of four months, two companies have lined up new issues.
The first off the block is Gemini Engi-Fab, which plans to raise around Rs 43 crore
between February 3 and 6. It will be followed by education and training firm Edserv,
which seeks to raise around Rs 23 crore.
The crash in the equity markets since January 2008 has meant that there has been a
marked drop in the number of IPOs. As against over a hundred offerings that hit the
markets in 2007, last year saw just 40 issues. The last IPO was in October.
But what triggered these companies to go for an IPO in these times?
quot;Someone had to start it...,quot; exclaimed Sharad Rathi, head of origination for the
investment banking business of Almondz Global Securities, lead manager to the Gemini
issue.
quot;Even if we had come to the market after three months, you would still have asked: Why
are you coming with an IPO now?quot;
The role of the lead manager is crucial as it will have to subscribe to the entire issue if
investors don't.
One reason could be that valuations are significantly lower now. Unlike a year ago, when
capital goods companies used to be offered to investors at 15 times their current year
profits, Gemini is going for around 7 times its expected earnings this year. The company
manufactures processing equipment such as heat exchangers, fluid bed dryers and other
custom built equipment.
quot;Gemini has been with us for one-and-a half-months and its valuations have become
more realistic now,quot; Rathi added.
The Edserve IPO has also taken into account the current market scenario, said Vineet
Suchanti, managing director of Keynote Capital, one of the merchant bankers to the issue.
quot;We expect a certain amount of interest in the retail segment for small and mid-sized
offerings,quot; he added.

2. The merchant bankers are also betting that the stock markets have stabilised at the current
levels.
quot;I think, we can be reasonably sure that it (the stock market) is going to remain close to
these levels for the next few months,quot; Rathi said.
The fact that the secondary market now offers considerable amount of value might act as
a deterrent to the revival of the IPO market. quot;An IPO investor would have to put his
money into a newly listed company where there is no track record. This would be
unlikely when there is so much value in the secondary market in proven companies,quot; said
Jagannadham Thunuguntla, director, merchant banking, at SMC Global Securities Ltd.
For any sustainable revival of the primary market, the secondary market would have to
show signs of recovery. A stable government at the Centre after the forthcoming general
elections could provide that.
quot;We would be looking at a recovery in October-December. The elections would be a
good indicator in terms of the kind of government that comes to power. A clear mandate
with no hung Parliament would be a positive,quot; said Rajnish Roy, assistant vice-president,
capital market groups, at SBI Capital Markets.