Echoing similar views, SMC Capitals' equity head Jagannadham Thunuguntla said all of the IPOs in 2009 have been overpriced as most of them were ready to hit the market in 2007 and came to the market this year with the mindset of bullish market sentiments of that time.

1. IPO: It's probably overpriced in 2009
By PTI Dec 13 2009 , New Delhi
Having burnt their fingers in the meltdown of 2008, small and retail investors shied away from the IPO
market in 2009 amid growing perception that corporates in connivance with merchant bankers are
overpricing the offers in their lust for big money.
No wonder the acronym IPO (Initial Public Offer) was redefined-- It's Probably Overpriced-- by the
market, says an analyst, citing the continuing setback retail investors have suffered due to high-priced
public offers since the Anil Ambani Group firm Reliance Power offer in February 2008.
The stock is still trading at a price much lower than at what it was issued and listed.
"The overpricing is leaving very little on the table for investors," said Spice group's financial services
business head Sudip Bandyopadhyay, who till recently was CEO of ADAG firm Reliance Money.
He is not alone in cautioning against the dangerous trend with noted market analyst Arun Kejriwal saying
that IPO pricing continues to remain aggressive and "merchant bankers are using innovative methods and
asking investors to look at the issue as they are more concerned about increasing their commissions."
The fear is borne out of the fact that in the year gone by, companies -- be private or state-run entities --
mopped up over Rs 19,000 crore through 19 issues, but shares of most of these companies are now
trading below the offer price.
Against this, the year 2008 saw 30 IPOs mopping upRs 17,000 crore, but shares of many these companies
gave the investors modest-to-good returns. The experience was even better in 2007, when about 100 of
them raised over Rs 32,000 crore and showered the investors with impressive returns.
Analysts are also worried about retail investors' sentiment taking a hit at a time when a number of PSUs,
as also private sector firms, are lining up with offers.
They believe the IPOs in 2009 received good response from investors but the returns are nothing great
and the retail investors have kept themselves from the primary market.
"Merchant bankers are basically acting hand-in-hand with promoters and going for aggressive pricing.
Going forward, unless pricing is made realistic, people will stay away from IPOs," Kejriwal Research and
Investment Services Director Arun Kejriwal said.

2. Echoing similar views, SMC Capitals' equity head Jagannadham Thunuguntla said all of the IPOs in
2009 have been overpriced as most of them were ready to hit the market in 2007 and came to the market
this year with the mindset of bullish market sentiments of that time.
Asked if the IPOs are being overpriced as companies and merchant bankers were still in the mindset of
2007, Anil Ambani group financial services arm Reliance Capital CEO Sam Ghosh said: "It could be so.
The sentiments of retail investors have to be raised. The pricing of coming IPOs would have to be much
more realistic. They (companies) have seen what happened in the past."
Besides, the merchant bankers and promoters go hand-in- hand while pricing the IPOs, Thunuguntla
said, adding: "While the bankers satisfied the promoters by pricing issues higher, they also filled their
own pockets".
"People have made money in some of the issues but aggressive pricing is keeping them away from
investing in fresh issues. After having burnt their fingers in the NHPC, Adani Power IPO, retail investors
stayed away from OIL IPO," Kejriwal said.
Sudip Bandyopadhyay also noted that "the IPOs this year have been priced aggressively which is evident
from the low retail investor participation.
"After listing on the bourses the performance of most of the firms has been invariably below expectations,
as the overpricing left very little on the table for investors."
"There was good response to the IPOs but it is still far from revival. Retail participation was considerably
low and a volatile secondary market made investors stay away from putting money," Prime Database MD
Prithvi Haldea said.
The year saw the government divesting stake in NHPC while it sold share for the first time in Oil India to
mop up a combined over Rs 8,800 crore.
The IPO market was on fire post the decision of UPA government-II to dilute stake in PSUs as investors
were waiting for these IPOs to test the primary market.
Although the IPOs got subscribed over 20 times on the final day, NHPC got listed with a premium of
eight per cent on debut trade. However, oil explorer OIL listed at a discount of three per cent below the
issue price of Rs 1,050.
Besides, the Rs 3,160-crore issue of Adani Power listedat only 5 per cent premium over issue price of Rs
100.
Also, most other recently listed companies trading below issue price raised alarm in the market that
investment bankers are overpricing the IPOs as their commission is linked to the issue size.
"For every issue the merchant bankers are changing valuation metric and are going for higher pricing of
the IPO and they hope the investors would be interested every time," Kejriwal said.

3. SMC's Thunuguntla said: "The job of merchant bankers is to strike a balance between the interest of
promoters and the market demand. Promoters were interested to aggressively price the IPOs as they were
in the mindset of 2007."
Some analysts say that the revival in the secondary market is also playing a key role in the heavy rush of
IPOs. The Bombay Stock Exchange barometer Sensex has surged by over three-fourth so far this year and
is trading near its highest level for 2009. The rush is expected to increase going ahead.
There are some 45 public issues lined up for the new year estimated to raise about Rs 29,000 crore and as
the year progresses more firms might join in the rally to raise funds from the market.
However, pricing will remain key for the IPO market in 2010 as appetite is intact in the market for fresh
issues.
"Its up to the promoters are merchant bankers to decide whether they want to increase the issue size or
increase the investor demand. All you need for making a primary market disaster is one or two big issue
remaining under subscribed," Kejriwal said.