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|September 16, 1999||
Demystifying 'revival' of primary market: no turnaround in sight
Prithvi Haldea of Prime Database, the Bombay-based primary market monitor, has pooh poohed the growing belief that the primary market has revived.
Neither the facts suggest that a revival has taken place nor the near future promises any turnaround. In the first six months of the current fiscal, only 18 public issues of both debt and equity have entered the market raising Rs 29.21 billion. In the corresponding period of the previous year, 18 issues had raised Rs 30.18 billion, Haldea said today.
The equity offerings continue to be few, and even these are only courtesy the euphoria around the software sector on the one hand and the statutory requirements of the Reserve Bank of India for banks to go public on the other. In the six month period, only 14 equity issues have hit the market, raising a meagre Rs 5.92 billion. Although this compares favourably with Rs 3.32 billion raised in the corresponding period of the previous year, the total amount is still too small to indicate a revival, Haldea said.
Significantly, of the Rs 5.92 billion, the banking sector through three issues has mobilised Rs 3.44 billion, constituting 58 per cent of the total equity raising. The software sector, with nine issues, has collected Rs 1.70 billion. The rest has been accounted for by one PSU offer of Rs 750 million and one non-banking finance company offer of Rs 20 million.
The most disturbing trend, according to Haldea, is the languishing equity mobilisation by the manufacturing sector, which has now reached a zero level in the six-month period.
This represents a major fall successively over the last four years, from a high of Rs 110.05 billion in full 1994-95. The immediate future is also likely to witness a domination of the software and banking sector.
Public issues in the near future from the software sector, as per Prime Database, are expected from HCL Infosystems (Rs 6 billion), Hughes Software (Rs 3 billion), Geometric (Rs 250 million), SRA Systems (Rs 250 million), Computech (Rs 250 million), Wintech Computers (Rs 200 million), S Kumar's Microsystems (Rs 150 million), Helios and Matheson (Rs 11 million), VWC Software (Rs 100 million), Akshay Software (Rs 80 million), Kushal (Rs 60 million), Logix (Rs 30 million), Sankhya Infotech (Rs 20 million) and S Kumar's Computers (Rs 10 million).
On the other hand, at least ten banks are gearing up to tap the market. These include Syndicate Bank, Oriental Bank of Commerce, Punjab National Bank, Union Bank of India, Indian Overseas Bank, Andhra Bank, Vijaya Bank, Canara Bank and Nedungadi Bank.
It is interesting to note that of the 22 public issue offer documents filed with the Securities and Exchange Board of India since May 1, as many as 16 are from the software sector. Of the balance, three are from the banking sector, one from the public sector undertaking, one from a broking firm and one from a greeting cards company.
Significantly, in 1997-98, there was not even a single issue from the software sector. However, four software firms entered the market in 1998-99. All these four companies -- Sonata Software (Rs 230 million), KPIT System (Rs 120 million), Cybermate Infotek (Rs 20 million) and Shri MM Softek (Rs 20 million) evoked overwhelming response from the investors.
Similar has been the success story of the seven software issues of the current fiscal: SQL Star (Rs 140 million), Compudyne Winfosys (Rs 10 milllion), Subex System (Rs 60 million), Amex (Rs 70 million), Polaris (Rs 920 million), Fortune (Rs 20 million) and Kaashyap (Rs 30 million). The other two software issues of Kale Consultants (Rs 350 million) and Compucom (Rs 110 million) opening in the later part of this month are also expected to evoke a good response.
Haldea stated that as witnessed in the past, a sectoral frenzy is initially led by strong companies. What then follows is a deluge of operators. To take advantage of the euphoric conditions where issues are getting oversubscribed by 20 to 40 times, several unscrupulous promoters are already at work. Many of them may also take unfair advantage of SEBI's recent relaxation allowing IT companies to offer only ten per cent of their capital to the public.
In addition to strengthening the disclosure norms, the minimum investment amount in such issues should be raised to Rs 100,000 to prevent the small investors from yet again joining in a sectoral frenzy. As in the last couple of years, raising of debt through public issues will continue this year too.
In the first six months, Rs 23.29 billion has already been mobilised by IDBI and ICICI. As such, debt has constituted a high 80 per cent of total public issues of the six-month period, according to Prime Database. Significantly, this debt raising by financial institutions and the equity raising by banks have together accounted for a high 92 per cent of the six-month period's total mobilisation.
The primary market continues to suffer from several grave problems. These include the loss of investors' faith consequent to the heavy losses in new issues and the absence of exemplary action against past offending issuers. SEBI's recent clean chit to 'vanishing companies' has only come as a big dampener to the retail investor.
Unrealistic entry barrier guidelines, on the other hand, have only worsened the situation. Unless corrective measures are taken, the primary market will continue to be in a limbo, despite any booms the secondary market may witness, Haldea said.
Dilip Thakore's column on sustaining the stockmarket boom
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