IPO Performance 2010

In the process of accompany, the first stage is characterized by the seed money coming from the founders, their families, friends and venture capitalists. While this source of finance is sufficient to get thins launched, in some companies, more often the success of the private firms prompts the owners to take the company public with a sale of stock to outsiders. In developing countries like India, a newly incorporated public limited company also raises capital through public offer of equity shares. The first issue of equity shares to the public by an unlisted company is referred as IPO.
The financial sector was liberlised in India during the early nineties which led to some major changes in controls related to capacity licensing, technology import, financing procedures for private sector etc. removal of “licensing raj” especially in areas related to private sector financing options led to a direct increase in market based financing of industrial investments through an expansion in three broad channels namely new issue market, international capital markets and FDIs.
Around the eighties, there was a transformation in financial intermediation leading to a change from credit based financial system to capital market based system. This led to an increasing significance of capital market in allocation of financial resources. With public sector investments showing relative fall since 1986, importance of private sector investments became vital to sustain growth in the economy. The private sector reacted to changed environment in a big way and there were large increase in capital flows from these channels.

The primary market (IPO) for equities seems to be witnessing a revival of sorts with the stock markets going through a bullish phase. While this is a general behaviour that is observed in period of bullish stock markets, investors need to be cautious regarding the decisions (in terms of IPOs) they take. This is because companies in order to take advantage of the positive sentiment sometimes take retail investors for a ride, and hence investors need to be extra careful regarding the same.
The investors should assess the nature of the business and its position and performance relative to competition. They also have to look deeper into the stock price of the companies. Arriving at a fair valuation of the company’s stock gives an indication of the fairness of the IPOs in terms of pricing of the issue. A lot of investors jump into the IPOs bandwagon in a market bull run, hoping to make a killing when the IPO lists, even if they understand that the concerned company may not be worthwhile investment.
The Initial Public Offering or IPO market as it is known, received a new lease of life in FY99. With high profile issues like Coal India opening at more than expectation, investors are flocking to the IPO market never before. Companies, which had earlier shied away from the capital market, are now returning with a vengeance to satiate the appetite of investors.
IPOs have become an important segment of the capital over the recent years. The growth in the Indian IPO market is very well witnessed after the liberlisation of the pricing norms.