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Moneycontrol.com >> Message Board >> View Messages >> IPO, New Issues
   You are here :     Moneycontrol     MMB    Market View      IPO, New Issues                         Most active discussions of 2006 , 2007 & 2008
IPOs -Investors in doldrums. (1)   05-Jul-08 16:32Tracked by (0)  
Posted by:   KJP on ( 05-Jul-08 16:32 )
IPOs – Book building process and price band fixing system to be reviewed.

Book building is basically the process of generating a book of investor demand for an IPO for efficient price discovery. It is a mechanism where, during the fixed period for which the IPO is open, bids are collected from investors at various prices, between the floor price and the cap price. The final issue price is not determined until the end of the process when the book has \\`closed\\`.
Now it is time for all of us to realise the fact that the whole process of book building is become erratic, especially in adverse market conditions, the valuations discovered with respect to new listings is no way near to the realistic prices.

We have a long list of IPO mishaps including the big name Reliance Power followed by many, the recent ones include V-Guard, MVL, GMR Ferro Alloys and Achidply. There was a time when IPO’s were sought after by long term investors, but now a days it has become the shortest term investment intended to make the maximum profit at the minimum period of time. I doubt w/ther even 10% of the investors applying for IPOs are doing it with long term intentions and even if many more of that category still exist, they refrain from doing so, since they very well know that those good days are lost once and for all.

It is high time to review the mechanism by which book building is done and fixing of price band should be done on some other criteria, like a fixed percentage above the FV in the range of something like 50% to 500% max , based on the gorwth potential of the Company. Credibility rating of the Company can be done by some methods similar to book building, but strictly within the range of maximum appreciation say 500% fm FV.

If no action is taken in this regard, we will see more are more IPO failures and huge losses to common investors.


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