Over-subscription evens out overpricing: Haldea

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Even though SEBIs IPO norms have become stricter and thus fewer, they continue to be overpriced and oversubscribed, points out MD at Prime Database, Prithivi Haldea.

 

MD at Prime Database, Prithivi Haldea says a lot of people are still carrying the hangover of the 90's when large number of companies entered the market and vanished.

 

Excerpts from CNBC-TV18's exclusive interview with Prithivi Haldea:

 

Q: What do you make of the quality of the newly listed IPO's?

 

A: Lot of people still carry the hangover of the 90's when a large number of companies entered the market and vanished. The market structure today is totally different; there have been many structural changes. Just to name a few; entry norms of SEBI have become very strict, stock changes are limited to two, there is a strict waiting process and importantly, 50% of every IPO has to be bought by QIBs (Qualified Institutional Buyers) who will not just buy any kind of stocks.

 

This has totally changed the entire paradigm of IPOs in India; their numbers have fallen dramatically. As against 1,400-1,500 issues in a year, numbers for the last three years run between 70-100, though the money raised is larger than ever before. So we are seeing established companies, established brands with strong business models coming to the market and raising money.

 

There have some stories in the press recently about losses on IPOs. I do not agree with any cut-off date and doing analysis since by that same logic, one should also do analysis of all secondary market stocks, since they also do not always go up. IPO pricing is basically validated by two things - one is the level of over-subscription - which is the demand that the IPO receives, and second, at what price it lists - and on both these counts, I studied and found that out of 152 IPOs that have hit the market since April of 2002, only two have not quoted at a price greater than the offer price on the listing date and subsequently.

 

That means 98% of IPOs have listed above the offer price. If some of them have now gone below the offer price, it is not because they were over priced, it is because the market conditions impact a lot of stocks.

 

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