Market News And Views

Vikas Bansal runs a brokerage firm at Ramnagar, near the Corbett National Park, in Uttaranchal. For him, the last few days were very hectic as his clients are selling lots of scrips to liquidate their positions in the secondary market.

The reason is to gather enough money to take exposure in the forthcoming IPO of Reliance Power, which is incidentally the country’s biggest one.

Not only this, thousands of people have inquired and quite a large number of them have opened up demat accounts in the last fortnight to invest in Reliance Power. For him, the times have never been so good since he started his firm a year ago. This increased activity in the secondary market has raised a few concerns amongst the analysts that the Reliance Power IPO will lead to huge selling in the exchange and tumbling stocks. When SundayET posed this question to SEBI chairman, M Damodaran, he remains unperturbed.

“It’s quite natural for the secondary market to see fluctuations on account of a big IPO being lined up in the primary market. Overall, I don’t see any reasons for panic and reverses in the flow of funds to the Indian market,” Mr Damodaran said.

However, analysts fear that with everyone wanting to participate in the upcoming IPO, it may trigger huge selling in the secondary market in the coming week. Ashish Kapur, CEO, Invest Shoppe, a Delhi-based brokerage firm, fears that there could be wide-ranging implications of the Reliance Power IPO on the stock exchange, when the issue opens up for subscription on Tuesday.

“The market can become very dangerous. FIIs and Mutual Funds are also likely to pull out huge money from the secondary market to invest in the issue, which can have immediate effect on the market tide. That’s why fresh money is very important for any growing market,” says Kapur.

A COO of a large brokerage firm cautions that it’s important for the market that Reliance Power lists with gains on the bourses. “A lot of money is at stake. Small investors are dreaming big from this IPO, making it all the more important for this IPO to sail through smoothly. Otherwise, small investors may get struck, if it lists at a discount. Market may well do a reverse in that situation. However, if it lists at premium, it is going to create good liquidity in the system,” he says.

However, Arvind Mahajan, executive director, KPMG India, believes that the company has been smart in pricing its offering at the higher level (Rs 405-450). “If the pricing is low, investors tend to sell stocks within a few days of the scrip getting listed as they try to book some quick profits.

For instance, there are more chances that an investor will sell a stock, whose offering price was Rs 100, if it lists at Rs 125. For him, it’s a 25% gain in no time. But with a high price band, there is more money on the table and considering that it’s a greenfield project, no company would like to be in a situation where investors put in their money for making a quick buck,” he explains.

source TET,