The Telegraph
Since 1st March, 1999
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Maruti emerges IPO beacon

Mumbai, June 12: Maruti’s record-busting debut on bourses has set the tone for success of long-awaited flotations, many of which have been delayed by slump-weary companies looking for the right time to show up on bourses.

Tata Consultancy Services (TCS) and Nalco are among the big names in the long queue of firms that were forced to lie low on their share offers over the past year.

Even Bharat Petroleum, the state-owned major in which the government wants to sell a part of its shares to the public, could be awash in Maruti’s afterglow.

“Maruti’s success on the very first day of its public offer has shown that quality of an issue is important. Its success will provide a fillip to the capital market and signify better results for offerings that are well priced,” a merchant banker associated with a foreign bank said.

The centre of attention will be TCS, whose flotation has been in the incubator for a few years. Maruti’s maiden magic could encourage the Tatas to take the plunge.

However, there is one grey area in the case of TCS: It is not clear if investors would still have the stomach for a technology company that asks them to pay a premium of the kind it commanded at the height of the software rush.

“Investors are now rooting for old-economy stocks,” an analyst watching the primary market said.

Recently, when the chairman of the Securities and Exchange Board of India (Sebi), G. . Bajpai, was asked about the dismal state of the primary market, he reeled off statistics showing a large number of retail demat accounts were opened in the recent flood of bank IPOs. Almost 2.5 lakh accounts were freshly created which, he said, was a sign of rising investor confidence.

Brokers echoed his feelings, saying a section of market-savvy retail investors has struck gold by investing in the maiden offers of PSU banks like Canara Bank, Union bank of India, Punjab National Bank. The shares of all these banks have outperformed key indices.

Even Divi’s Laboratories, a pharmaceutical company that came out with a maiden flotation in the last financial year, has outperformed other drug makers.

Analysts point out that unlike the 1990’s, the quality of companies entering the primary market has improved, and that a part of the credit for it goes to Sebi.

At the press conference to announce Maruti’s initial public offering, disinvestment minister Arun Shourie had applauded the role of the Sebi chairman, who used video-conferencing to iron out grey areas in the firm’s offer.

In addition to plans drawn by Nalco, BPCL and TCS to tap the capital market, several rights issues are also lined up by a clutch of public sector companies. However, some were sceptical about the offers. “Why should we raise equity capital when debt is so cheap'”, they said.

Yet, there is wide agreement in the market that well-priced quality issues will come up trumps. And, that Maruti will not prove to be the one swallow of this summer.

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