Death of IPO market

The death of IPO market is an worrying news for the Indian economy. To understand how much Indian corporates depend on IPOs for funds let us look at the IPO collection figures in the last five years. Corporates collected Rs 22,131 crore in 2003-04, Rs 25,526 crore in 2004-05, Rs 23,676 crore in 2005-06, Rs 24,993 in 2006-07 and a whopping Rs 51,408 crore in 2007-08 (till the end of January 2008). In the next financial year, according to earlier estimates, corporates were preparing to raise close to Rs 75,000 crore through IPO.

If the present bearish phase continues, we will see very few IPOs. Naturally, those who were to use IPO money for new projects, expansion and working capital will either postpone their plans or borrow from banks to fulfill commitments. Since bank loans are more expensive and come with end-use conditions, project cost will go up. Many infrastructure projects in the field of power, roads housing complexes may suffer for the want of money and this in turn may hamper industrial development in general.

A slump in stock prices will also considerably contract the purchasing power of such consumers who invested in shares for gain. Slackening property prices in Mumbai and Delhi is a good example and it is no wonder that the realty sector is the worst affected in the present market meltdown.

When will the investment climate improve to bring back IPOs in the market? No one knows for sure. IF US economy goes into a deep and prolonged recession, which now is a distinct possibility, share markets everywhere will remain in the doldrums.

Fortunately, Indian economy is strong enough to withstand many adversities. First of all, the economy is on a sound footing even though the GDP growth is projected slightly lower at 8.7 per cent. Inflation at around 5 per cent is not all that high. The country has a huge foreign exchange reserve and large domestic market makes India fairly insulated from export dependency.

Source : GreyMarket Blog