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The Initial Changes

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The Late Dhirubhai Ambani was probably the first Indian businessman to realise the full potential of the primary markets way back in the 1980s. Before him, relatively few corporate players used the equity markets to raise large sums of money. Most of them, instead, depended on banks for the bulk of their funding requirements.  Dhirubhai changed the rules of the game by first going in for an initial public offering (IPO), and then hitting the equity market regularly to raise money through convertible debentures, secondary offerings, etc.

Both institutions as well as retail investors subscribed to many of these issues eagerly, and other businessmen soon realised that this was a good, and often inexpensive, way of raising money.

Over the years, "the IPO culture"  became a fairly well-entrenched trend. Strictly speaking, not all primary issues were IPOs — some of them were fresh primary market offerings from already listed companies. But they were all loosely dubbed as IPOs. And each bull run was an opportunity for both companies and individual investors to cash in. Companies took the opportunity to raise cash through equity while sentiments were booming. Retail investors found that investing in new offerings was a good way of making some quick money — offerings from good companies invariably listed at a much higher price than the subscription rate.

Of course, during bull runs, a large number of shady companies also took the opportunity to raise cash and then vanish. But even so, most retail investors kept the faith.

Over the past five or six years, though, things have been changing. First, changes in rules have ensured that institutional investors, and not retail investors, now get to subscribe to the bulk of the equity on offer. More recently, in too many cases, the offer price is higher than the price at which the stock finally lists. The one trend that has remained unchanged is the tendency to come out with bigger and bigger offerings.

With the record-breaking Coal India offering having just closed, and the even bigger Indian Oil offering scheduled to hit the market very soon, senior assistant editor Mahesh Nayak looks at how things have changed in the primary markets in our cover story this issue.

(This story was published in Businessworld Issue Dated 08-11-2010)

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