The Wall Street Journal-20080122-IPO Storm Builds in India- Global Forces May Hamper Expectations
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IPO Storm Builds in India; Global Forces May Hamper Expectations
Investors in Indian shares may be fiddling as their stock market burns.
As the rest of the world was running from risk, Indian investors were snapping up initial public offerings like never before. Fears about the health of the global economy seemed to catch up with India yesterday, and the Bombay Stock Exchange's benchmark 30-share Sensitive Index, or Sensex, tumbled 1,408.35 points, or 7.4% to 17605.35.
In the wake of yesterday's plunge -- the index's biggest point decline ever -- the market could slide more, though analysts and investors say they still expect another record year of IPOs.
Last week, as the Sensex was sliding 8.7%, India saw its largest IPO to date, a $3 billion issue from Reliance Power Ltd. The power company sold all of the shares in less than a minute.
India's market could fall further on growing fears of a U.S. recession and plunging international stock markets. Yet Indian companies are expected to issue a record $16 billion in shares this year -- more than in the past three years combined.
Investors, from foreign institutions to ordinary Indians, have been scrambling to buy them. In India's financial capital, Mumbai, people discuss IPOs like cricket matches and roads are flanked by billboards promoting issues.
"It is going to be very, very big -- bigger than this market has ever handled," said Jon Thorn, Hong Kong-based director of India Capital Management Ltd., which manages the $600 million India Capital Fund. But given yesterday's market tumble, he said, planned big IPOs "maybe need to be repriced lower or maybe they need to be scaled back."
To Mr. Thorn, one reason for the severity of the Indian market's nose dive over the past week is the huge volume of money stuck with banks and brokers as deposits for bids for the Reliance Power IPO. As share prices have plunged, leveraged investors haven't had the cash to meet margin calls, so their brokers dumped their shares.
Some analysts worry that the anticipated flood of IPOs could halt a long-term rally in Indian stocks that has seen the Sensex more than double over the past three years. India also may not be as immune from global forces as many investors hope.
"In some ways, the slowdown in the U.S. and Europe is good because more money comes into growing markets like India," said Vedika Bhandarkar, head of investment banking for India at J.P. Morgan Chase Bank. "But you know the question everybody has is, 'Does the doom and gloom catch up with India also?'"
Not yet, in her view. While people are wary, given the global context, "there's going to be a lot of equity issued out of India and it's going to be pretty much across sectors and the outlook is positive for IPOs," said Ms. Bhandarkar, whose firm was joint bookrunner for the Reliance Power IPO.
If global markets melt down and India follows, then companies would have to delay their IPO plans and prices in the broader market could plunge.
Yet if the stock market can absorb the issues, it will help develop India's decrepit infrastructure, a pressing need as the country develops rapidly. Many of the planned big issues this year are from property and power companies.
For many investors, Indian stocks have remained relatively attractive compared with other, struggling markets. India's consumer and domestic-led expansion looks to some like an increasingly good bet.
Reliance Power's IPO closed at the end of last week. "It received applications from over five million retail participants, making it the largest retail application in the history of capital markets" in India, Chairman Anil Ambani told reporters Saturday. "We are planning to list in early February."
While the company is years away from making significant money and will use the IPO funds to build power plants across India, the popularity of the issue was no surprise. Companies headed by Mr. Ambani and members of his family have been among the favorites of retail investors for decades. Analysts say Reliance Power shares could more than double on their first day of trading next month, given the demand.
It remains to be seen whether the other big issues in the pipeline for India, including state carrier Air India and the property developer Emaar-MGF Land Pvt. Ltd., based in Dubai, United Arab Emirates, will generate as much interest. Investors may become more selective.
"It shouldn't change anything fundamentally; it might just change the outlook for marginal IPOs," said Pramit Jhaveri, head of investment banking for India at Citigroup Inc., which wasn't involved in Reliance Power's IPO.
