According to the Chinese, 2003 is the year of the goat. But ask Prithvi Haldea and he'll tell you that as far as he can see, India's 2003 is quite clearly the year of the bull. No, Haldea is not a radical astrologer, although his business can often get as tricky as the soothsayer's. Rather, Haldea is the Managing Director of Prime Database, which tracks the primary market for debt and securities. Therefore, whenever the IPO market booms, Prime has a good time. For the last seven years, though, it hasn't had one. Haldea thinks that's about to change.

Indeed. At no other time in the history of capital markets have so many blue-chips-in-the-making lined up to offer their stocks. At last count, there were 84 companies with plans of listing, and the top 10 alone (See IPO Unplugged) planning to sell stocks worth more than Rs 15,000 crore. For investors, the lure is in the names behind the stock offerings. For example, Tata Consultancy Services (TCS), Maruti Udyog, Biocon, Daksh e-Services, Idea Cellular, LG Electronics are some of the companies that will be going public for the first time. Not just that, these are industry standards and hence make some of the most attractive bets. Says Shitin Desai, Vice Chairman and Managing Director, DSP Merrill Lynch: "I am quite upbeat about the primary market. Investors will look forward to buying stocks with good track record and attractive valuations."

Then, there are fundamentally strong companies in the energy and financial services sectors such as Bharat Petroleum, ONGC, Indian Oil, National Thermal Power Corporation, Andhra Bank and Bank of Maharashtra that should find takers among both institutional and retail investors. That in turn will deepen and broaden the secondary market, which the small investor deserted many moons ago, thanks to a series of scams. Says Haldea: "If things go according to schedule, we can easily raise Rs 25,000 crore in the next fiscal (2003-04). But I will be very satisfied even if we raise around Rs 10,000 crore."

The Tide Is Turning

"I am upbeat about theprimary market in 2003. Investors will look forward to stock with good track records and attractive valuations" Shitin Desai, MD, DSP Merrill Lynch

Desai and Haldea aren't the only two optimists. Talk to Dalal Street analysts, and they will tell you that the time is propitious for a stockmarket revival. There is a welcome drop in the Indo-Pak tensions; the Gujarat conflagration seems to be finally settling down, and the fate of disinvestment seems bright, despite the occasional glitches. While the Ketan Parekh scam is fast receding from public memory, no new ones (yes, the year has just begun) seem to be in the offing. Besides, if the Kelkar Committee's proposal to abolish the dividend tax is implemented in this year's budget, investment in equities will soar. Points out Desai of DSP Merrill Lynch: "A relatively insulated economy, strong corporate performance, undervalued markets and investors shifting focus to equities because of lowering of interest rates could trigger a bull run."

That's not all. The Securities and Exchange Board of India has more powers than it ever had, and that means scams will be dealt with more swiftly and severely. For example, SEBI has the power to impose a fine of Rs 25 crore, or charge three times the profits, if a company indulges in insider trading. Listing has been made easier, and the "three-year continuous profit" clause may soon go. More importantly, most of the stocks are quoting at bargain prices-a great time to buy. Says Ravi Mehrotra, President, Franklin Templeton Investments: "The risk-reward equation has shifted in favour of equities, since debt is not expected to yield more than 6-7 per cent going forward and equities are looking very attractive."

"If things go according to schedule, we can raise Rs 25, 000 crore in the next fiscal. But I will be satisfied even if we can raise Rs 10,000 crore" Prithvi Haldea, MD, Prime Database

The outlook for India and other key markets, if not rosy, doesn't look any worse than the current fiscal. Exports have been growing at better-than-expected rates, inflation has been keeping its head down, industrial growth is reviving, monsoon is expected to be better this year, and foreign institutional investors are likely to bet on this revival. Fundamentally, too, corporate results are likely to be good this fiscal end, and the buzz on Dalal Street is that Finance Minister Jaswant Singh will deliver a market-friendly budget in February. "A sustained rally in the secondary market will likely give a fillip to IPOs," points out Ravi Kapoor, Senior Vice President, DSP Merrill Lynch.

In case you didn't notice, a quiet IPO revival has already happened. Some issues like those of i-flex, Punjab National Bank, and Canara Bank were received warmly by investors. And while only six companies hit the primary market last year to raise a meagre Rs 1,981 crore, their returns to investors so far have been good. I-flex, for example, listed at Rs 550, but is now quoting at about Rs 854. Similarly, at Rs 47.45, Canara Bank is way above its list price of Rs 35. Therefore, don't be surprised if the optimistic projections fall short and still the IPO market delivers a scintillating performance.

That apparent anomaly is explained by the nature of stocks up for sale. Take Biocon India, for instance. It's issue size at Rs 150 crore is rather modest, but it gives investors an opportunity to lock into the futuristic biotech industry. Says Kiran Mazumdar Shaw, Chairperson and Managing Director, Biocon India: "I expect a geometric progression in the sector's turnover in the next five years and it could easily touch $6 billion." Similarly, Daksh e-Services IPO (its size is not known yet) should be a hot seller because it offers the only window to the booming BPO industry, which grew at 70 per cent last year and by 2010 is expected to fetch $20 billion in revenues.

"Primary market always follows the secondary market. Since the secondary markets are likely to do much better this year, the primary market will see an improvement" Motilal Oswal, MD, Motilal Oswal Securities

Apart from these two, Maruti, Nalco, BPCL and TCS all have the potential to trigger the awaited surge in the primary market. These are all blue-chip stocks, and could command PE multiples more than the average for their respective industries. A key issue, however, would be pricing. While the companies would like to extract the highest value for their stocks, they may actually end up selling at relative discounts. Reason: Subsequent capital appreciation will boost investor confidence, increase the demand for the stock, and ultimately the price. This strategy, experts point out, has now been well understood by companies both in India and the US. In other words, it's a long-term strategy. Kapoor of DSP says that certain regulatory reforms taken by SEBI, like streamlining the book built process and introducing the green shoe option will also help the primary market.

What has added to the optimism of the investment bankers is that despite performing rather poorly in 2001-02, valuations in the US markets still continue to be rather high forcing foreign financial institutions to take a serious look at the emerging markets. "And being an emerging market, India could well be a major beneficiary of this boom since its scrips are still attractively priced," contends Navin Agarwal, head of research at Motilal Oswal Securities. Adds Desai, "Even a small fraction of the smart money to emerging markets could help Indian markets considerably."

"The risk-reward equation has shifted in favour of equities, since debt is not expected to yield more than 6-7 per cent going forward" R. Mehrotra, President, Franklin Templeton

Not everybody is bullish, though. Analysts like Dhirendra Kumar of Value Research point out that while 84 IPOs have been lined up, only a handful have sought approval from SEBI. Maruti's offer price of Rs 2,300 per share is seen as too steep for small investors. But others like Manish Chokhani, Director, Enam Securities, disagree. "Indian households," argues Chokhani, "save $100 billion (Rs 4,80,000 crore) every year. The market cap of all listed Indian companies is barely $125 billion (Rs 6,00,000 crore). So funds are not an issue, but getting investor confidence and enthusiasm is."

In the case of Maruti, the government may divide the face value of Rs 100 into units of 10 each or more to attract the small investor. The first few IPOs that hit the market will set the tone for the rest of the year. Most analysts think that a feel-good sentiment will carry through most of the others that follow. And some actually see the PSU stocks triggering this "virtuous cycle".

The theory is explained thus: If PSUs kick-start the process, private issuers will benefit and vice versa. Open offers for disinvested PSUs provide the means for wealth transfer to tax paying investors and are an equitable means of returning wealth to the people who helped create it. Therefore, the theory goes, a combination of strategic sale and post-sale open offers would be an ideal part of a process that includes attractively priced PSU IPOs. Says Jamshed Desai, Head of Research, Taib Securities: "The pricing of IPOs is unlikely to be aggressive. It would be friendly, leaving enough scope for people to make money." High time, the retail investor might add.

with inputs from Shilpa Nayak

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