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SUPERSCRIPS The IPOs of 1997 that deserve a second look. By D Kumar This is not exactly a super strategy for the faint-hearted. Nobody I know invests in the nightmares of Dalal Street, as I may be forgiven for terming Initial Public Offerings (IPOs), any more. And after what happened to those poor souls who used to, I don't blame them either. If there is one fundamental reason why the stockmarket frightens so many, it is because of the unscrupulous fashion in which promoters milked the investor through IPOs in the heady post-liberalisation era. As you may well remember, there were hundreds of companies that raised money from the primary market in those days--only to quietly vanish thereafter. Still, IPOs seem to come in waves--as they did, for example, in the mid-1990s--with a flood being followed, in general, by a drought. Incidentally, we could well see a boom in the primary market begin later this year if the secondary market continues to surge. Actually, such waves correspond to peaks in the stockmarket, when excited investors are all-too-willing to pay premium prices for any stocks they can lay their hands on--which is what corporates dying to raise money from their IPOs wait impatiently for. While many argue that it is wrong for retail investors to sink money in IPOs when the atmosphere is so heady, I firmly believe that a boom is also when the best corporates do choose to make their debuts. Sure, if you aren't selective about the companies you choose to invest in, you could be saddled with dud investments. But then, that's true of any investment, isn't it? In a bad secondary market, IPOs can be rewarding--as some were last year. Especially since it is only those companies with strong fundamentals that dare float equity issues at such junctures. Moreover, even these corporates price their shares reasonably for fear of being cold-shouldered by the scared investor. Since new companies are routinely misunderstood by the stockmarket, this makes them perfect picks for the smart investor. Don't forget: if you do miss out on an IPO, you can always pick up the stock the moment it starts trading in the after-market. That is something you could have profitably done last year--when some of our top-performing banks went public--since 70 per cent of the 100 most recent IPOs trade at, or below, their face-values. If you didn't, I believe that there are quite a few IPOs that are worth looking at even now. Among them: Corporation Bank (the No. 1 Public Sector Bank in the BT Best Banks '98), whose stock has been rising ever since it debuted in October, 1997. In fact, the price of this scrip has risen by 66.25 per cent in the last six months versus a 0.50 per cent fall in the Bombay Stock Exchange Sensitivity Index during the same period of time. Two reasons for this spurt: the stockmarket's recent penchant for banking stocks, and the relatively attractive pricing of the share. With a post-issue Earnings Per Share (EPS) of Rs 10.43--nearly double the industry average--the Corporation Bank is one of the most profitable among the country's largest banks. In addition, the bank's EPS rose by 63.21 per cent last year. Other IPOs in the banking business that still merit, in my opinion, a relook: ICICI Bank, IndusInd Bank, and Bank of India--especially since the last two were still quoting at discounts to their offer prices when I last checked (see my The Best IPOs Of '97 in the table alongside). Of course, I must warn you that my hindsight too is always 6/6. THE BEST IPOS OF '97
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