Markets wobble under IPO strain

MUMBAI: When the Mukesh Ambani-promoted Reliance Petroleum listed its shares on the Bombay Stock Exchange and the National Stock Exchange on May 11, 2006, the market crashed in a fashion not seen in recent times. Within weeks, it was down 29%.

Today, with the Anil Ambani-promoted Reliance Power on the verge of creating history by coming out with the country’s largest initial public offering (Rs11,700 crore) and getting itself listed, the market seems to be in a similarly despondent mood.

On Tuesday, when the Reliance Power IPO opened for subscription, the Sensex tanked 476 points (2.30%). On Wednesday, after going down by 738 points intra-day, it closed 383 points (1.89%) down. From its peak on January 8, the market is down 4.82%.

Is this mere coincidence or is this the Ambani IPO effect? Marketmen say it’s the former, and the downswing is driven by global cues, not the IPOs.

“People were expecting foreign institutional investors (FIIs) to buy, and since that buying has not come in, the markets went into a tailspin,” says Anil Advani, head of research at SBICap Securities.

“It can reverse any day, when FIIs come back,” he said. But that brings us to the Ambani brothers’ uncanny knack of taking their companies public when global markets are not doing well.  

Mukesh listed Reliance Petroleum at a time when the spectre of rising interest rates was spooking world markets. Anil, meanwhile, is raising money for Reliance Power at a time when global markets are shaky as a result of defaults on home loans in the US, and a fear that the US is heading into recession.

But marketmen say that this time around, the fall should be much smaller than the May 2006 crash after the Reliance Petroleum listing, which saw the Sensex shed 3,683 points (29%) in a month from its then all-time high of 12,612 points.

“The correction should be a lot shallower than in May 2006. By next week, there should be a lot of macro-events that will restore confidence in the markets,” says Sandeep Nanda, executive vice-president of research at Sharekhan. One of these macro-events is US Fed chairman Ben Bernanke’s testimony to the Congress on the economy and monetary policy on Thursday.

“Another is that domestic mutual funds are sitting on cash worth Rs22,000-23,000 crore, which is waiting to get deployed,” adds Nanda.

And one more, towards the end of the month, is the Fed meeting to review interest rates. “The expectation is that the Fed will cut rates by 50-75 basis points (0.5-0.75%), which should be good for emerging markets,” says Tarun Sisodia, head of research at Anand Rathi Securities.

Therefore, by the end of the month or by the first week of February, he expects the market to go to levels higher than those seen at the beginning of the month.

So while the Ambani IPO effect did and will have its impact on the market, the more pressing concern today is of external risk – that of the US economy going into recession.