Pressure on Sensex bodes ill for India's IPO pipeline

The Sensex has û unsteadily - hovered between 9,000 and 10,500 since it crashed from its high of 12,671 in May. Deccan Aviation which listed on June 12 witnessed yet again the sway of stock market sentiment. The company's IPO became collateral damage for the falling markets in May - coinciding with crashing markets; the IPO faced problems garnering subscription but was eventually covered. However, the lead managers were powerless to prevent the share taking a beating on listing with selling pressure forcing the price down from the IPO price of Rs148 ($3.29) by 34% to Rs98 ($2.17).

Meanwhile, in another key indicator, the hot IPO from Reliance Petroleum - which initially surged from Rs60 to Rs101.95 and was considered fairly priced by most market participants - finally fell below its IPO price yesterday to Rs58.70.

The next inflexion point being predicted for Indian markets is the IPO pipeline itself. As per the PRIME Database, Rs19 billion ($422 million) of IPOs have already received SEBI approval including a Rs10 billion ($222 million) offering from real estate developer, Parsvnath Developers.

But it is the volume of issues awaiting approval that is the more staggering. Offer document have been filed with SEBI worth another Rs166 billion ($3.69 billion), of which a hefty Rs120 billion ($2.67 billion) is accounted for by another real estate company, DLF Universal. This deal represents IndiaÆs largest capital market fundraising to date. DLF has filed its red herring document with SEBI - although rumours have been rife in the last few days that it will be cutting down the size of the offering and its issue price. Neither the company nor the lead managers have as yet issued a statement confirming or denying this.

The mood on the Sensex is still bearish. Despite a strong performance by both the economy and India's corporates, this seems unlikely to reverse. Foreign institutional investors (ôFIIsö) in the country have turned net sellers. The meteoric rise from 9,000 in January was fuelled by the $4.12 billion FIIs invested between January and April. Between May 10 and May 25 FII sales totalled approximately $2.4 billion with the quantum of FII sales on the increase through the month.

The optimists maintain that there is still a healthy appetite for IPOs from companies with strong fundamentals and which are appropriately priced. But it is clearly now a buyer's market, and DLF Universal promises to test the market - especially since a deal of its size will potentially suck a lot of liquidity out of the secondary market, possibly triggering another round of Sensex declines.