The Paper Chase Revisited

IT’S 10 in the morning. Satish Gupta, 48, sits before the television watching CNBC. Around him are strewn the stock pages of the business dailies. The phone crackles and Gupta lunges to grab it. It’s his stockbroker with another "hot" tip. Gupta issues a few quick instructions— buy... hold... sell... and moves to the computer to update his portfolio. This has been his daily routine for the last six months, ever since he quit his job at a publishing firm. "It’s his new mistress— the stockmarket," jokes his wife. For the man, the stockmarket these days is serious business and serious money. "Like everyone else, I am trying to grow my money. In the past six months, my portfolio has given me 70 to 80 per cent return. I bought Infosys for Rs 2,600 six months ago, today it’s quoting at around Rs 8,000. HCL has jumped from around Rs 200 to around Rs 500, Pentafour has given returns of 70 to 80 per cent, my cement holding is up 400 per cent. Ditto for pharma and personal care scrips."

At a Mumbai-based, mid-sized pharmaceutical firm, treasury manger Prakash Bansal is focused on his computer screen flashing up-to-the minute reports of market indices. "Everyone in the office is into shares," says Bansal. In corridors, at lunch time, people are trading market information, repenting over what they could’ve bought but didn’t and revelling in the profits they’ve made. Stories and rumours are flying thick and fast.

In Chennai, housewife Shyamala Anandan is asking her CA friend, "Do you think Hughes Software is a good issue? At Rs 630, the biggies have put in Rs 6,000 crore application money. Must be a strong issue. I have heard it will list at Rs 2,000. What’ve you heard?" She goes on say that she had started reading financial news and wanted to know all about the company’s products, promoters, prospectus and potential. "I got Polaris at Rs 210. It’s now quoting at more than Rs 750," she declares.

The stockmarket is affecting everybody’s spirits. "It’s like a huge party. Issues are being oversubscribed 10, 15 and even 50 times. Everybody’s happy," says Prithvi Haldea, managing director, Prime Data-base. In December ’98, Sonata Software was the first company to test the primary market, he recalls. Neighbours came to him for advice. Haldea, like all conservative research analysts, thought that a premium of Rs 80 to Rs 90 merited caution. When the scrip listed a month-and-a-half later at about Rs 150, "they were ready to pelt stones at me", he jokes. "Now they don’t even look at me for advice." In the nine months since, the primary market has seen a windfall in software scrips. Polaris came, saw and conquered. It was oversubscribed around 20 times. The Rs 38.25 crore IPO of infotech firm Kale Consultants was oversubscribed 65 times. It raised Rs 75 crore in application money, the highest for oversubscription in the last five years in the premium IPO market. Just last fort-night, Hughes Software concluded the book-building portion of its public offer, netting a huge Rs 6,000 crore in application money against the Rs 250 crore target.

Not just software, others too received a warm welcome. The Rs 35-crore Times Bank issue at par was oversubscribed around 7 times. The VSNL issue at about 30 per cent  discount to market price did similarly well as did Vintage Cards. "Pricing is the key issue today. If the pricing is right, the deal will go through," says Sanjay Agarwal, vice-president, Kotak Mahindra Finance.

Gone is the individual investor who with drew into his shell post the Harshad Mehta days. Gone is the diffidence created by the ‘vanishing teak companies’, the R.C. Bhan-salis and the Kubers of the world. Gone is the Unit-64 scare. Gone is the nervousness, fear and suspicion. Instead, there’s a new-found bravado that neither Kargil nor  toppled government has been able to shake. The individual investor is venturing out to make a killing on the software, pharma, cement and FMCG stocks.  "Since last October, business volume has risen two-and-a-half  times. In stocks like Infosys, Ranbaxy and Global Telecom, investors have seen annualised returns of 400 per cent to a mindboggling 1,000 per cent," says stock-market analyst Jay Bhattacharjea.

Is the primary market then poised for a take-off? The signals have undoubtedly turned green. Here’s how:

Robust economic indicators:

Key economic indicators are positive. Industrial prodution is up, so is agricultural output, diesel consumption and cement dispatches, inflation is at a record low and interest rates are down. More importantly, an ORG-Marg survey of CEOs released last week paints an extremely vibrant and dynamic growth picture. A good 73 per cent of corporates think their business operations will grow substantially, 70 per cent voted for higher profitability,   67 per cent believed the stockmarket will hit new highs and most vouched for higher spending, product demand and capital goods investment. With business confidence  so high, the stockmarket is but likely to absorb and reflect the positive sentiment.

Promoters shed ennui: Corporates that had turned to alternative financing like debt and private placement are willing to take another look at the primary market, given the investor enthusiasm. It remains one of the cheapest sources of financing beside giving the promoter greater control on finances. In the next six months, some 32 firms in software alone are poised to tap the primary market. Besides media companies like TV 18 and UTV, infrastructure companies like Noida Toll Bridge, telecom companies like Subhas Chandra’s satellite telephony company ASC Enterprises besides Birla Corporation, Shri Krishna Polymers, Centurion  Bank, Canara Bank and Modicorp, among others, plan primary floats. In the last six months, some 21 issues have raised Rs 3,200 crore in the primary market.

Venture capitalist want to exit: In the dry spell of the post scam days, a lot of basement  start-ups in the infotech sector were funded by foreign equity funds and banks like Draper International, Chase, Citibank and CDC. Now these venture capitalists are looking to find an exit route through the public offer route. "We are likely to see a lot of these secondary sales using the IPO route," points out Haldea.

Secondary market boom: "A lot of flurry in the primary market is the direct result of software outperforming in the secondary market," says Agarwal. "In the past, poor valuations in the secondary market killed investors’ appetites. Now that valuations are soaring and liquidity has improved, the secondary market boom is sending ripples to the IPO market. There’s a boomlet in the primary market," adds Gautam Raj, director, HSBC Investment Bank. When companies like Infosys are sniffing the Rs 8,000 mark and there are achievers like Sterlite, Gujarat Ambuja and Ranbaxy who’ve seen market capitalisation surge several times over, the salubrious effect on the primary market is but logical. In the last four months, the secondary market has added Rs 200,000 crore to the wealth of investors. From October ’98, the Sensex has jumped from around 2800 to 4700, a jump of about 65 per cent. The primary market cannot but perk up.

Software shows the way: In the IPO market, Polaris was offered at Rs 210 and opened at  around Rs 700. Sonata almost doubled on listing, as did KPIT Systems."Such jumps provide excellent opportunities for not just capital appreciation but interest arbitrage," says Bansal. Today, even if a corporate investor applies for shares worth Rs 3 crore and is allotted only for Rs 12 lakh and if he were to sell it overnight, he stands to get a 36 per cent annualised return. Which cor-porate would let go of the opportunity? Little wonder that companies like Birla Global, Escorts Finance, HDFC and Kotak too have jumped into the fray to finance issues.

Stock options create appetite: Firms like Microsoft, Infosys and Pentafour, by giving stock to the people who work for them, are creating an equity cult which would make the individual investor come into his own. Now even companies like ITC and Dabur are following the infotech companies and mulling stock options. When an employee is given stocks, it kind of forces them to learn about shares, assets appreciation and risk management. "Such a guy is unlikely to bolt when the bull run ends. He is likely to take a longer view of the market for he is not using play money but money which is part of his salary and meaningful to him," says an analyst at a foreign brokerage house.

Sure, there are analysts who feel that it’s plain and simple greed that is driving the stockmarket boom. "What kind of change in the fundamentals could have occurred in the last six months to send shares into uncharted regions with this velocity? It’s a bubble and bubbles are known to be able to carry excesses till they burst," says Haldea. Others disagree. "Fundamentals have changed for many companies. Changes in law like the abolition of the capital gains tax have put Indian investors on par with FIIs, thereby sending the right signals for the market to spurt," says Bhattacharjea. "In certain sectors like cement, valuations may be peaking as they touch Asian levels. In others like sugar, there is still potential that investors can tap," says HSBC’s Raj.

While analysts debate, the buying frenzy in infotech stocks is unlikely to abate as investors send them on another gravity-defying streak. And if the primary market revives on the way, nobody’s complaining.