Investors lose 25 per cent of current-year IPO investments

Mumbai: Investors have lost around 25 per cent of the money invested in initial share issues of various companies in the current year as 13 of the 18 IPOs are trading below their issue prices, a finance ministry official said.

"Out of the 18 IPOs launched in 2008, 13 were trading at a discount last week implying losses to investors of about a quarter of the total IPO amount," finance secretary D Subbarao said at a seminar on Securities Contracts (Regulation) Rules.  "I think, it must be larger today," he added.

He attributed the stock market debacle to aggressive pricing of the IPOs by companies, which were unsustainable in the long-term, the weak sentiment in the market as also increasing risk-aversion among investors.

The IPOs of 11 companies listed on the stock exchanges this year had an issue price above Rs100.

In fact, Reliance Power IPO, launched with much fanfare, closed at Rs372.50 on the opening day itself, much below its offer price of Rs450 a share, forcing a bonus issue by the company.

State-run Rural Electrification Corporation was trading higher at Rs109.05 against its issue price of Rs105 and GSS America at Rs 640.85 against an issue price of Rs400, mainly due to a lower risk perception among market players.

"The stock market provided $15 billion in 2007 to support investments of firms. But, as global risk aversion has risen in the past few months, this has dented investors sentiments in India too," he said, adding, if the situation continues, it would be increasingly difficult for corporates to raise money from the capital market.

The benchmark equity indices, however, ended the week to March 28 with big gains. The BSE Sensex closed 356 points or 2.22 per cent higher at 16,371.29 and the National Stock Exchange's Nifty ended 112 points or 2.31 per cent higher at 4,942. For the week to March 28, the indices rose 9.18 and 8 per cent, respectively.