The continuing bull rally in the Indian Capital Market came to a grinding halt on the May 22, 2006, with the BSE Sensex crashing by 1,111 points. Will the bear phase hit the IPO market too? The article examines.

Following the landmark achievement of the previous years, 2004 and 2005, IPO activities have already started gearing up for the year 2006. A large chunk of IPOs are waiting in the pipeline to come into the market, globally. Indian capital market will also witness a flood of IPOs in the coming month. Indian bourses have witnessed a bull rally for the last couple of years, while the Sensex has crossed 12,500 mark. India Inc., wants to cash in on this bull rally with IPOs. According to the third global annual report of Ernst & Young, "The outlook for IPOs in 2006, shows an increased interest in the markets, including the Middle East, South Korea, India and Brazil." Investors globally are wondering how to get a piece of this Indian economic growth story.

Thanks to the bull run that mustered up courage in India Inc., to gather around $12 to $15 bn from the equity market and a significant part of this will be through IPOs. Ravi Kapoor, Head of the equity capital market of Citigroup says, "We are expecting Indian companies to raise at least $20 bn from the primary market in the new fiscal." But the major factor that could have a negative effect in the overall capital market is that, a large amount of investment is coming from retail investors that can otherwise be invested elsewhere or can go to the shopping mall. s believe that the number of IPOs that are waiting to come into the market could take the liquidity from the market.

While the amount raised through IPO fell from $2.9 bn in 2004 to $2.3 bn in 2005 which reflects fewer privatizations, but the number of issues has increased from 21 to 53, during the same period that placed India in the fourth position in Asia in terms of IPOs, with China, Japan, and South Korea in the first three positions. The present IPO boom was kick started by Reliance Petroleum Limited (RPL), with over $1 bn worth IPOs in as many as 45 cr share. On May 11, 2006 the share of RPL was closed at a price of Rs. 101.95 on the BSE. That is almost a 70% premium over its IPO price of Rs. 60 per share. The issue was oversubscribed almost 53 times. The total number of bids received was in excess of Rs. 143,000 cr or $32 bn. This reflects the demand for the quality IPOs in the market. The other big issues included the $2.3 bn IPO from the real estate group DLF and $1.1 bn issue from telecom operator Hutchison Essar which will hit the market soon.

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