Tuesday, February 23, 2010

WHAT AILS THE PRIMARY MARKET: GREED, GREED, GREED AND GREED

The response to the public issues that hit the market in the recent past has been very tepid, particularly from retail investors, barring few exceptions. There is no dramatic change in the BSE index from first week of Jan until date. In spite of this, the sentiment of the retail investors, in the primary equity market, has been very badly shaken. The highly competitive merchant banking business making the merchant bankers to offer unrealistic and un reasonable premium to the issuers, to get the merchant banking assignment. Equally, the greedy promoters are exploiting the situation by unreasonable pricing of the issues.

The law of economics tells us that if the price is right, there would be demand for practically any scrip. It appears that the greed of the issuers got the better of their discretion and judgment. The lead managers to the issues also need to take the blame for poor professional judgment and advice whereby they could not persuade the issuers to price their issues realistically, leaving some thing for the investors too. Some issues get over subscription due to high premia in the grey market, which disappears, once the issue closes. The uninformed investors become victims of such market manipulations. Together, the issuers and the merchant bankers are responsible for the pathetic condition of primary market.

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