Quarter results may guide D-St in near term

Taking support from better than expected Q2 performance by Infosys Tech the BSE benchmark Sensex has gained by over 850 points last week but investors are still cautious over the future prospects.

The market, shrugged off lower industrial production data and higher food as well as headline inflation close to double digit. Infosys Tech helped the Sensex to post biggest point-wise gains in last six week, gaining by over 850 points to end the week above 17K-mark at 17,082.69. Buying was seen across-the-board as all 13 sectoral indices closed up between 0.95 percent to 8.73 percent with IT, tech, banks, consumer durable and realty segments leading the pack.

Economic data released last week played its role in boosting market volatility. Index of Industrial Production (IIP) was better than July this year but slowed down to 4.1 percent in August from 4.5 percent in the same month last year, suggesting the slowdown in economy which might induce the central bank to pause on rate hikes.

However, food inflation inched down to 9.32 percent for week ended October 1 from 9.41 percent in the previous week and overall inflation too slipped marginally to 9.72 percent in September from 9.78 percent in August, but stood still higher than the comfort level of the apex bank.

Technical analysts are claiming that low level buying or bargain-hunting is responsible for the rally but they also opined that fundamentals are still bearish and there will be no major change in this in the near term. In their favour they put the figures of industrial production, rising inflation and fears of further interest rates hike. Along with these domestic factors, persistent uncertainty over euro zone economy is sufficient to pull investor's sentiments down.

Indian stocks will continue to take cues from developments in Europe which has been grappling with debt crisis, they added.

But some analysts are saying that all possible negatives have been discounted in the current prices, so the downside seems limited. Lack of negative news flow is enough to sustain the markets.

As per their view, investors should keep a close watch on the management outlook for corporates announcing results which will provide cues on futures earnings outlook.

The Q2 results season has started on a positive note, with good results from IT bellwether Infosys, which has also revised upwards its full year earnings guidance in both dollar and rupee terms. For the next 2-3 quarters, Infosys would need to be judged more by the performance of the rupee vis-à-vis IT sector performance.

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IPO Best Way to Enter Capital Market

IPO (Initial Public Offering) referred to simply as an "offering" or "flotation", is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

In an IPO the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

Reasons for listing

When a company lists its securities on a public exchange, the money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors).

An IPO, therefore, allows a company to tap a wide pool of investors to provide it with capital for future growth, repayment of debt or working capital. A company selling common shares is never required to repay the capital to investors.

Once a company is listed, it is able to issue additional common shares via a secondary offering, thereby again providing itself with capital for expansion without incurring any debt. This ability to quickly raise large amounts of capital from the market is a key reason many companies seek to go public.

Benefits of an IPO

There are several benefits to being a public company, namely:

•             Bolstering and diversifying equity base

•             Enabling cheaper access to capital

•             Exposure, prestige and public image

•             Attracting and retaining better management and employees through liquid equity participation

•             Facilitating acquisitions

•             Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.

•             Increased liquidity for equity holder

Disadvantages of an IPO

There are several disadvantages to completing an initial public offering, namely:

•             Significant legal, accounting and marketing costs

•             Ongoing requirement to disclose financial and business information

•             Meaningful time, effort and attention required of senior management

•             Risk that required funding will not be raised

•             Public dissemination of information which may be useful to competitors, suppliers and customers

Procedure

IPOs generally involve one or more investment banks known as "underwriters". The company offering its shares, called the "issuer", enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares.

The sale (allocation and pricing) of shares in an IPO may take several forms. Common methods include:

•             Best efforts contract

•             Firm commitment contract

•             All-or-none contract

•             Bought deal

•             Dutch auction

About the Author

For IPO news India please visit Biz.zeenews.com that provides all the latest business news including finance and automobiles news.