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Software IPOs may energise dormant primary market

The primary market seems to be gearing up for increased activity. A large number of software companies are planning to tap investors' funds through initial public offerings.

According to Prime Database, an equity research firm, public issues for the very near future from this sector are expected from Polaris Software (Rs 800 million), Computech (Rs 230 million), SQL Star (Rs 150 million), Helios and Matheson (Rs 110 million), VMC Software (Rs 100 million), Akshay Software (Rs 80 million), Subex Systems and Amex Information (Rs 70 million each) and Compudyne Infosys (Rs 25 million).

Some major issues on the horizon are from Datamatics, Hughes Software and Microland.

The flurry of activity is due to the rapid growth and profitability of the software sector and the consequent interest of the investors.

Like November 1998, April 1999 went without a single public issue while May witnessed the solitary bonds issue of ICICI.

In the last ten years (1989-90 to 1998-99), a total of 137 companies from the computer industry, including hardware, software and education, had tapped the public issue market.

These included blue chips like Infosys, Satyam, Pentafour, Aptech, BFL, Maars, Mastek, Onward Technologies, PCS and SSI.

The phenomenal capital appreciation which has been offered by these companies is now drawing increased attention to this sector not only of the retail investors but also of FIIs as well as mutual funds, some of whom have even floated IT specific funds.

Significantly, while in 1997-98, there was not even a single issue from this sector, four software firms which entered the market in 1998-99 have provided cheer. Sonata Software (Rs 227 million), KPIT Systems (Rs 116 million), Cybermate Infotek (Rs 21.5 million) and Shri MM Softek (Rs 17.5 million) evoked overwhelming response from the investors and have subsequently yielded handsome returns upon listing. Similar has been the success story of the Infosys American Depository Receipt or ADR issue.

Some unscrupulous promoters, however, are seeking to cash in on the euphoria. At least 40 companies, mostly non-banking finance companies, have taken the form of software units to raise easy money. Most of these scrips have already been recording handsome gains in the secondary market. The possibility of several of these companies raising capital through public and/or rights issues is quite strong.

In the overall scenario, the current fiscal may not witness any significant revival of the primary market, the reasons being investors' apathy, stringent entry barriers and generally despondent political/economic scenario.

Financial institutions are set to continue raising debt. The Industrial Development Bank of India and the Industrial Credit and Investment Corporation of India have already obtained the Securities and Exchange Board of India's permission to raise Rs 60 billion and Rs 40 billion respectively during fiscal 1999-2000. The Industrial Finance Corporation of India too is planning an issue in the near future.

UNI

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