Real estate key for equity markets, says Parekh
October 08, 2009: Real estate could be the
lynchpin for the equity markets and a failure
of a large initial public offering could start
a correction in the market, a veteran banker
said on Wednesday. "If a large real estate
IPO fails, it could have a serious repercussion
on the market," said Mr Deepak Parekh, Chairman,
HDFC Bank, on the sidelines of a private equity
conference. Mr Parekh said that many of the
recent IPOs have been overpriced and the markets
are looking expensive even in comparison to
other emerging markets. "Companies raising
money need to leave money on the table for
investors," he added.
Indian realtors recently made a beeline to raise money through IPOs, with at least five major real estate companies - Emaar MGF Land, Lodha Developers, Sahara Prime City, Ambience Ltd and DB Realty - looking to raise over Rs 12,500 crore. Emaar MGF, which is planning to raise around Rs 3,850 crore, failed in getting its IPO fully subscribed last year. This development is said to have been the start of the IPO freeze in 2008. A section of the investment banking community said that a failure of the likes of Emaar MGF in current market conditions will not have market reactions similar to those seen in 2008.
"Real estate IPOs will be looked at sceptically with low domestic investor interest," a senior official from a global investment bank said while requesting anonymity. IPO performance will be determined by FIIs' interest, and a failure of one or two real estate IPOs will not make an impact, he added. "Last year, pricing had gone out of hand and investment bankers became complacent. That is not the case this year," said Mr Saurabh Mukherjea, Head-Indian Equities, Noble Group, a research firm.
Mr Parekh said a hike in interest rates by the Reserve Bank of India is likely in the fourth fiscal quarter, taking into consideration rising prices. "To give a signal that the Government is concerned about inflationary pressures, there is a chance of a marginal hike in interest rates in the January-March 2010 quarter," he added.
