Domestic IPO market consistently growing at a compounded annual growth rate (CAGR) of 20% during 2003-07 may fall to 8-10% in remaining period of current fiscal despite vigorous efforts put in by merchant bankers and consultants for making IPOs successful because of adverse market sentiments gaining grounds against them, says the Associated Chambers of Commerce and Industry of India (Assocham).

Not only, FIIs and other relevant financial institutions including retail investors are gradually withdrawing their subscription from IPOs, given the current situation and exploring other options such as bond, mutual funds and security markets as demand for raising IPOs has been subsiding a great deal, adds Assocham analysis.

FIIs are pulling out of IPOs because of high inflation, debt and bond market is growing for them phenomenally. The price band of IPO is also no longer attracted for retail investors. Under such circumstances, being optimistic about IPO market would not be realistic as fear factor is becoming more visible and pronounced against the primary market, said Assocham president, Sajjan Jindal.

In summary, at least 74 companies who were close to making an IPOs and collectively raise a huge sum of Rs 440 billion are now awaiting better times. A case for example is that February and August 2008, 25 IPOs were floated in the market that could raise Rs 43.45 billion.

Naturally, those who were to use IPO money for new projects, expansion and working capital will either postpone their plans or borrow from banks to fulfill commitments. Companies cannot go for expensive debt which increases their liability nor for private equity route which is not easy to come by which pave the way of low valuations. Since bank loans have become more expensive and come with end-use conditions, project costs will go up.

Many infrastructure projects in the field of power, roads, and housing complexes may suffer for the want of money and this in turn may hamper industrial development in general. Moreover IPOs act as a source of 10% of household saving which flow into equities with an annual flow of USD 25-30 billion for retail investors.

There are over 400 companies in the IPO pipeline who had announced their IPO intentions and would have been getting ready to file with SEBI but have now hold their plans. Apart from that, companies whose IPOs were linked to project financing, are either go for expansive debt and that too in case their balance sheets still allows for more debt.