THE initial public offering market was dry yet again in the financial year to close on June 30. In all, four companies floated stocks worth Rs850 million during the year.

In terms of number, the IPOs were higher than just two offerings the previous year, though they were worth slightly higher at the combined value of Rs1.1 billion. The current year flotations were from food producer (Engro Foods), insurance sector(TPL Direct Insurance) and the services sector (Next Capital and TPL Trakkar).

Of the four flotations, TPL Direct Insurance and TPL Trakkar were over-subscribed. Next Capital received only Rs5 million, against an offer of Rs25 million, while sum subscribed to Engro Foods fell slighty short of the target. One reason could be the size of its offer of Rs675 million—- the largest among the four. Post listing, Engro Foods stock price rose by impressive 164 per cent and TPL Direct Insurance made gains of five per cent. Next Capital has lost 28pc of the value.

Brokers recall with fondness the yester year, when as many as 11 companies had entered the capital market to raise funds in financial year 2004 and 14 companies the following year.

Regardless of all the political uncertainty and strained ties with the US, the Karachi stock market has rallied by 20 per cent in 2012 and the KSE-100 index is about an even level to that in 2007-08. Yet IPOs were in abundance at that time, compared to the current dry spell.

Hamad Aslam, head of research at Lakson Investments says that it is the valuations that are keeping issuers of capital away from the market. In 2007 the blue-chip stocks were trading at high multiples of 10 to 12 times the forward earnings, while the price-to-earnings ratio of the major stocks has now slipped to six to seven times. All of which means that any new IPO was likely to be undersubscribed or drop to discounted prices soon after flotation.

The entrepreneurs who wish to raise cash think it wiser to turn to banks, then enter the capital market. A stock broker asked: Why must an issuer float an IPO when he has no incentive in taxation, the government having brushed aside the bourse’s proposal of five per cent reduction in tax for listed companies over the private firms.

On the other hand, companies that go public have to bear all the hassle of following stringent rules of Code of Corporate Governance and also suffer small shareholders nuisance at stockholders’ meetings.

A market participant pointed out that over the last few years, the retail investors, who were the one to scramble for shares in new floatation and rush in filling applications, had almost disappeared. Much of the equity was now in the hands of institutions.

And while small investors jumped to pick up any share on offer with little consideration for its future prospects, the institutions were likely to look deeper before committing funds to an IPO.

The fact that small shareholders, who lost their last rupee in the crash of 2008, were still keeping themselves at a distance from the market was evident in the trading last week. To the surprise of many, the KSE took the disqualification of Prime Minister Yousuf Raza Gilani, in stride. Though stocks weakened for three sessions, all of the losses were recouped on the last trading session on Friday when the bulls staged a grand rally.

Many market analysts thought that the stocks should have taken a plunge given that the Presidential Ordinance of April 16 that granted immunity to the disclosure of source of funds invested in the stock market for two years until June 2014 and incorporated in Finance Bill 2012 could be in peril.

While legal experts gave out assurances that the legislative decisions (including the budget) would likely be given constitutional cover in the detailed judgment of the Supreme Court, in ordinary course, such assurance were scarcely strong enough to push back the panic prone herd of small investors, if they were present in larger numbers.

Incidentally while the foreigners continued to sell all through the week, local investors managed to put a floor under the fall.

Some outspoken analysts agreed that there could have been a “syndicated” effort by stock brokers to support the market. And the pattern of sale and purchase by various group of investors showed that individuals, companies, banks and mutual funds acted to balance out the day’s trade.

Stocks sold by one group were quickly picked up by the other, so as to nullify the effect on the index. Could the market have been manipulated and artificially given such support by the broker community? Views vary.

Some suggested that given the quick exit of foreign investors and absence of retail investors, almost all the free-float was held by institutions, who could be guided to a buy or sell mode. But one broker, who asked not to be named made and interesting comment. He said that it was possible for the worst political foes to unite in their common interest, but such co-operation among even a couple of big brokers was not possible. There would be complete absence of faith, and rightly so.

“If four big brokers agree to buy one day and sell three days later, any of them was likely to break the trust and sell the next day on the sly, if he could make gains out of it”, he said. In stock trading, like in most businesses, the old maxim ‘my word is my honour’ is now a thing of the past.