Investors who were ready to take certain amount of risk had a rocking time in 2007, smiling all the way to bank with surplus generated from investments made in IPOs (Initial Public Offer) of companies. The year 2007, given the amount of money raised from share issues and gains made, was the best year for investors.

Of the 30 major IPOs in 2007 (see table), only three gave a negative return while 27 issues generated large positive returns. Three stocks where people lost money (as shares now quote below their offer prices) are IVR Prime, Fortis Healthcare and House of Pearl. But a cursory look at the data is enough to make it clear that the gains from IPOs were far greater than losses.

Among the star performers Edelweiss Capital and Motilal Oswal are stock broking firms. Mundra Port, Power Grid Corp, Maytas Infrastructure and Power Finance Corporation are infrastructure companies that did exceedingly well.

The star of the year, however, was DLF Ltd, which raised Rs 9187 crore in July 2007—the IPO of the year. DLF’s shares were offered at Rs 525, it touched Rs 1063 on December 28, 2007. Doubling of share price made DLF the second most valuable private company the country after Reliance Industries. With a market capitalisation of Rs 181,343 crore, DLF has generated Rs 9,150 crore of surplus for its investors.

Record mobilisation

The year 2007 also saw record amount of money raised through share issues. As against Rs 24,679 crore raised in 2006, the total amount raised in 2007 was Rs 45,137 crore, almost double of last year. In terms of number of share issues too, 2007 was a landmark year. As against 92 in 2006, the number of public share issues in 2007 was 107.

According to Prime Data Base, a research outfit that tracks primary market, the average size of IPOs in 2007 was Rs 344 crore against Rs 276 crore a year ago.

Strong fundamentals

There are several reasons behind the outstanding performance of the primary market. First of all, riding the strong fundamentals, secondary markets were very bullish for most part of the year. The Bombay Stock Exchange’s Sensex, for example started the year at around 14,000 in January and ended the year above 20,000 - a rise of 43 per cent in 12 months. The economy is on a strong footing with a close to 9 per cent growth in gross domestic products (GDP), inflation that is under control, foreign exchange kitty, which is swelling every month and the Rupee that is holding strong against foreign currencies. Convinced on India’s growth story, foreign investors poured in money. The FIIs (foreign institutional investors) invested Rs 31,300 crore in 2007 on Indian stocks, highest in any single year.

High return from share purchases made investors put in large money in IPOs. Moreover, the Securities and Exchange Board of India’s (Sebi) new IPO norms and strict disclosure rules made it difficult for unscrupulous operators and investors to make quick money through fraudulent means.

Tightening made the share issues more transparent and suitable for genuine investors. Surely, the Indian market now has much more depth than before.

Will 2008 repeat or better the capital market performance of 2007? Though no one can predict the future in stock market, there is no apparent reason, so far, why the coming year will not be as good or better than 2007? According to Prime Data Base there are already 34 share issues lined up, with an average size of Rs 1,000 crore.

Looking forward

If the economy continues to do well, it is expected to grow by 8.5 to 9 per cent again, and inflation kept under check, the Indian stocks is sure to attract large investments and provide good return. But (and it is a big “But”), the retail investors must always bear in mind the fact that investing in equity is by definition risky. As share prices go up and down, and many a times for reasons totally unrelated to the company, investing in stocks is riskiest. Just as one can make huge gains, at times losses can be very heavy. There are certain golden rules that one should follow while investing in shares. If earning a good return is the objective, invest for long term - two to three years and do not speculate based on so called “Buy Tips”.

On the face of it, making money in stocks looks easy. But for a serious player it involves a lot of research and applying common sense. One not only needs to study the company but also the industry it belongs to, check the future trends in market and technology, the government’s policies and the overall status of the economy.

Go for growth by picking up stocks of companies that have good future due to its own strengths and also because the industry it belongs to. If you find large companies are too expensive go for small and medium size companies with good growth potential. Lastly, to cushion yourself from losses due to reasons totally unpredictable and unexplainable, diversify your portfolio by investing money in insurance, bank FDs, mutual funds along with stocks.