The National Council of Applied Economic Research has warned that too many initial public offers in a short period could trigger bearish tendencies even as the government surpassed its divestment target by Rs 900 crore (Rs 9 billion) mainly through public offers.

"Too many IPOs in too short a time exacerbated the fall. In fact, the government could well have held back a couple of issues and focussed on the really important ones such as the Oil and Natural Gas Corporation," NCAER said in its latest Macrotrack report.

"That would have eased the pressure given that the government is not the only borrower today and there were some attractive offers like Biocon and Dishman," it said, adding the retail investors would find it hard to subscribe to more than a couple, simply because his funds would be blocked.

Divestment Minister Arun Shourie recently indicated that the government could raise as much as Rs 150,000 crore (Rs 1,500 billion) every year for five years from the market by way of such issues, given the enormous market potential and investor confidence.

The six public offers in three weeks (IPCL, IBP, CMC, DCIL, GAIL and ONGC) garnered close to Rs 14,126 crore (Rs 141.26 billion) with all of them witnessing oversubscription.
             
"India's first experience with big ticket public sector IPOs -- Rs 15,000 crore (Rs 150 billion) in just 45 days -- came last month, but it was enveloped in controversy. Within 10 days of announcement of the IPCL offer, the BSE Sensex lost about 450 points," the NCAER report said.

It said that when the issues were announced, there were apprehensions about the flood of paper in the market, and added, "the possibility that investors would trim their holdings in stocks to make cash for IPOs was real. The government should have known this all along."

The market's mentality has not changed over the years, NCAER observed and said whenever there is announcement of a public offer, the first instinct of the investor is to sell at least a part of the existing holding.

The report, however, pointed out that it would be unfair to blame the fall in the market entirely on the IPOs.

"The market was in any way headed for a correction, given the furious pace at which it had run up. In fact, strategists had pointed out that a pull back was on cards, given the fact that near term valuations were stretched, reforms were likely to slow down in the pre-election period and that there was consensus bullishness with put-call ratio at historic lows," it said.

Technically, therefore, a fall was in the offing, NCAER added.