Primary market issuances have been cornering a significant chunk of FII flows into equities. According to Sebi data,FIIs have put in roughly 35% of their total equity market investments into the primary market this year.
Primary market issuances provide a good investment opportunity for FIIs,who have few better growth opportunities in the world apart from India, said Jagannadham Thunuguntla,equity head,SMC Capitals. FIIs have invested $11.93 billion in the year-till-date in the equity market,of which $4.2 billion itself has gone into the primary market.
According to Ajay Parmar,head institutional equities,Emkay Global Financial Services,PSU divestment has not yet begun in earnest. When that begins to happen,we are likely to see substantial FII investment into the primary market, he said. So far during the year,primary market issuances (IPOs,FPOs and QIPs taken together) have totalled Rs 55,822 crore.
Market participants expect issuances worth Rs 55,000-65,000 crore by the end of this fiscal,of which fresh paper (IPOs) will be worth Rs 30,000-35,000 crore. Public sector company Coal India is likely to come up with an IPO of Rs 15,000 crore. Parmar added,If this market continues to nudge higher,we are likely to see a lot more QIPs and FPOs.
But speculation is rife whether FIIs will continue to invest in fresh papers. A lot depends on the valuation at which the issues come in, said Thunuguntla.
Increased activity in the primary market can hamper liquidity in the secondary markets. But experts ruled out crowding out of secondary market inflows at the moment. No,I dont think investment in the primary market has reached an alarming level, said Parmar. According to him,inflows in the primary market will be a cause for concern when it reaches 2-2.5% of the BSE market cap. Currently,the figure is about 0.6%.