Calendar 2017 was a record year in terms of fund mobilisation as India Inc raised Rs 67,147 crore via 36 initial public offers. However, primary market activity so far suggests that 2018 may be an even better year with fund mop-up crossing Rs 1,00,000 crore.
While the secondary market movement is the biggest contributing factor to primary market activity, 2018 has already seen 21 IPOs that collectively raised Rs 28,503 crore. There are also 57 IPOs in the pipeline expected to raise Rs 74,193 crore. If they were to materialise, the total fund raising this year would cross Rs 1,00,000 crore. By comparison, while the calendar 2015 saw 21 IPOs raising a total of Rs 13,614 crore, 2016 saw 26 IPOs worth Rs 26,493.84 crore.
IPO activity rose sharply in 2017 in line with significant gains in premier indices at bourses. Recent months in 2018 have also witnessed a jump in the secondary market movement. The BSE Sensex has risen over 7 per cent between July 1 and August 10 and over 11 per cent this year.
Subhrajit Roy, executive director and head (equity capital market), Kotak Investment Banking, said: “The spike in primary market activity has been on the back of rebound in the stock market sentiment over the past 2-3 years. Good returns in IPOs have also encouraged more investors to participate…”
Pointing to a favourable base effect, Pranav Haldea, managing director of PRIME Database, said: “Post demonetisation, the primary market saw a lull in the following 6-7 months, which impacted the overall figures of 2016 and 2017. Going forward, high valuations in the stock markets remain a big concern; if this is addressed, we will see a lot of companies issuing their IPOs.”
Stating that the number of IPOs in the past two-three months has gone down, Vikas Khemani, president and chief executive officer of Edelweiss Securities, said: “The long-term outlook (5 years), however, looks positive depending upon the mood in the secondary market.”
Khemani added that like 2017, banking, financial services and insurance (BFSI) segment is expected to do well in terms of IPOs this year too. He said that several firms in healthcare and manufacturing are also looking to go public. With the government’s ambitious disinvestment target of Rs 80,000 crore this fiscal, against Rs 72,000 crore in the last fiscal, the market will also see strong fundraising in the PSU segment, he added.
A recent EY report, titled ‘Global IPO trends: Q1 2018’, said: “India should continue its IPO boom (in 2018) due to the resilient nature of the economy, strong domestic liquidity and divestment of state-owned enterprises. The IPO pipeline is healthy with dozens of companies looking to go public later this year.”
Asserting that generally, fundraising, including IPOs and follow-on public offers, in BFSI is always higher, Roy said, “This year, the primary market looks more diversified as compared to last year.”
Domestic retail and institutional investors have been at the centre of this primary market activity. With a strong inflow of funds into equity mutual funds over the last three years, most IPOs saw good participation from domestic institutional investors. “As the capital markets have seen large volatility in FPI investments in the recent times, domestic investors’ participation was naturally higher in the primary markets. But now, even the FPI inflows look positive,” said Roy.
According to CDSL data, while FPIs pulled out Rs 20,443 crore in April-June, net inflow in June was Rs 2,264 crore and Rs 1,695.70 crore in August so far.
Khemani said that investors should enter only good-quality IPOs as the current rally has been supported by a few stocks. “So, investors need to follow the same pattern for the primary market as they follow in the secondary market.”