After the boom in the secondary market, the primary market is now fast catching up, driven by liquidity and high valuations of listed companies. A bevy of Indian companies, including private and public sector firms, is planning to raise close to Rs 1 lakh crore through initial public offerings (IPOs) from the capital market in the coming months. The list of companies that plan to launch their IPOs includes several insurance firms, banks and even stock exchanges, after five years of a dry run in the primary market.
As many as 22 companies have already raised over Rs 29,000 crore (including SBI Life which is scheduled to close on Friday) from the market in calendar 2017 so far, the highest since 2010 when 64 companies mobilised Rs 37,534 crore from the public. The IPO market had virtually dried up in 2013, which witnessed only three IPOs for Rs 1,283 crore, and 2014 saw 5 IPOs for Rs 1,200 crore, according to PRIME Database. “The primary market is moving in conjunction with the secondary market. With the stock market turning bullish, companies are looking at the option of mobilising funds from the public and list their shares on the stock exchanges,” said Pranav Haldea, managing director, PRIME Database.
This time, the charge is being led by insurance firms, both public and private ones, that are planning to raise about Rs 50,000 crore. ICICI Lombard General Insurance had mobilised Rs 5,700 crore from the market earlier this week, while SBI Life Insurance has launched its Rs 8,400-crore IPO. Others waiting in the wings include General Insurance Corporation (Rs 10,000 crore), New India Assurance (Rs 7,000 crore), HDFC Standard Life (Rs 10,000 crore), Reliance Nippon Life, PNB Metlife and Reliance General Insurance. Catholic Syrian Bank and Bandhan Bank (Rs 6,000 crore IPO) have also announced their IPOs plans.
Significantly, a clutch of companies from the railway segment has also announced their plans for IPOs. These include IRCTC, RITES, Rail Vikas Nigam, Indian Railway Finance Corporation, Konkan Railway Corporation, Mumbai Rail Vikas Corporation and IRCON. The National Stock Exchange and the Indian Energy Exchange are also IPO hopefuls in the near future.
According to analysts, a major reason for the long queue for the IPOs is the sustained rally on the stock market. The BSE Sensex had risen 25.87 per cent in the past 10 months to 32,370 on September 21, 2017, from 25,717 on November 21, 2016. Foreign investors and domestic mutual funds have been pumping money into the secondary markets. Equity funds, including Equity Linked Savings Scheme, witnessed the highest-ever monthly net inflow at Rs 20,362 crore in August, a staggering growth of 213 per cent on a year-on-year basis. Foreign investors put Rs 42,659 crore (around $ 6.7 billion) in stocks and Rs 1,31,565 crore ($ 20.55 billion) in the debt market in calendar year 2017. “There’s a lot of liquidity in the market. The IPO pipeline will continue as long as the secondary market remains bullish. We saw IPO market drying up in 2013 and 2014 when the stock market was not doing well,” Haldea said.
For investors, investment avenues are also limited now. As bond yields are low, interest rates are going down, gold investments have lost lustre and real estate deals are under scrutiny, stocks seem to be the preferred option for many investors. The Securities and Exchange Board of India (Sebi) has been favouring more retail participation in IPOs. One of the major highlights of the IPOs in the past two years has been the attractive listing of good quality IPOs, according to an Angel Broking report. “This has resulted in healthy buying interest from high networth investors (HNIs). Now, most of the HNIs opt for the funding route and hence the post-listing performance needs to cover the interest cost also. In a majority of the quality issues, the HNI interest has been largely due to the very healthy post listing performance by IPOs. In the case of retail, there is a major shift towards equity. It is estimated that nearly $75 billion of Indian retail money will go into equities in the next three years. The trend is already visible from the collections of equity mutual funds and the growth in SIP folios. Active retail participation is essential to ensure that IPO rallies are not only healthy but also sustainable over the longer run,” Angel Broking said.
There’s a flip side to the IPO story. “If the secondary market declines, the IPO market will dry up in no time. It will last as long as the stocks remain bullish,” Haldea said. Market experts are also concerned about the possibility of shady promoters making an entry into the IPO market. “In 1994, 1997 and 2000, several shady promoters came to the IPO market and raised money at high premium. These shares collapsed after listing and some of them are not even traded now. Many of them were paper companies used by promoters to divert public funds. Similarly, there’s a tendency among companies to fix high premium for IPOs which, after listing, disappoint investors,” said veteran BSE dealer Pawan Dharnidharka. Will history repeat?