After the muted performance till FY2015, Indian market for initial public offerings (IPOs) picked up with 70 and 106 companies listed in the last two years. This further gained momentum in the current fiscal with 112 companies already hitting the IPO market till October 2017. Rise in IPOs definitely presents a good picture for businesses and corporates as it represents a better option for
raising money, especially in the current context, says a research report.
In the report, State Bank of India (SBI) says, "The surge in the secondary market has encouraged many companies to hit the equity market for capital in search for better valuations. When the market rise it is the also the best time for promoters to raise money from the market."
"From investors’ perspective, retail investors have shown an increased appetite for equity market, mutual funds and IPOs, owing to lowering of interest rate on bank deposits and ease of investment in market. Also, strategic investors like sovereign wealth funds view such issues as opportunities to deploy significant amount of money," it added.
During FY2010 and FY2011, India Inc raised a whopping Rs46,121 crore and Rs49,438 crore, respectively. After this, the IPO market turned lukewarm. However, during just seven months of current fiscal, Indian companies raised Rs49,175 crore through IPOs. This amount is more than what India Inc raise between FY2012-FY2016 together.
According to the report, between FY2010 and FY2018 (up to 31 October 2017), maximum amount of Rs43,921 crore has been raised by power sector, followed by insurance, mining, minerals and metals, finance and construction. Insurance sector has come to the market this fiscal with four companies alone raising Rs31,320 crore.
Avenue Supermarts Ltd has proved to be the appetiser for the equity market after a lull of almost seven years when Coal India Ltd received a bid for Rs2,31,031 crore against its issue size of Rs15,199.44 crore in November 2010, SBI says.
"This," the report says, "shows the market appetite and investor acceptance of equity as an asset class.
"We also compare the returns given by these companies attracting highest demand from the investors. Though all the scripts (in table above) have given excellent returns, there are some exceptions. For example, in recent year capital appreciation for Coal India seems to be very low despite high demand during listing. One of the reasons is that the scrips give excellent dividend yield," the report says.
According to SBI, there are various reasons that can explain the recent splurge in the IPO market. Ease of listing criteria for micro, small & medium enterprises (MSME) has been one of the reasons for increasing number of companies approaching capital market. Furthermore, economic reform initiatives of the Government have boosted sentiments of the market, which in turn has led to improvement in doing business. This is further corroborated by the recent sovereign rating upgrade by the Moody’s.
"The current upsurge will last as long as the upswing in market continues. Also, the performance of the companies which got listed in recent years will determine the future course for IPO market. If they give reasonably decent returns to investors with their average price remaining above their listing price then only it is going to remain attractive source of investment. However, it cannot be assumed to take place of debt financing through banks as the former depends on market sentiments which can be very volatile depending upon domestic as well as global developments," the SBI report concluded.