Fund raising through initial public offers (IPOs) has hit an all-time high during the financial year 2017-18 (FY18). Thus far in FY18, 43 companies have raised a combined Rs 805 billion through IPOs, surpassing its previous high recorded nearly a decade ago. Back in FY08, 84 companies had raised Rs 413 billion via IPOs, data sourced from PRIME Database suggests.
The money raised during FY18 is nearly five-times higher as compared to FY17, when 25 firms had mobilised Rs 282 billion during the year. Between FY12 and F17, 100 companies had raised Rs 586 billion from the IPOs, data show.
Analysts attribute the FY18 trend to the buoyancy in the secondary market that lured companies/promoters to tap the primary for raising money. Thus far in FY18, the S&P BSE Sensex and Nifty 50 indices have rallied 12 per cent and 10 per cent, respectively. The BSE Midcap (up 13 per cent) and Smallcap index (up 17 per cent), too, have gained over 12 per cent, after surging 33 per cent and 37 per cent, respectively, in FY17.
“Fund raising via this route can be attributed to the solid bull-run in the mid-and small-cap segments. The majority of the IPOs have been in these two market segments. I am doubtful if the fund raising can continue at this pace in the next financial year as well.
The return expectation from the markets is now toned down. We have seen the fate of some recent IPOs, where investors have been very selective,” says G Chokkalingam, founder and managing director of Equinomics Research.
There are about 14 companies that have obtained approval of the market regulator, Securities and Exchange Board of India (Sebi), to raise a collective Rs 156 billion through IPOs over the next few months. The list includes HDFC AMC, Reliance General Insurance Company, ACME Solar Holdings, CMS Info Systems and Indian Renewable Energy Development Agency.
“While we expect FY19 to surpass FY18 in terms of the number of issuances, we foresee lower average transaction sizes, which may lead to the amount raised in FY19 to be similar to that in FY18. We believe that the issuances will be across sectors, as India Inc. raises capital to fund growth and bank funding continues to remain constrained by structural challenges facing public sector banks,” says Munish Aggarwal, director (capital markets) at Equirus Capital.
Among the ones who raised funds in FY18, stocks of 21 companies are trading higher when compared to their respective issue price. Apex Frozen Foods and PSP Projects have seen their market value more than double from their issue price. Central Depository Services (India) or CDSL, Dixon Technologies (India), AU Small Finance Bank and HDFC Standard Life Insurance Company are trading 50 per cent to 90 per cent higher as compared to their issue price.
On the other hand, state-owned insurance companies like SBI Life Insurance Company, New India Assurance Company and General Insurance Corporation of India have disappointed the investors, as these companies are available at a discount, in the range of 5 per cent and 23 per cent, from their issue price.
Rajat Rajgarhia, chief executive officer for institutional equities at Motilal Oswal, expects a healthy primary market in FY19. His belief stems from the fact that IPOs are not just about raising money, but also involve private equity or promoters paring stake.
“Good companies with robust growth models, clean balance-sheets and reasonable valuations will still find takers. A booming primary market is always a healthy sign and that’s how the investor’s participation gets broad-based,” he says.