India Inc to flood mkts with Rs 50k-cr fund raising plan in six months

Written by Samie Modak | Mumbai | Updated: Jun 1 2010, 01:59am hrs
Equity worth Rs 50,000 crore is likely to hit the Indian market over the next six to eight months according to estimates with merchant bankers. This could be either through initial public offers (IPOs), follow-on public offers (FPOs) or qualified institutional placements (QIPs).

But given the volatility in the secondary market and the reluctance of retail investors to participate, investment bankers are not too sure whether so much paper can be absorbed by investors.

Kotak Mahindra Capital chief operating officer S Ramesh said, Retail investors are not participating in the market as they are still reeling under the losses of IPOs that they bought over the last couple of years. He also points out that though the India story is appreciated, for issues to go through, the secondary markets need to be either stable or on an upward trajectory.

According to JP Morgan MD (equity capital markets) Vijay Menon, the correction in the markets has been both unexpected and severe. Were not too sure how much paper can be absorbed by the market, he said. If bankers are to be believed, part of the solution lies in more moderately priced issues.

More than half of the 30 IPOs that hit the capital markets during this year are trading below their issue price. And 10 of these, including NTPC and NMDC, faced very poor interest from retail investors. Despite NMDC offering a 5% discount, only 0.21 times of the retail quota was subscribed.

Says Menon, Theres absolutely no question of pricing not moderating. He explains that since the markets have fallen by about 8% and individual stocks lost more than 20-25%, promoter will have to learn to live with lower valuations.

Indeed one reason why the Standard Chartered Indian depository receipt (IDR) got such a response was because the stock was attractively priced. The StanChart IDR was subscribed 2.2 times.

Birla Sunlife Mutual Fund CIO A Balasubramaniam expects the government to price the Coal India issue attractively. Investment bankers feel that companies will need to rethink the size of the issues.

Ramesh observes, This is not the best of times to do a very large fund-raising exercise and that the days of huge oversubscriptions are over.

Of the Rs 50,000 crore expected to be raised by companies, approximately half the amount will be mopped up through IPOs, with the state-owned CIL accounting for about Rs 15,000 crore. Approximately a fourth is expected to be raised through QIPs while the remaining amount would be picked up through follow-on issues.