After a slow yet steady start to fiscal year 2014-15, primary market issuances are poised to accelerate in the second half (October-March), as many companies appear confident of India?s growth story and will need money for their growing capital needs.
India Inc raised a meagre R1,081.86 crore in the first six months (April-September), down 3% from the same period last year, as per numbers compiled by Prime Database.
Industry observers and capital markets experts say the increase in the number of companies tapping the primary markets is one positive indication. As many as 25 ? four on the main board and 21 in the small-and-medium enterprises (SMEs) ? have been successful in listing on stock exchanges, compared with last year?s 16 ? one main board and 15 SMEs. Overwhelming responses ? in terms of over-subscription to all four IPOs ? is another positive factor and will encourage more companies to tap primary markets, experts add.
Prithvi Haldea, CMD, Prime Database, says the success of recent IPOs highlights there is ample appetite among investors if the pricing and valuations are right. ?We should remember that the size of the issues was very small, so multiple-times subscription is not a very good indicator. But it definitely shows that investors are ready for good IPOs,? Haldea says. However, there are very few issues hitting the market right now, he adds.
Wonderla Holidays was the first issue in the current fiscal. The IPO was subscribed 38 times, helping the company raise R180 crore. Crop protection chemical company Sharda Cropchem?s IPO raised a little over R350 crore. Its issue was subscribed 60 times. Snowman Logistics? R197-crore public issue was subscribed 61 times, Shemaroo Entertainment?s R120-crore IPO was subscribed 7.4 times.
Capital markets said the prospectus of some of the recent IPOs were filed late last year and the timing of launch was right, as secondary markets were experiencing an upswing. This was due to the anticipation of change in Indian politics and the victory of Narendra Modi, as predicted by opinion polls, in the general elections.
The Sensex rose 18% from February to May, and inched higher by another 18% until the second week of September to record highs following the historic win of BJP-led NDA in the national elections, Bloomberg data shows.
With the secondary markets rising and poised for a multi-year bull run, as predicted by market pundits, more companies are lining up to raise funds. Many experts predict the 30-share benchmark to surpass 30,000 by the next budget in February.
Experts say policy reforms by Sebi is another reason that will encourage companies to hit the primary market in a shorter time frame. While Sebi has toughened eligibility criteria for companies, the market regulator is trying to reduce the time in granting approvals to one month. At present, Sebi takes about one and a half months, and sometimes even months after filing the draft.
As per V Jayasankar, senior ED and head, equity capital markets, Kotak Investment Banking, very few expected a landslide victory for the BJP and there will be a lag of a few months before large-ticket issues hit the market.
?Nobody expected this kind of an overwhelming mandate for the new
government. Work will begin and you will see the first IPO issuances over the next three to five months. There will be a clear lag between the recovery in secondary markets and IPOs hitting the market,? Jayasankar says.
Nine companies targeting a total of R1,036 crore have valid Sebi approval to launch their IPOs. An additional eight to ten companies with a potential to raise R5,000 crore have filed their draft prospectus and sought approval from the market regulator. Approval by Sebi approval is valid for one year.
Ajay Saraf, ED and head, corporate finance and institutional equities, ICICI Securities, says Indian corporates feel encouraged by the positive sentiments prevailing in the secondary market and increasing investor appetite, which has been triggered by a new stable government at the Centre and expectations on higher economic growth.
“Companies will raise equity to correct their capital structure and reduce leverage and some to also fund expansion projects. We see an increasing participation from Indian investors, especially retail investors, in IPOs and PSU offers, if there is a discount as expected,” says Saraf.