With big ticket initial public offerings (IPOs) planning to hit the capital market in the second half of January, experts believe that liquidity in the overall market is going to be squeezed and more so the repercussions will be prominent in the secondary markets.
They also believe that, with most of the companies getting listed at a healthy premium to the issue price, investors get lured by this opportunity of making money and they start mobilizing their funds for these IPOs, seriously affecting the liquidity in the secondary market. Two big IPO’s announced in January viz, Reliance Power and Future Capital Holdings are expected to mobilize around Rs 11,000 crore and probably be overwhelmingly subscribed.
Market experts said that secondary market is already under the liquidity pressure as inflows from foreign players have dried down in the wake of new allocation being awaited. Retail investors who were sitting on huge profits in stocks from the small and the mid cap space for the past couple of weeks are booking profits to park their money in these forthcoming IPOs. Vikas Khemani, Co-head institutional equity, Edelweiss Capital said, “The liquidity definitely gets tighter in this scenario, more so from the domestic investors than the offshore investors.
The liquidity crunch remains for 10 to 15 days in the pre-IPO period. Also the recent volatility that we have seen in the secondary markets can be attributed to big IPO of Reliance Power. Investors booked profit in the small and the mid cap space to mobilize fund for applying for these big IPOs, leaving the markets volatile”
However, Deven Choksey, MD, KR Choksey Securities has a slightly different view on the matter. He says, “Nowadays, banks in India are sitting on too much funds and are disbursing huge sum of loan to finance IPO applications. Also with retail investors being given an option of part-payment in the big IPOs, the so-called liquidity crunch is not felt that much and this is good for the companies raising small funds, which were otherwise side-lined by the larger IPOs”.