The primary market participation of foreign investors is set to hit a record high this fiscal with Rs 48,029 crore already having been infused by them till end-February, reveals data from NSDL. The fiscal will also be a record year for the primary market with Rs 83,666 crore having been raised so far through 70 public offers, according to Prime Database.
What’s more, while foreign investment in the primary market has traditionally been less than in the secondary market, this changed markedly in 2017 calendar with overseas investors putting in Rs 41,485 crore in the primary market against a net investment of merely Rs 9,768 crore in the secondary market. The last time this phenomenon was noted was in 2015, when they invested `22,400 crore in public offers against a net rS 8,472 crore in secondary trades. In 2012 and 2013, secondary market net investments by foreign investors were nearly 10 times their primary market allocation. Even in 2014, the multiple was just shy of 7. Leap to 2017 and the equation has reversed with nearly four times the money going into primary offers.
“When valuations are high and market trades at 26 multiple of forward earnings, investors move money into the primary markets. As IPOs are fresh issues, there is always something available,” suggests E Prasanth Prabhakaran, CEO of Yes Securities. Aditya Makharia, VP-Research at Motilal Oswal Asset Management Company agrees: “Companies go for listing when the market is rallying, as in an expensive market a newly listed company will get a good valuation. However, FPIs invest with a medium to long term view”. His contention is that given the high secondary market valuations, foreign investors will prefer investing in public offers of promising companies with a longer investment horizon.
The other significant factor that seems to have influenced the trend reversals in 2015 and 2017 were the nature of public offers that hit the market.
2015 saw several infrastructure companies list, including MEP Infrastructure, PNC Infratech and Sadbhav Infrastructure, which collectively mopped up over Rs 1,200 crore, besides marquee issues like Interglobe Aviation (`1,272 crore), Coffee Day Enterprises (Rs 1,150 crore), Innox Wind (`1,020 crore), Alkem Labs (`1,350 crore), Dr Lal Path Labs (`638 crore) and Narayana Hrudayalaya (`613 crore). Most of these issues saw high investor interest from institutions, high networth investors and small investors. In contrast, 2017 was dominated by heavy-weight issues from the financial sector, predominantly insurance. General Insurance Corporation of India (GIC), ICICI Lombard General Insurance, SBI Life Insurance, New India Assurance (NIA) and HDFC Standard Life Insurance were the prominent insurance companies that floated public offers in the year.