Analysts expect revival in primary markets

Assume a stable govt at the Centre after the polls, which does not delay actions that can boost the economy; even so, investors should be choosy, say experts

While the benchmark indices., the S&P BSE Sensex and the CNX Nifty, have been making new highs, the primary markets in India have mostly been dormant. All through financial year 2013-14 (FY14), the latter did not see much activity, except for a few offerings eliciting investor interest.

According to data provided by Prime Database, a company involved in collecting and analysing data related to the primary market, FY14 saw one major issue, of Just Dial (Rs 919 crore). However, there were 37 fixed price Initial Public Offerings from small and medium enterprises (SMEs) that totalled Rs 286 crore. The overall performance was the worst in the past 10 years, the data suggests.

Analysts say the market hasn’t been IPO-friendly for three years, due to a variety of factors. Among these are overall poor sentiment, lack of investor appetite, secondary market volatility, promoters not getting the valuations they think they deserve, apprehensions on the regulator’s views on valuations, lack of appetite for equity of big-time issuers from the infrastructure sector, especially in power, telecom and real estate and delays in clearing documents.

Road ahead
Since the secondary market has ventured into uncharted territory, with the benchmarks making new highs almost every day, in a hope that the new government will start much needed reforms to boost the economy, will it have a rub-off effect on the primary market, too? If so, what should your investment strategy be?  

“If the bullish run does continue in the secondary markets on the back of a clear verdict in the elections, surely a positive effect shall be seen in the primary markets, too. A primary market boom usually comes around six months after the secondary market has either seen stability or a bull run. However, the effect has not yet been seen on the primary market because of the uncertainty on the political front,” said Pranav Haldea, managing director, PRIME Database.

Adding: “As far as the fresh issue pipeline is concerned, there are 12 companies wishing to raise around Rs 2,500 crore which are holding Sebi (Securities Exchange Board of India) approval, while another four companies plan to raise another Rs 2,500 crore and have filed for Sebi’s approval. My expectation is that there shall be a big increase in this number, on the back of a strong election result.”

Deepak Jasani, head of retail research at HDFC Securities, says, “If there is a stable government and they kick off PSU (public sector undertakings) FPOs/IPOs at attractive prices, it could stir up the retail IPO market. Typically, the IPO market will be revitalised by people making money and people usually make money in the IPOs or the follow-on offers (FPOs) of PSUs. The recent record of people making money in large private sector IPOs has not been great (except in cases like Just Dial). Once the momentum of PSU IPO/FPO builds, one can expect private companies also to later come out with IPOs.”

C J George, managing director at Geojit BNP Paribas Financial Services, agrees. Though he expects a pick-up in the primary market once there is a stable government at the Centre and increased retail participation, he cautions that investors will have to analyse each issue carefully before taking an investment call.