Highest-ever fundraising via IPOs in FY21; FY22 will be tough: Analysts

Retail investors were the key drivers of the momentum seen in the primary markets in FY21. The road in FY22, however, will not be easy as investors are likely to become choosier

Despite the pandemic, fund mobilisation via the primary market route was the highest ever in financial year 2020-21 (FY21) with India Inc raising Rs 1,88,900 crore (Rs 1.88 trillion) through public equity markets as compared to Rs 91,670 crore raised in FY20, suggests a report from Prime Database, a leading provider of capital market database.

The previous highest amount raised in a financial year was Rs 1.75 trillion in 2017-18, the report said. Combined with equity and bonds, the amount raised during FY21 was a staggering Rs 1.99 trillion. Among the lot, the largest IPO was from Gland Pharma for Rs 6,480 crore.

“30 main-board initial public offers (IPOs) came to the market collectively raising Rs 31,268 crore. This was an increase of 54 per cent from the Rs 20,350 crore raised through 13 IPOs in 2019-20,” said Pranav Haldea, managing director, PRIME Database Group.

Retail investors, according to Haldea, were the key drivers of the momentum seen in the primary markets. The highest number of applications was received by Indigo Paints (25.88 lakh), followed by Mtar Technologies (25.87 lakh) and Mazagon Dock (23.56 lakh).

“The response to IPOs was further buoyed by strong listing performance of IPOs of the year. Of the 28 IPOs which got listed, 19 gave a return of over 10 per cent (based on closing price on listing date). Burger King gave a stupendous return of 131 per cent followed by Happiest Minds Technologies (123 per cent) and Indigo Paints (109 per cent). 18 of the 28 IPOs (listed thus far) are trading above the issue price (closing price of March 26, 2021),” Haldea said.

Offer for sale through Stock Exchanges (OFS) meant for dilution of promoters’ holdings nearly doubled from Rs 17,326 crore raised in FY20 to Rs 30,114 crore raised in FY21. “Of this, the Government’s divestment accounted for Rs 19,927 crore, or 66 per cent of the overall amount. The largest OFS was that of Tata Communications (Rs 5,386 crore), followed by Hindustan Aeronautics (Rs 4,961 crore) and IRCTC (Rs 4,408 crore). OFS accounted for 11 per cent of the total year’s public equity markets amount,” the report said.

The road ahead

The pipeline for FY22, too, looks strong with 18 companies holding market regulator Securities and Exchange Board of India’s (Sebi’s) approval proposing to raise nearly Rs 18,000 crore and another 14 awaiting the market regulator’s approval to raise nearly Rs 23,000 crore, the report suggests.

That said, analysts believe raising funds from the primary market will not be a cake walk for the companies, as investors are likely to become choosier. That apart, pricing of the issue will be key.

“After the roaring success in FY21, investors will latch on to only those IPOs that are priced attractively and where companies operate in a niche segment. The easy run of liquidity and stupendous returns is getting over now,” said A K Prabhakar, head of research at IDBI Capital.

The road ahead for the primary market, according to Dr VK Vijaykumar, Chief Investment Strategist at Geojit Financial Services, will depend a lot on the buoyancy in the secondary market.

"A healthy secondary market should give a rub-off effect on the primary markets, too. A lot will depend on how the bond yields play out over the next one year, which should guide the secondary market trajectory. That said, investors should be careful while applying to IPOs in FY22 given the inherent risks to the secondary markets," he said.