IPO fund-raising at 10-year low

Poor appetite and volatile secondary market hit sentiment; change in short term seen as unlikely

The amount of money raised from Initial Public Offers (IPOs) of scrips in 2013 has been the lowest in the past decade, to levels previously seen in 2003.

IPO fund-raising has dropped 75 per cent from 2012 to Rs 1,602 crore in 2013, according to information from PRIME Database. The lowest  since 2003, when companies mopped Rs 1,670 crore. The total capital raised through IPOs in 2012 was Rs 6,938 crore.

Gautam Trivedi, managing director & head of equities, Religare Capital Markets, said he didn’t expect significant improvement in the IPO scenario in the near term. “The retail investor is completely absent from the market. It’s hard to see a change in sentiment anytime soon,” he said.

S P Tulsian, an independent advisor, said investors were no longer attracted to IPOs. “There is no appetite because these have not rewarded investors. A stable secondary market for six months is necessary before the IPO market picks up. The outlook is still bearish for the secondary market…there is no hope till at least March 2014,” he said.

Just Dail, a local search engine service provider, got most of the capital raised from IPOs during the year. It had come out with one for around Rs 900 crore in May. The stock has more than doubled since its debut. However, few IPOs did as well. U K Sinha, chairman of the Securities and Exchange Board of India (Sebi), had noted at an event in October that two-thirds of IPOs issued in the past three years were trading below their issue price.

The stock market regulator has been debating a number of steps to try and protect investors from the market’s downside risks. It had a proposal for a mandatory ‘safety net,’ where promoters would have to buy back a fixed number of shares if they underperformed the market.

The proposal was widely opposed by various stakeholders, who said this contradicted the fundamentally risky nature of equity investments. Sebi is now said to be debating the possibility of a convertible structure, by which investors would be issued instruments which could later be exchanged for equity shares. This would potentially protect them from post-listing losses.

Pavan Kumar Vijay, managing director at Corporate Professionals, suggested promoters see little appetite for their shares. “Promoters are unsure who will buy any share sale that they make. Any investor would look to existing companies with an established record if they want to buy into a sector, rather than invest in a new entity,” he said.

The absence of fresh paper would mean incremental inflows flowing towards already listed companies. While domestic institutions have been net sellers by Rs 70,000 crore, foreign institutional investors have been net buyers by Rs 1 lakh crore in 2013.

“Public issues by government companies could absorb some of the capital,” said Trivedi.

The government has announced plans to raise Rs 40,000 crore in 2013-13 through divestment.