IPO fundraising hits six-year high

Maximum since 2010; third time that public offerings have mopped up Rs 20,000 cr in a single year

With the success of ICICI Prudential Life Insurance’s Rs 6,000-crore initial public offering (IPO), fundraising through initial share sales in 2016 has crossed the Rs 20,000-crore mark – the highest since 2010. So far this year, 20 companies have tapped primary markets to raise Rs 20,217 crore, data compiled by the National Stock Exchange (NSE) showed.

This is the third time – 2007 and 2010 being the other two — that IPO fundraising has crossed the Rs 20,000-crore mark.

“It has been a great year for primary markets, not just in terms of the number of issues but also because we have seen an increase in the average deal size. It reiterates that there is enough depth in the market,” said Sanjay Bajaj, managing director and head of equity capital markets, at HSBC Securities.

In 2007, around 100 companies went for initial share sale raising Rs 34,179 crore, while, in 2010, IPO fundraising touched lifetime best of Rs 37,534 crore. Year 2007 was a peak of the bull market. Interestingly, the amount raised in 2010 would be much lower if Coal India’s Rs 15,200-crore IPO were to be excluded.

The pipeline of the issuances is also looking positive as deals worth Rs 10,000 crore are waiting to hit primary markets. PNB Housing Finance Corporation, BSE Ltd are some of the IPOs that are expected to hit the markets in the next few months.

“We expect the second half of the financial year to be equally active for IPOs. The economic outlook remains strong. Besides, investors are also getting attracted towards new stories coming into the market. We have had IPOs from staffing, medical diagnostic, now life insurance companies, which didn’t have any representation in the market,” said Ajay Saraf, executive director, ICICI Securities Holdings.

The year saw share sales across various sectors. In fact, during the year, markets witnessed two microfinance companies – Equitas Holdings and Ujjivan Financial Services – go for their public offering. Infibeam, which launched its IPO in March, was the first e-commerce IPO ever. The year also saw two health care companies - Healthcare Global and Thyrocare Technologies - launch their IPOs. RBL Bank’s IPO was the first by any private sector bank in a decade.

Activity in primary markets is usually interlinked with the performance in secondary markets and any adverse movement in secondary markets impacts the fundraising activity.

Notably, this year, despite the high volatility in the secondary market, the IPO flow has been consistent.

“Issuers have not been shy to tap the equity markets in even periods of high volatility. Unlike in the past, where investors were reluctant to invest in volatile markets, investors are now comfortable with the macro story in India and are willing to invest in interesting stories even in difficult times, subject to some valuation buffer,” said Sanjay Sharma, managing director and head of equity capital market at Deutsche Bank Group India.

In the first two months of 2016, when the benchmark indices had dropped around 10 per cent, four companies were able to successfully close their IPOs. Experts believe the momentum in the economy will support IPOs going ahead.

“Primary markets are expected to do well in the next few years as the macroeconomic environment in India looks promising. GDP is expected to grow at a healthy pace and there has been steady progress on the reforms front with initiatives like the passing of the goods and services tax,” said Bajaj.