IPO pipeline runs dry

The public issue pipeline is at its driest in two years. According to the website of market regulator Sebi, only 11 companies have filed for initial public offerings between April and June. Five others have filed offer documents for rights issues. None of these issues have been cleared by Sebi yet.

Even state-owned companies, which have dominated the primary market for the past two years, stayed away.

According to a Business Standard analysis of quarter-wise data of draft offer documents filed with Sebi, this is the lowest since seven companies filed in April-June 2009, when the primary market went into a slumber after the collapse of Lehman Brothers in September 2008. Just 17 companies filed prospectuses in the six-month period after the collapse.

Three years on — with a similar credit crisis looming in Greece that some experts predict will eclipse the Lehman episode in severity and scale — global markets are volatile.

Choppy equity markets and an uncertain outlook have put off most issuers, say experts.

The poor performance of IPOs that have hit the market is also playing on the minds of investors and issuers. Andrew Holland, CEO-equities, Ambit Capital, says promoters are shelving plans as they are not getting the valuations they want. “Markets have turned volatile globally,” he says.

“Buoyancy in the secondary market is a prerequisite for the primary market. The Sensex has not gone anywhere in the past six months and is not likely to go anywhere in the next six. That means promoters would not get the valuation they expect,” explains an investment banker.

Experts see demand for stocks returning if investors are convinced that the RBI is done with rate rises. Successive rate rises by the central bank, fighting nine per cent inflation, have put the brake on equity markets. Holland says promoters will return with primary market issuances by September. “Optimistically, global growth is slowing down and putting pressure on commodity prices. This could in turn cool inflation, signalling the end of rate hikes.”

Stocks could start moving higher, paving the way for the revival of primary market issuances too, says the Ambit equities head.

Interestingly, the drying out of Indian IPOs has coincided with a period of robust primary market activity globally. Global filings for initial public offerings are accelerating to the fastest pace since 2007 despite Greece’s debt crisis. At least 720 companies, including Groupon and Beijing Jingneng Clean Energy, have announced plans this quarter to seek $67 billion in IPOs, according to data compiled by Bloomberg. That’s the largest number of deals in a quarter since 794 IPOs were announced during the final three months of 2007, the data show.