Street Food: Can we expect a Reliance Jio IPO?

Many things have clouded the Street’s outlook, including those elusive rain clouds. In a week that brought new clouds in the form of a price manipulation-cum-money laundering scam in the small and medium enterprises platform and uncertainty over Greece, the news of a flurry of Initial Public Offerings (IPOs) being lined up came as a silver lining.

Reports have put the IPO pipeline between 19 and 30 issues, of Rs 10,000-20,000 crore. Even if the lower end of that band becomes a reality, this would be the best IPO year in a long while. Earlier, IPOs raised more than Rs 10,000 crore in a calendar year in 2010, when the bumper Coal India one lifted the market, raising over Rs 15,000 crore.

The index has not gained significantly from the levels seen at the time of the coronation of the new government about 14 months before. The clouds we noted earlier are all there. Then, what has given the confidence for several promoters to take the plunge now?

The only major positive event that could have inspired this move is the resurgence of a giant that had gone into slumber. Between March 31 and now, the Sensex has gained a paltry 57 points or a fraction of a percentage point. In the same period, the Reliance Industries (RIL) stock has gained 22 per cent. This remarkable outperformance, much of which came in the week following the company’s annual general meeting, on June 12, seems to have raised the hopes of wannabe many Reliances.

The Reliance stock has been steadily losing popularity among small shareholders over recent years. The number of those holding shares worth Rs 1 lakh or less has been on a steady decline for RIL, from over 3.5 million at the end of March 2010 to 2.7 million in March 2015. Their combined holding fell to 9.65 per cent from 11.4 per cent five years earlier.

Much of this could be attributed to the vicious cycle triggered by the troubles the company has faced with its marquee KG-D6 (the latter block in the Krishna-Godavari gas basin) project. Billed as the country’s answer to energy security, the scale and strengths of the project were among the key attractions that nearly helped Reliance double its shareholder base from around 1.9 million in June 2006, when the number was first declared in quarterly holdings.

A long-running probe by the Securities and Exchange Board of India was another cause of concern but seems to be drawing to a close as reported here: Sebi completes probe into RIL unfair trade practices case

Also, the company seems to be focusing on the next big story. RIL is gearing up for launch of fourth-generation (4G) services under the Jio brand name, billed as the country’s road to a digital future. Mind-boggling numbers have been tossed around. Last week, RIL also announced Rs 2.5 lakh crore investment as part of Prime Minister Narendra Modi's Digital India initiative.

Now, would the market-savvy behemoth not look at the cheapest capital source of equities to fund a part of that investment? Would it not want to unlock the value? Would it be 10 per cent of the investment lined up or more? Would be it be an IPO or some other form?

Only Reliance can answer those questions. But, what we know is that in every bull run, we had a big IPO.

And, two of the past three had an R-name written on them.