StatsGuru: India's IPO market seems to be on the cusp of a revival

Stock markets in India saw a big jump when Narendra Modi was appointed as the Bharatiya Janata Party's (BJP) prime ministerial candidate in late 2013. The exuberance continued unabated when the BJP secured the necessary number of seats needed to form the government on its own. As Table 1 shows, the BSE Sensex began its ascent around mid-2013, reaching a high of 29,681 in January 2015. While the markets corrected thereafter, the stocks have since then made up ground.

With stock markets gaining momentum, the moribund initial public offering (IPO) market began to show signs of a revival. In 2014-15, eight IPOs hit the market, up from one in 2013-14, as shown in Table 2. This figure rose to 24 in 2015-16. Collectively, these companies raised Rs 14,500 crore in the primary market, just shy of what was raised the previous four years together.

In 2016-17, so far six companies have raised a total of Rs 5,728 crore. Another 19 companies are lined up, expecting to raise Rs 5,635 crore as shown in Table 3. A bullish stock market has much to do with this.

This figure may well get bigger as many companies have announced their intentions to raise money from the primary market. According to an EY report, IPOs in India are set to hit a six-year high in 2016, and estimated to raise more than $5 billion.

A bullish market, has whetted retail interest. As Table 4 shows, the average number of times the retail portion of the IPO was subscribed rose to 9.1 in 2014-15, up from 3.5 the year before. Though it fell to 2.4 in 2015-16, it has since then risen to 9.3. It's surprising that retail investors were less exuberant last year as compared to both 2014-15 and 2016-17.

The gains made on listing for these companies also seem to mirror the trend in retail participation. As shown in Table 5, the average listing premium rose to 20.8 per cent in 2014-15, up from 15.37 the year before. In 2015-16, it dropped down to 6.31, only to bounce back to 28.21 per cent in 2016-17.

It is possible that with the retail portion of the IPOs over-subscribed, retail investors, who did not get the desired number of shares in the initial allotment, bought them in the secondary market, driving up stock prices.