Listing rush

Primary market activity indicates broader revival

Tata Technologies’ initial public offering (IPO) has attracted significant investor interest since it is the first primary market offering from the Tata group in about two decades. The issue aims to raise Rs 3,042 crore in the price band of Rs 475-500 per share. Given a grey market premium of about Rs 350, the issue is likely to see oversubscription and list at a premium. Apart from Tata Technologies, which has an excellent reputation for engineering solutions and is backed by one of India’s largest conglomerates, this has in general been an excellent year for companies seeking to tap the primary market. In the first nine months of calendar 2023, India had 170 IPOs with an average size of Rs 848 crore, which was more than any other market. The largest raising was of about Rs 4,000 crore, while there were also sub-Rs 100 crore issues. Another 25-plus companies have filed the draft red herring prospectus, indicating the flow of issues will continue through the second half of the financial year.

The activity has been driven primarily by two factors. First is a strong secondary market, where most segments are doing well. Firms like to strike when the iron is hot — strong secondary sentiment and performance create favourable primary market conditions. Firms wish to raise what they need before a possible change in market sentiment. The other factor is what seems like a broad rebound. The issues have been across diverse sectors such as small finance banks, jewellery, supply chain management, infrastructure, hospitality, and biotechnology. The moderate ticket sizes suggest medium-sized companies are able to approach the market. This may be a signal of revival in the small and medium-sized enterprises segment, which is encouraging, since this is where most of the employment is generated.

The primary market struggles when there’s low retail participation, which is clearly not the case now. The retail quotas have been oversubscribed through this period. Indeed, retail investors have pushed their savings into equity for several years running. They have also been contributing through the mutual fund (MF) route, which is reflected by steady flows into the equity MF segment, mostly via systematic investment plans. This also suggests that, to some extent, household savings are getting shifted to equities. The tightening of the IPO issues, listing schedules, and the due diligence procedure by the market regulator may also have provided comfort.

While domestic institutions have been bullish, foreign institutional investors’ (FPIs’) attitude has been more mixed. Although FPIs have been asking the market regulator to raise allotment quotas and ease processes to enable greater participation, they have been markedly cautious. The US Federal Reserve’s hawkish stance has led to a risk-off attitude, which has resulted in net selling for several months. On the domestic front, inflation seems to be easing, which is usually good for the market. In the coming months, aside from global conditions, domestic political developments will also play a role in shaping sentiment. Markets and investors value stability and policy continuance. At a broader level, new listings and the healthy pipeline in the primary market are encouraging. This is not only helping firms raise money from the market, which will help boost economic activity, the increasing universe of listed companies will also enable money managers to allocate funds more efficiently.