When it comes to raising funds, both the government as well as the private sector appear to be flocking to the share sale route with plans to sell shares worth a whopping Rs 1,20,000 crore this year.
Besides the government's disinvestment target of Rs 40,000 crore through initial and follow-on public offers of state-run firms this fiscal, the promoters of private sector companies could also raise a similar amount through public offers, the country's top investment banking and brokerage firm ICICI Securities has said.
Companies are looking to raise another Rs 40,000 crore through QIPs (qualified institutional placements) or sale of shares to institutional investors, taking the total amount to be raised through share sales this year to Rs 1,20,000 crore, I-Sec managing director and chief executive Madhabi Puri Buch told PTI.
Last the government and the private industry together mopped up about Rs 1,00,000 crore through IPOs, FPOs and QIPs last year. That included about Rs 50,000 crore raised in the primary market through public offers of both private and public sector companies and the remaining through QIPs.
Asserting that there is enough appetite in the market for such a strong pipeline of IPOs, FPOs and QIPs, Buch said the market has the potential for a much bigger primary market, when compared on a global perspective.
There have been voices in the market that a large number of big-size public offers tend to suck out liquidity from the markets which is still in a developing stage, and the recent 'dismal' performance of some high profile IPOs and FPOs could dampen sentiment for upcoming issues.
Buch, however, said none of the major IPOs in the recent past could be dubbed as disappointing as they managed to sail through and meet the targets for raising funds despite weak global cues. "I disagree that these were dismal performances. One criticism was that retail segments was under-subscribed, or retail investors not showing enough interest," Buch said.
"However, this has more to do with the size of the offerings. When there is a large offer, the portion reserved for retail investors also become large and there occurs the chances of under-subscriptions. But, the regulations permit the unsubscribed shares of one segment to pass through to other segments like that of institutional investors, which are over-subscribed," she argued.
Noting that there is enough appetite for more share sale offers expected in the market over the coming months, Buch said a strong pipeline is there and the response is also expected to be robust for them.
The I-Sec head honcho Buch further noted that "When we talk about the size of the market, we are nowhere near the international benchmarks. This fiscal, the government has set a sell off target of Rs 40,000 crore and then an equal amount could be raised by private sector through IPOs and FPOs."
"This Rs 80,000 crore is for the primary markets only and QIPs would be additional, possibly another Rs 40,000 crore. However, even this cumulative figure of Rs 1,20,000 crore is not much of capital formation when seen as percentage of the GDP of the country-- this is just about 2.5 per cent of GDP and capital formation of this size is nothing when compared to global benchmarks," Buch argued.
She also pointed out that there is a very strong demand for shares of Indian companies, both from global and domestic investors. "There is demand for having an exposure to the Indian economy that has been growing at a high rate even during the worst days of global economic times and there is also a very good policy support (from the government and regulators)," she said.
I-Sec has been associated with a number of PSU public offerings in the recent past and has been already short-listed for the upcoming issue of Engineers India. In the private sector also, it is managing the upcoming issues like that of StanChart and Emaar MGF.
Buch said there is certainly a very strong international appetite for Indian shares and this is unlikely to be affected unless there are some big tremors in global markets.
According to a study by consultancy major Ernst&Young, India saw the third largest number of IPOs globally in the first three months of 2010. Globally also, the global IPO activity in the first quarter of 2010 showed substantial improvement over the similar period last year, but the revival has been primarily led by Asian markets like China and India.
In total, there were 267 IPOs globally worth over $53.2 billion, marking a five-fold surge from 52 offerings worth $1.4 billion in Q1 2009.
However, the ongoing debt crisis in Europe has affected the IPO market with deals worth a total of more than $6 billion getting cancelled in the first week of this month alone. But, none of these cancelled IPOs were from India.
The government itself is aiming to raise Rs 40,000 crore this fiscal through stake sale in about a dozen PSUs and the first issue, that of power sector firm SJVNL, has already closed successfully.
Other share sale targets for the current financial year include Indian Oil, MMTC, Coal India, SAIL, RINL, Shipping Corporation, Engineers India, Hindustan Copper, PowerGrid, Manganese Ore India and MMTC.