The equity markets may well be showing signs of extreme volatility but that has not deterred companies from lining up big public issues to enter the capital markets.
According to Prime Database, a primary market tracker, the coming months could see public issues worth almost $3.6 billion or a little more than ₹23,700 crore, hitting the capital market as companies line up mega initial public offers (IPOs). The pipeline has a fair share of public sector undertakings too, as the Centre looks at monetising its stake in some of its firms
Some of the companies in the IPO pipeline are Acme Solar Holdings (₹2,200 crore), Barbeque Nation Hospitality (₹700 crore), CMS Info Systems (₹1,300 crore), Devi Sea Foods (₹900 crore), Garden Reach Shipbuilders (₹1,000 crore), Indian Renewable Energy Development Agency (₹900 crore), Nakshatra World (₹650 crore), Nazara Technologies (₹1,000 crore) and Rail Vikas Nigam (₹3,000 crore), among others.
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These are the companies that have regulatory approval, which is valid for one year from the date of the approval.
Meanwhile, the current calendar year has already seen IPOs worth ₹20,435.73 crore with 15 companies entering the capital market in the first five months.
If all the firms that have regulatory approval for an IPO unveil their issues in 2018, it could well make the year the second-best ever in money raised by way of IPOs. So far, 2017 has been the best for the Indian markets with 36 firms cumulatively raising ₹67,147 crore. In 2010, 64 companies raised ₹37,535 crore via IPOs.
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Market participants said much would depend on the timing of the issue and investor sentiment in the secondary market. “The pipeline is very strong and one hopes merchant bankers do not get too greedy with the promoters,” said Arun Kejriwal, Kejriwal Research & Investment Services. “Second, trying to time the market to perfection is just not possible. Issues should come well spaced out, allowing the market to take one issue at a time,” he added.
Secondary market effect
Activity in the primary market is largely dependent on trends in the secondary market and the current year has seen the benchmark Sensex gain only 3.41% till date. Further, the 30-share barometer witnessed a roller-coaster ride this year, gaining more than 5% in January but falling 4.95% and 3.56% in February and March, respectively.
While April saw a gain of 6.65%, the Sensex remained largely flat in May. June has also seen the benchmark trade in a range but with a slightly negative bias. The primary market recently got a much-needed fillip from the Securities and Exchange Board of India (SEBI) with amendments to some regulatory requirements to make it more company-friendly.
A company eyeing an IPO can now announce the price band just two days before the issue opening day instead of the earlier mandate of five days. This will provide the company more time to factor in secondary market volatility.
Financial disclosures now need to be made only for three years instead of five. Also, insurance firms and foreign portfolio investors have been allowed to participate as anchor investors in the main board IPOs.
“Some... changes made by the regulator are welcome; [but], to adjust to a two-day price band announcement is easier said than done,” said Mr. Kejriwal. It is widely believed that SEBI reduced the time gap between announcement of the price band and the issue opening day to curb the illegal grey market trading, which was on the regulatory radar for long.
In what would be a welcome news for the SME IPO segment, the minimum anchor investor size has been reduced to ₹2 crore from the existing ₹10 crore. The SME segment has been creating a new record every year in terms of the money raised through public issues.
If 2017 was the best till date with 133 companies raising a cumulative ₹1,680 crore, the first five months of the current calendar year have already seen 79 entities raise a total of ₹1,355 crore.