Financial Services Got The Lion’s Share Of IPO Funds Raised In Last 3 Fiscals

Financial services firms mopped up the biggest chunk of funds raised through initial public offering during the last three financial years, according to a KPMG report

About 23 companies in the financial services sector raised Rs 80,100 crore via IPOs between April 1, 2016 and March 31, 2019, according to the research report. That was the highest among 16 sectors tracked by KPMG.

Financial services companies raised Rs 11,000 crore or 55 percent of the overall funds raised through IPOs in 2018-19, KPMG said, adding that the firms in the sector raised Rs 14,600 crore (51 percent of overall funds raised) and Rs 54,500 crore (72 percent of overall funds raised) during 2016-17 and 2017-18, respectively.

Insurance companies alone contributed around 21 percent and 57 percent of the overall funds raised during 2016-17 and 2017-18, respectively, the report said.

That comes as India’s equity benchmark S&P BSE Sensex clocked a compounded annual growth rate of 15.1 percent over the three-year period, the second-best CAGR index returns during the period compared to its global peers, KPMG noted, adding that the NSE Nifty 50 closed at a CAGR of 14.5 percent during the period—the third-best CAGR index returns.

The research firm attributed the benchmark indices’ performance to the inflows by foreign portfolio investors in the equity market due to several underlying factors that made Indian markets look attractive.

Overseas investors funneled around $8.54 billion during financial year 2016-17, according to data available on National Securities Depository Ltd. They pumped in around $4.02 billion in FY18 and just $154 million in FY19.

How IPO Subscription Fared

While financial sector raised bulk of funds, demand for those IPOs was still lower than that for other sectors. The subscription-to-funds ratio for financial sector stood at 27.1. In contrast, personal and household goods sector’s ratio stood at 110.8 while that for retail was over 73.

Use Of Issue Proceeds

Of the overall funds raised through fresh issues during the three-year period, about 49 percent of the funds were used to augment their capital base, while 22 percent of the proceeds were used to repay debts.

About 12 percent of the fresh capital was used for capital expenditure including acquisitions, 10 percent of the funds were used for general corporate purposes and about 6 percent of the funds were used for working capital requirements, KPMG noted.

Listing Day Performance

Of the 85 IPOs between April 2016 and March 2019, 58 companies ended the listing day above their offer prices, KPMG said, adding that 40 companies generated double-digit returns.

Nearly 38 percent of the companies listed in the previous financial year yielded over 20 percent returns from their offer prices on their debut day compared to 37 percent and 11 percent in the preceding two financial years, KPMG said.

On the flip side, seven out of 26 companies that ended below their offer prices during the period delivered double-digit negative returns, the research report said based on data available on the Bombay Stock Exchange.

Nearly 56 percent of the companies listed in 2018-19 ended below their offer prices compared to 29 percent and 15 percent in the preceding two financial years, the report said.

IPO Performance: PE Vs Non-PE-Backed Companies

Of the 83 companies that launched IPO between April 2016 and March 2019 and raised about Rs 1 lakh crore, 45 companies were non-private equity-backed and raised about Rs 63,700 crore. 38 companies that were PE-backed raised about Rs 57,700 crore, KPMG data showed.