Coins sit in a piggy bank on the desk of a stockbroker against the backdrop of computer screens at Shore Capital Group (Photographer: Simon Dawson/Bloomberg)

Fundraising Via IPOs Slumps 53% In April-September

Indian companies raised Rs 12,470 crore through initial public offerings in April-September this financial year, a plunge of 53 percent from the year-ago period, mainly due to volatile equity markets and macro uncertainties.

Some analysts believe that the IPO market for the second half of the ongoing financial year will be poor as the secondary market would continue to be choppy on account of high crude price, depreciating rupee and tariff war between U.S. and China.

Others, however, are of the view that concerns related to IPO market may be over-rated as the underlying consumption demand continues to remain buoyant.

According to the latest data compiled from stock exchanges, 10 companies garnered Rs 12,470 crore through their respective IPOs during the April-September period of the ongoing financial year, much lower than a record Rs 26,720 crore raised by 19 firms a year ago.

In the first half of 2016-17, 15 companies had raked in Rs 16,535 crore through the route.

Proceeds of the initial public offer were used to fund business expansion plans, pay debt, meet working capital requirements and for other general corporate purposes.

By taking the IPO route, companies achieved the benefits of listing as well as enhanced their brand name and provided liquidity to the existing shareholders.

During the period under review, Dinesh Engineers withdrew its IPO on weak equity market sentiments, while state-owned Garden Reach Shipbuilders & Engineers had extended its IPO closure by three days and revised its price band.

Munish Agarwal, director at Equirus Capital, attributed the slowdown in equity issuance to multiple factors.

“Equity issuance requires stable or up-trending secondary markets and the market direction as well as volatility has made it difficult for investors to price equity issuance,” Agarwal said. “In addition, mid caps have seen a significant price erosion and thus IPOs filed with valuations based on markets existing six months back may find it difficult to convince investors on pricing and valuations. These, coupled with uncertainties in macro environment, FPI outflow and hardening interest rates, have impacted equity issuance.”

The IPO chart in the first half of the ongoing financial year was led by Varroc Engineering (Rs 1,950 crore), followed by IndoStar Capital Finance (1,844 crore), Aavas Financiers (Rs 1,734 crore), CreditAccess Grameen (Rs 1,131 crore) and TCNS Clothing (Rs 1,125 crore).

The April-September 2017 period had seen initial share sales of two large Insurance companies—ICICI Lombard (Rs 5,700 crore) and SBI Life Insurance (Rs 8,400 crore)—which together accounted for Rs 13,700 crore.

I look upon the insurance companies making an IPO as a one-off event, since the insurance sector as a whole was earlier ‘missing’ from the markets. If you remove the IPOs of ICICI Lombard and SBI Life insurance, since these were a one-time event from the IPOs of first half of 2017-18, then the resultant picture for the first half of the current financial year is not very poor.
Dara J Kalyaniwala, Vice-President, Prabhudas Lilladher Investment Banking

Kalyaniwala said the IPO market for the second half of the ongoing financial year will be poor and uninspiring.

With so many problems being faced by the economy like high crude price, a weakening rupee, growth of businesses at much lower pace, protectionist environment of European and U.S. economies and a tariff war between the U.S. and China, the secondary markets will remain excessively choppy, he said.

“I do see a window of opportunity for IPOs after Diwali till about mid January 2019. Otherwise, I do not see the IPO markets to revive till the next general elections in May 2019,” Kalyaniwala said.

Agarwal, however, said the concerns related to IPO market may be over-rated as the underlying consumption demand continues to remain buoyant and government is expected to take proactive steps in the run-up to various state and general elections to bolster the same. “As things improve we expect strong issuance activity later in the second half of 2018-19.”