IPO fundraising crosses Rs 10,000-crore mark till June

Historically, it is only the third time funds raised through IPOs has crossed the Rs 10k-crore mark

Illustration: Dominic Xavier/Rediff.com

The primary markets are going through a buoyant phase, with fundraising through initial public offers (IPO) of equity having crossed Rs 10,000 crore (Rs 100 billion) in the first six months of the year, only the third time ever.

During January-June, around a dozen firms, including two issues which are set to launch, raised Rs 11,783 crore (Rs 117.83 billion) through IPOs, show data provided by Prime Database.

In 2007, first year for IPO fundraising, 54 offerings mopped up Rs 20,833 crore (Rs 208.33 billion) in the first half of the year. The momentum continued into the next year, with 30 IPOs raising Rs 16,441 crore (Rs 164.41 billion).

In terms of average deal size, 2017 is the best year so far with average IPO size of Rs 906 crore (Rs 9.06 billion).

According to market participants, superior returns yielded by newly listed companies and overall buoyancy in the secondary markets are key reasons for the record fundraising this year.

The BSE IPO index, a guage of newly listed companies, has gained a little more than 30 per cent in 2017 so far. While, the benchmark BSE Sensex has gone up 18 per cent.

“We have seen a good traction in the IPO market during 2017, not only in numbers but in terms of quality.

This buoyancy is expected to continue in the near- to medium-term, as there is ample liquidity in the market, thanks to strong demand from both retail and institutional investors,” said S Venkatraghavan, head of equity capital markets, IDFC Bank.

For a second year in a row, financial services companies are at the forefront in fundraising. BSE, AU Small Finance and CDSL are some of these firms that have launched IPOs.

Another trend during the year has been retail consumption-related companies.

The year saw listing of Avenue Supermarts, the owner of supermarket chain DMart.

The issue received a stupendous response from investors and the stock doubled on listing in March. Shankara Building Materials, a retail home equipment provider, also launched an IPO.

The pipeline is also looking good for the rest of the year, with the primary markets set to witness at least a dozen more initial share sales.

Divestment by the central government in various entities is also expected to provide impetus.

The government is aiming to launch at least six IPOs, including of GIC Re, New India Assurance and IRCTC, in the near term.

Experts say investor appetite for new paper continues to remain strong.

The retail portion of almost all IPOs has been heavily subscribed. Meanwhile, domestic mutual funds are sitting on lot of idle cash and are looking for good investment destinations to deploy money.

“There is still a lot of potential in the Indian primary markets. While we have plenty of demand from all categories of investors, we have a shortage on the supply side.

That is why all the IPOs are getting subscribed several times. Given the positive mood in the markets, we have ability to even absorb IPOs worth Rs 50,000 crore (Rs 500 billion),” said Prithvi Haldea, founder, Prime Database.

However, a key risk for IPOs could be volatility in the secondary markets.

The equity markets are currently trading at a lifetime high and some analysts feel if there is a fall in the secondary markets, sentiment towards IPOs could get impacted.