Market gears up for slew of IPOs

With the market rising and investor sentiment improving, India’s primary market is warming up for action, after a hiatus of about two years. Buoyed by the success of the Rs 200-crore (Rs 2 billion) initial public offering (IPO) of Snowman Logistics, which saw bids worth about Rs 12,000 crore (Rs 120 billion), at least three more IPOs are set to hit the market.

On Friday, agrochemical company Sharda Cropchem launched a Rs 350-crore (Rs 3.5 billion) offering. Next in line are media firm Shemaroo Entertainment, which plans to raise about Rs 150 crore (Rs 1.5 billion), and apparel retailer Monte Carlo Fashion’s Rs 500-crore (Rs 5 billion) IPO.

Adlabs Entertainment and Lavasa Corporation are seeking regulatory nods to launch such offerings.

If the Sharda Cropchem, Shemaroo and Monte Carlo IPOs go through, September will be the best month for the IPO market since December 2012, in terms of the number of offerings. Since 2013, only five IPOs have hit the market, indication the slowdown the primary market has seen.

"Discussions with companies have increased substantially and we think there are many quality issues in the pipeline. We feel there will be more filings with Sebi (Securities and Exchange Board of India) through the next few months,” said Sanjay Sharma, managing director and head (equity capital markets), Deutsche Equities India.

“In the past two to three years, there wasn’t much activity in the equity market. So, people had stopped work on IPOs. Now that the markets have opened up, you will find more such offerings; you will start seeing more IPOs hitting the market after September,” said Indraneil Borkakoty, managing director, IDFC Investment Banking.

It is expected share sale activity by the government will also gather steam soon.

Sources say the Centre has already started road shows for disinvestment in Steel Authority of India Ltd (SAIL) and Oil and Natural Gas Corporation (ONGC).

SAIL’s offer for sale (OFS) of about Rs 2,000 crore (Rs 20 billion) is likely to be first off the block, followed by ONGC’s mega share sale of about Rs 15,000 crore (Rs 150 billion).

Investment bankers are confident the new paper supply, be it through IPOs or OFSs, will be lapped up by investors. The optimism stems from the recent success of share sales in listed companies, as well as the availability of liquidity. This year, about Rs 60,000 crore has already been raised through qualified institutional placements, OFS and block trades.

Foreign investors have pumped in about $13 billion into the stock market this year, while mutual funds have invested about Rs 12,000 crore (Rs 120 billion) since July. Equity mutual fund schemes, after recording inflows of about Rs 20,000 crore in the last three months, are waiting to deploy funds in new paper in the market.

Experts say investor preference is shifting from the debt market to equities, adding this will help the primary market offerings, as prices of listed companies have already run up substantially. The shift can be attributed to tax changes in the case of debt mutual funds, as well as the success of the equity market. India’s benchmark indices—the Sensex and the Nifty—have soared about 30 per cent so far this year and are close to their all-time highs.