Mumbai: Indian companies raised the lowest amount of money in nine years through initial public offerings (IPOs) in 2011, as a wave of negative sentiment swamped the stock market.
Thirty-seven IPOs raised a combined Rs 6,068.5 crore from investors in the year to date—the lowest since 2003, when a total of Rs 2,013.06 crore was garnered through first-time share sales.
Benchmark indices dropped 20% in the year—one generally accepted measure of a bear market—as a stuttering US economic recovery and the European debt crisis combined with rising interest rates at home, stubbornly high inflation and slowing economic growth to dampen investor sentiment.
In 2010, a total Rs 39,834.51 crore was raised from IPOs—the highest in any calendar year—as the Sensex gained around 17.4% and shrugged off the effects of a global recession that followed the September 2008 collapse of Lehman Brothers Holdings Inc.
File photo of a worker cleaning the glass of the Securities & Exchange Board of India in Mumbai. Bloomberg
Companies get a one-year window from the date of getting the go-ahead from the markets regulator, the Securities and Exchange Board of India (Sebi), to launch IPOs. But many have let approvals expire.
“The bad mood of the capital market has led 28 companies to call off their IPOs during calendar year 2011. These companies were planning to raise a total of around Rs 32,200 crore,” broking firm SMC Global Securities Ltd said in a recent report.
Even companies that have a few more months left to tap investors appear to be avoiding this route as the market remains in a bear grip. The SMC Global report cites the example of mobile phone maker Micromax, which has announced that it was deferring its IPO due to market conditions.
“…further, there are at least eight other companies that have valid Sebi approval in hand and are left with just two months…such companies include Pride Hotels, Tara Jewels, etc.,” the report said.
While the bellwether index of the Bombay Stock Exchange, the Sensex, is down 22.13% in the year so far, the broader Nifty index of the National Stock Exchange of India has lost 22.1%. During the same period, the BSE IPO index lost 32.16%.
Foreign institutional investors, the key drivers of Indian equities, sold stocks worth a net $509.63 million. Domestic institutional investors have been net buyers of stocks worth Rs 27,081.27 crore.
Even the Union government has been at the receiving end of the bear market as it is still short of its fiscal year-end target of raising Rs 40,000 crore from disinvestments. Till date, it has been able to raise only Rs 1,144.55 crore through a follow-on public offering of shares in Power Finance Corp. Ltd.
While small-size issues are not generally favoured by institutional buyers, the bleak performance of newly listed shares in the year also played a part in scaring away investors from fresh issues in 2011.
“Since valuations were stretched, most of the issues were subscribed by operators who rigged up the prices on listing, leading to a 30-40% slump in share price in a span of a few days from listing,” said Ambareesh Baliga, chief operating officer of broking house Way2Wealth.
Reacting to the wild swings in prices of newly listed shares, Sebi initiated a probe into several public issues to ascertain if there was foul play in the issues as well as the post-listing process. The markets regulator questioned some merchant bankers and brokers involved in the process of listing and trading certain shares and is likely to come out with an order soon, as Mint reported earlier this month.
Shares of at least three-fourths of the companies that raised funds from the public closed below their issue prices on Tuesday.
Their current market prices were down in the range of 7.6-90.6% from their issue prices, with shares of 13 companies trading at least 50% below their offer prices.
The top losers included Taksheel Solutions Ltd (down 90.6% from an offer price of Rs 150), Bharatiya Global Infomedia Ltd (down 88.35% from an offer price of Rs 82) and Acropetal Technologies Ltd (down 87% from an offer price of Rs 90). Some of the top gainers include Onelife Capital Advisors Ltd (up 113.18% from Rs 110), Aanjaneya Lifecare Ltd (up 116.26% from Rs 234) and Rushil Decor Ltd (up 84.72% from Rs 72).
Looking ahead to 2012, merchant bankers say that the markets’ prospects depend on news flow emanating from global and domestic economies.
“There was a kind of pessimism on the street due to domestic and euro zone-related issues. Though first few months (of 2012) will be challenging, we are expecting the first half to provide windows of opportunity to tap the capital markets,” said V. Jayashankar, head, equity capital markets, Kotak Mahindra Capital Co Ltd.
Krishna Merchant and Sneha Shah contributed to this story.