Mumbai: Three big-ticket public offers in June could have a negative impact on the stock markets but only in the short term, analysts said. June will see the issues of DLF Ltd, ICICI Bank Ltd and Central Bank of India Ltd raise roughly Rs21,000 crore from domestic investors, making it the highest mobilization in one month in the history of the Indian capital market.
DLF’s estimated Rs9,625 crore initial public offering (IPO; the figure assumes that the shares are sold at the upper end of the price band, or Rs550 each) opens on 11 June while ICICI Bank’s estimated Rs12,000 crore follow-on issue is likely to open by the end of the month; Central Bank’s Rs1,000 crore offering could hit the market anytime between these two issues. The last time the Indian capital market witnessed mobilization of funds of such magnitude was in March 2004, and even then, the amount involved was just Rs11,402 crore.
Typically, whenever such a large amount of money is mobilized through public offers, there is apprehension that investors will sell out their existing stock holdings to generate money for buying new shares in the primary market, causing a fall in the stock market. However, historical data does not show any correlation between the amount of money being raised and the movement of the stock market indices. For instance, in March 2004, the benchmark 30-stock index of the Bombay Stock Exchange, Sensex, fell by 4% when Rs11,402 crore was raised from primary market. But in December 2005, when Rs7,000 crore was raised by five companies, the Sensex gained by 5%. And in December 2006, when Rs6,574 crore was raised by nine companies, the Sensex gained a mere 0.66%.
The two big-ticket public issues of DLF and ICICI Bank will open at a time when the Indian market is on an upswing along with other emerging markets, with the Sensex rising by around 4% during the past month.
“Such large public issues certainly mop out liquidity and purge demand for shares in the secondary market. But it happens only for a short time,” said Tridib Pathak, chief investment officer of equities, Lotus India Mutual Fund. The market will take these issues in its stride, said Rajen Shah, chief investment officer of Angel Broking. “It could be that retail investors book some profits in their existing stock portfolio to create a pool for investing in the new equity issues. But there is no reason for panic. There is a huge demand for the Indian paper among foreign investors,” he added.
In the past month, foreign institutional investors have put Rs4,651 crore ($1.13 billion) in the Indian stock market... The domestic institutional investors have also been actively investing in the stock markets. “IPOs like that of DLF allow foreign investors to participate in the India’s real-estate and construction boom. The big-ticket IPOs will have a lot of appetite,” said a fund manager with a foreign brokerage, who didn’t wish to be identified as regulatory guidelines do not permit fund managers to make observations on specific stocks.
Some fund managers rule out any negative impact on the stock markets, even in the short term. “I think there is a phobia about the large issuances,” said Anshu Madan, national head of equities at Religare Securities. He added that some investors keep an allocation aside for investing in IPOs; others have money because they only invest in IPOs; and still others who subscribe to IPOs are new to investing altogether, drawn by the pedigree of the issuers. “If the investors have made good money in IPOs in the past, then the housewives’ kitty money also starts flowing in the primary market,” said Madan.