Asurge of liquidity and a sharp increase in the secondary markets enabled Indian companies to raise around Rs52,200 crore till November 2009 through fresh equity issues and private placements with institutions. But with many initial public offers (IPOs) trading below their listing price, would this trend continue in 2010, Mint asked A. Rajagopal, a managing director at Swiss bank UBS AG’s local unit. Edited excerpts:
What’s the outlook in the fund raising market for 2010?
At least for the first half of 2010, we don’t see why the current surge of liquidity would abate.
Markets are expected to remain fairly buoyant for fundraising…barring any unforeseen setback, which would make people nervous about equity in general.
Right now, we don’t see that happening. So the climate would be buoyant and we would see a lot of IPO happening, specifically in India.
A figure of $70 billion being raised over the next three years is doing the rounds. What’s your take?
(It’s) not an unfair number. If you look at 2007, equity capital raised was in the order of $32 billion. This year, as we speak, over $20 billion has been raised and I am speaking of only equity and equity-linked instruments. And this year, the first three months were pretty bad. So if you annualize the number, that’s well over, say, $25-26 billion. So $70 billion over the next three years is not a bad estimate at all. What it presupposes is that market conditions would remain buoyant for fund raising.
Eighty per cent of IPOs this year are trading below listing price...
I am a little surprised that IPOs have performed so poorly. Generally, IPOs do trade well. Historically, if you look at it, that’s the track record. I am pretty confident that going into the new year, that trend will change and both companies and bankers advising them will become a little more cautious. I don’t think one should read too much into that, but that’s had an impact in terms of response from retail investors.
So, you say we might see sensible pricing?
I don’t think it was a question of insensible prices. We can’t generalize it (because) if you dissect some of those IPOs which did not trade well in the aftermarket, at the time of the IPO, there was pretty good institutional and retail response, although retail response has fallen away in the last couple of IPOs. So there is no reason to believe that at the time of pricing, they were overpriced, because if that were the case then a lot of the IPOs wouldn’t have got a proper response and some of them would have failed. But that did not happen.
But let’s not run away from the fact that maybe some of them were overpriced.
A combination of factors including some more caution when it comes to pricing, and investors also not assuming that all IPOs would trade well in the aftermarket would help in getting more sensible pricing and better response.
Which sectors are expected to dominate?
In terms of draft offer documents already filed with Sebi (Securities and Exchange Board of India), real estate and power companies stand out. I think we would have some more issues coming out of the financial institutions. It necessarily need not be banks (raising) capital like we have seen in the western world, but could be completely new sectors like insurance companies and asset management companies.