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Mumbai: Initial public offering (IPO) financing in India is expected to continue witnessing healthy traction in the current fiscal year, supported by favourable capital markets coupled with a lineup of prominent IPOs in a diverse range of industries including financial services and insurance, rating agency Icra Ltd said on Thursday.

According to Icra, the IPO financing market is pegged at an average Rs17,500 crore to Rs22,500 crore per issue, which can go up to Rs65,000 crore to Rs70,000 crore for large size issues and those with higher investor interest.

“The IPO financing market was very vibrant in FY2017, supported by an increase in HNI (high-net-worth individuals) investors’ interest," said Karthik Srinivasan, senior vice-president and group head of financial sector ratings, Icra.

With banks not active in this segment due to regulatory restrictions, the field is dominated by the non-banking financial company (NBFC) arms of some of the leading players in capital markets and wealth management businesses, Srinivasan added.

Buoyed by the favourable capital market outlook and healthy performance by some of the earlier issues, there has been a surge in HNI interest in IPOs to capitalize on listing gains, Icra added.

“The median subscription level for the non-institutional investor (NII, which includes HNIs) category stood at 80 times for the IPOs in FY2017, as against two times for FY2016. This, in turn, has created a market for providing short-term capital to the HNI investors for funding the IPO application," the report said.

While HNI interest and participation emanates from listing premium expectations, this can be paradoxical in nature. “The interest cost on the IPO financing availed is a fixed expense for the investor, and final returns to the investors on listing of the scrip would need to be adjusted for this interest cost," said Icra.

An analysis of the public issues in the period from April 2016 to June 2017 shows that 24 of the 31 issues listed at a premium, with median listing gains of 14%. However, after factoring in the interest expense, HNI investors would have made positive returns in only 11 issuances, Icra said.

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