Last year’s fundraising is 89% more than the previous record of Rs37,534 crore reported in 2010, data from primary market tracker Prime Database shows.
Market experts said several factors, including a resilient Indian economy and strong domestic liquidity coming into equities contributed to the buoyant market for IPOs.
“The domestic economy has remained resilient despite several big disruptions including demonetisation and the GST rollout, and this has buoyed foreign and domestic investor sentiment," said Sumit Jalan, co-head of India Investment Banking & Capital Markets, Credit Suisse.
“We’ve seen record domestic inflows this year due to equity being viewed as a preferred asset class after some time, aided by higher penetration of formal channels for savings such as asset managers, insurers and wealth managers."
The supply side too has been vibrant with high-quality companies from a wide variety of sectors coming to the market.
“On the supply side, fairly high quality paper with good sponsor-backing has hit the market. Investors have reacted positively to the mix of new sectors, themes and instruments that have come to the market. Secondly, a large portion of the issuance this year has been in the form of offer for sales (OFS) in the secondary market, as sponsors took advantage of the constructive market environment to monetise their holdings," Jalan added.
One of the standout features of the IPO run this year has been the number of large-sized IPOs that hit the market. The year witnessed four $1 billion plus IPOs—General Insurance Corp. of India (Rs11,175 crore), The New India Assurance Co. Ltd (Rs9,466.9 crore), HDFC Standard Life Insurance Co. Ltd (Rs8,695 crore) and SBI Life Insurance Co. Ltd (Rs8,364 crore).
Experts say that more such IPOs will come into the market in 2018.
The median size of IPOs has been increasing over the past three years with FY17 median IPO size at Rs880 crore, indicating that the companies tapping capital markets are among the larger well-established firms looking to further grow their businesses, along with providing exits to early stage investors, said Shilpa Kumar, managing director (MD), ICICI Securities.
“Retail investors have started actively participating in the equity markets due to muted return and activity from other assets classes such as real estate, gold etc. which were conventionally the dominant asset class," said Kumar. “This coupled with increased inflows from DIIs (domestic institutional investors), positive outlook of FIIs (foreign institutional investors) on Indian markets and the general positive sentiments in the market, we believe that the Indian equity market has become deep enough to support trades of more than $1 billion."
Given the four billion-dollar IPOs from the insurance sector and other major issuances, the year was dominated by banking, financial services and insurance (BFSI) sector.
The sector is expected to continue to dominate IPO fundraising in 2018, though a couple of other sectors such as auto and real estate too are expected to shine in 2018.
“The BFSI sectors are expected to continue to dominate the 2018 IPO pipeline, however, the mix will change. We’re likely to see more traditional lenders coming to the market as they require further capitalisation, both for growth and provisions. More service providers such as asset managers, Wealth Managers, Fintech and Registrars will also be in the mix. BFSI is in the sweet spot, where there is a need for capital as well as healthy valuations and yet strong investor appetite," said Jalan of Credit Suisse.
"Outside of BFSI, we expect telecom, auto and real estate companies in the pipeline for 2018 and incrementally new tech sector companies in 2019," added Jalan.
“The market outlook, maturity of the Indian markets, government’s disinvestment programme as well as the presence of sophisticated PE (private equity) investors in interesting new age businesses which are ripe for listing, all of these factors will continue to bring diversity to the IPO market and provide investors new opportunities to invest in IPOs in FY18," said Kumar.
The activity in 2018 could see a rush as companies might look to advance their IPOs in light of the general elections in 2019.
“With the coming 2019 general election, we expect many companies who have IPO plans will likely move forward with their transactions in the first three quarters of 2018, resulting in pent-up IPO activity. Also, due to the secondary component, deal sizes can be large, hence while the number of initial public offerings may not increase as much, the quantum of the fundraise would remain large," said Jalan.