Mumbai: Fourteen companies raised a total of Rs18,591 crore through initial public offers (IPO) in the first three months of 2018, a more than fourfold increase from the Rs4,185 crore raised by five companies in the year earlier, data from primary market tracker Prime Database shows.

The surge in IPO activity was mainly driven by the introduction of long-term capital gains tax, or LTCG tax, where the firms rushed to list before the tax took effect on 1 April. On the other hand, the first quarter of 2017 saw tepid IPO activity due to the setbacks from demonetization announced in November 2016.

“The first quarter of 2018 was driven by LTCG tax. Not many transactions happened in the first quarter of 2017 because of the demonetization in November 2016. As a result of demonetization, there were uncertainties and the valuation was lost," said Narayanan Sadanandan, executive vice-president and head-capital markets group at SBI Capital Markets Ltd.

However, going forward, investment bankers don’t see the momentum continuing in the rest of the calendar year due to the lack of liquidity, political uncertainty (state and national elections), fear of trade war and rising crude oil prices, among other headwinds.

“My sense is there will be a bit of slowdown in the next couple of months, given the volatility in the secondary markets right now and also because of the introduction of LTCG tax. Over the next couple of months, till things don’t stabilize, the number of issues will be on a lower side," said Pranav Haldea, managing director of Prime Database.

Volatility in the secondary market captures every type of headwind because it is the sum total of all news from economic to political, added Haldea.

Out of 14 firms listed in the first quarter this year, eight are trading below issue price. These include ICICI Securities Ltd, Bharat Dynamics Ltd, Aster DM Healthcare Ltd, Hindustan Aeronautics Ltd, Apollo Micro Systems Ltd, Galaxy Surfactants Ltd, Karda Construction Ltd and Newgen Software Technologies Ltd.

According to Haldea, companies that are not in dire need of funds and whose fundamentals are good are more willing to defer IPO plans. Between 2012 and 2014, when things were not very conducive, even though firms had received Securities and Exchange Board of India (Sebi) approvals which is valid for a year, many had let it lapse.

“Instead of bringing down their valuation, what we have seen in the past is that companies decide to skip the issue completely because promoters and shareholders may not want to compromise on their valuation and hence, they say that we will come back when things are firming up again. But companies that are in dire need of capital have to look at cutting down their valuation if they want to tap the primary market," said Haldea.

He further added that even in the challenging times like now, there is always appetite for good quality issuers with a reasonable valuation.

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