Regulatory curbs on PNs seen dampening IPO appetite a tad

Regulatory curbs on PNs seen dampening IPO appetite a tad

New Delhi: The proposal of the Securities and Exchange Board of India (Sebi) to put curbs on issuance of participatory notes led to a sharp downslide in the Indian indices on Wednesday, which later made a sharp recovery.

So will the turmoil in the secondary markets affect the appetite of investors for initial public offerings (IPOs) also?

According to a 12 October release from Prime Database, a data warehouse on the primary capital market, there are 10 IPOs worth Rs2,700 crore, which have got approval from the capital market regulator.

Some of the big IPOs in the pipeline are Mundra Port and Special Economic Zone Ltd’s IPO of Rs1,600 crore, Religare Enterprises Ltd’s Rs160 crore, and Kolte Patil Developers Ltd’s Rs500 crore.

Reliance Power Ltd’s Rs10,000 crore IPO, and Rs6,000 crore IPO from Emaar MGF Land Ltd are awaiting Sebi’s approval.

The merchant bankers have a mixed opinion about the future of the IPO market at this point. They say that Sebi’s proposal could have a two-way impact on the IPO market.

Foreign intuitional investors and their clients, to whom they issue participatory notes, also invest in the Indian IPOs as qualified institutional buyers.

“The appetite of FIIs towards big IPOs may come down in future," said a senior official with a Mumbai-based foreign merchant banking firm who did not want to be identified. While there are no official estimates, the inflows in IPOs, through participatory notes, account for around 15%, industry insiders guess.

In addition, any worsening of the investor sentiment in the secondary market can also play a spoilsport for the upcoming IPOs, but only in the short term.

“In the immediate short term, there could be an impact in terms of valuations of the IPOs and the sentiment in the secondary markets, which could affect the primary markets," said S.Ramesh, chief operating officer Kotak Investment Banking.

Sebi’s proposal is unlikely to have a significant impact on the IPOs because there are lot of investors who will be willing to invest in India through the direct route. Therefore over the medium to long term as more investors come through direct route, it will be good for the markets, he added.

A domestic merchant banking house senior official, who didn’t wish to be quoted, said, “It’s still early to assess the impact of today’s market fall on the IPO market."

Meanwhile the registrars, who deal with IPO paperwork, said they haven’t yet come across a company, which has expressed its intention to postpone their IPO plans.

B. Narsimhan, vice-president at Karvy Computershare Pvt. Ltd said there would not be a major impact on the IPO pipeline.