Mumbai: Initial public offering (IPO) activity could pick up in the second half of the year despite market volatility and macro headwinds, as companies look to list before upcoming state and general elections in 2019, said industry experts.

In the first half of this year, 18 companies raised 23,438.5 crore, while in the same period last year, 13 firms had raised 11,774.41 crore, according to data from primary markets tracker Prime Database.

While the full calendar year 2017 witnessed record fundraising for the Indian IPO market with 36 companies raising 67,147.4 crore amid rising stocks, IPO activity this year has had to deal with a volatile stock market and macroeconomic headwinds.

In 2017, the benchmark Sensex rose by 27.9%, while in the first six months of 2018, the index has gained merely 4%.

Industry experts believe volatility is here to stay in the near term.

“The emerging markets are currently witnessing some sort of pull-outs by foreign institutional investors on the back of fears around a trade war, high crude prices and other geo-political issues. In India, with these factors combined with an weakening rupee and uncertainties over state and general elections, one can expect the markets to remain volatile in the near to medium term," said Debasis Panigrahi, executive director-investment banking at Nomura India.

The global macro situation has also meant that foreign institutional investors have been pulling money out of emerging markets including India, adding to the volatility. However, India is at a relatively better position compared to other emerging markets, when it comes to liquidity, said experts.

“However, when you compare India to other emerging markets, India has still been somewhat insulated from the global pull outs. While FIIs have been net sellers in recent times, the substantial support from domestic institutions has ensured that Indian indices have been best performing amongst emerging markets. Though the inflow into domestic mutual funds have tapered down from the peak levels, there is still enough flow of funds decent enough to continue the buying momentum," added Panigrahi.

Valuations too have seen a correction this year, especially in the mid-cap and small-cap segments, which have been the worst-hit by volatility.

“If you look at the valuations, quality large and mid-cap companies continue to trade at robust valuations, while the rest of the market has seen significant correction during 2018. We see the market in a trading zone because of good micro. Only a positive macro can provide a new catalyst for market sentiments to improve," said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Investment Banking.

Jayasankar added that despite challenging conditions, quality companies will find takers for their share sales.

“There are several companies that have filed the prospectus with Sebi (Securities and Exchange Board of India) and in due course will achieve listing. Even in these challenging primary and secondary market conditions, we are seeing companies with good track record, strong management and differentiated positioning attract great quality of investors participating in IPOs," he said.

Upcoming state elections and the general election in 2019 are expected to create a rush of IPOs in the second half of this year, as companies would rather avoid the uncertainties of the election period, said industry experts.

“Companies are preparing and keeping themselves ready for a potential launch during the second half. We see a risk around most of these issues getting bunched up during the October to December window," said Panigrahi of Nomura.

Jayasankar of Kotak said that there has been an acceleration in the efforts of companies so that elections are not in the way.

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