Small, medium firms may revive IPO market
4 min read 25 Sep 2012, 11:28 PM ISTAt least 50 mid- and small-cap initial public offerings could be lining up to tap investors
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Mumbai: Indian equity markets seem set to snap a nearly two-year lull heading into the year-end as a raft of mid-size companies seek to raise money, taking advantage of a rebound in investor sentiment.
Over the next few months, many companies seeking to raise ₹ 200-500 crore each from the public will hit the market, according to at least seven investment bankers advising clients at various stages of raising money through initial public offerings (IPOs).
At least 50 small and medium companies could be lining up to tap investors, according to an estimate by Prime Database, which tracks the primary capital market. Companies have a one-year window to raise the money once they receive the capital market regulator’s approval for the IPOs. The number of public offerings could increase dramatically if a sudden spurt in inquiries is anything to go by, investment bankers say.
Government decisions this month aimed at pushing long-delayed economic reforms have improved market sentiment that had been downbeat because of slowing economic growth, corruption scandals and stalled policy changes. In rapid moves, the United Progressive Alliance government has allowed foreign airlines to buy up to 49% of domestic carriers, permitted overseas retailers to hold a stake of up to 51% in multi-brand retail ventures, eased conditions for investment by single-brand retailers, and decided to divest stakes in select state-owned companies.
“The investor community is positively reacting to the government measures and they are expecting the reforms to continue," said Sunil Goyal, managing director and chief executive officer of Ladderup Corporate Advisory Pvt. Ltd.
BSE’s bellwether equity index, the Sensex, has risen 3.74% in the past eight trading sessions since the government started rolling out the reforms. For the year to date, the Sensex has gained 20.96%.
“There will be selective deals of high-quality companies in sectors that investors prefer... We anticipate IPO issuances of around ₹ 8,000-10,000 crore in the current calendar year. If the market rally sustains, we will see a better recovery in the next fiscal," said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Investment Banking.
In 2011, 37 public issues raised ₹ 5,966.28 crore.
According to Prime Database, as of 14 September, 34 companies had received approval from the capital market regulator and another 25 companies were awaiting approval. Of these, two companies—Usher Eco Power Ltd and Just Dial Ltd—have filed their applications a second time. Once a company gets approval from the Securities and Exchange Board of India, it needs to launch its IPO within a year. If it does not do so, the approval lapses and it needs to move the regulator anew.
“Sentiments are reasonable for mid-market IPOs now, though a sustained rally has to be seen for large offerings," said Praveen Chakravarty, chief executive of Anand Rathi Financial Services Ltd.
Anand Rathi, which managed the public issue of Lovable Lingerie Ltd last year, is currently managing the offerings of V Mart Retail Ltd, Unijules Life Sciences Ltd and Aurangabad Electricals Ltd.
It’s in the race to bag mandates for two more IPOs, one for an information technology data centre company.
Although market sentiment has improved, investor interest can be sustained only if the first few issues succeed.
“With the market showing remarkable improvement, small and localized IPOs will gain momentum. However, the large-ticket issues will hit the market only if the positive sentiment is sustained," said Prithvi Haldea, chairman and managing director of Prime Database.
According to Haldea, Bharti Infratel Ltd’s ₹ 5,000 crore issue could be a turning point. “With its historical track record, the pricing of the issue will be good and it is likely to act as a sweetener for the IPO market," he said.
Experts expect mid- and small-cap offerings to generate interest from retail investors. Typically, 35% of a public issue is kept for retail investors, but since the market’s slump in the wake of the collapse of US investment bank Lehman Brothers in September 2008, retail investors have been staying away from the equity market.
“If nothing untoward (political or economic) happens, the gains should continue. Profit-booking has already been noticed," said an analyst with a large brokerage firm, who did not want to be identified as he is not authorized to speak to the media.
Samir Bahl, executive director and head (investment banking group) at Centrum Capital Ltd, said larger issues may find more favour as they pose less market risk.
“There is enough pent-up demand for good assets among investors—both domestic and global. With the market beginning to show some improvement, investors will try to test the waters with blue-chip companies that pose lesser market risks," said Bahl.
Sanjay Sharma, head of equity capital markets at Deutsche Equities India Pvt. Ltd, said, “Primary market activity generally picks up with a lag as investors need to be first comfortable with stable market conditions, and from the companies’ perspective it takes time to prepare and file their offer documents."
