Mumbai: Investment bankers have seen their fees from initial public offerings (IPOs) hit a four-year low, falling to ₹298.4 crore so far this fiscal year, from a high of ₹794.5 crore in fiscal 2018, showed data from prospectus documents filed with the Securities and Exchange Board of India (Sebi).
The sharp fall in fees of investment bankers advising on IPOs is because only a dozen companies have approached the primary market this fiscal to raise a total of about ₹14,031 crore, while in FY18, 45 companies tapped the primary market to raise ₹81,553 crore, showed data from Prime Database, a primary market tracker.
Fees generated through IPOs in the current fiscal is also lower than that of fiscal years 2017 and 2016, which saw fee worth ₹577.1 crore and ₹458.2 crore, respectively. There were 25 and 24 initial share sales in FY17 and FY16 respectively.
The latest fiscal has witnessed just a handful of big IPOs, such as those of HDFC Asset Management Co. Ltd, IndoStar Capital Finance Ltd, Varroc Engineering Ltd and Aavas Financiers Ltd. The last fiscal year was marked by some IPOs that were more than $1 billion in size such as HDFC Standard Life Insurance Co. Ltd, state-owned New India Assurance Co. Ltd and General Insurance Corp. of India.
Volatility in the stock markets on account of several macro headwinds has been a major contributor to inactivity in the primary markets.
“Macro headwinds such as rupee depreciation, crude price, the NBFC liquidity crisis that hit in the last quarter of the calendar year after defaults by Infrastructure Leasing & Financial Services Ltd (IL&FS) created volatile conditions. On top of that, valuations in the midcap and smallcap segments saw significant correction," said an investment banker requesting anonymity.
These circumstances led to clients getting cold feet towards launching deals as they were uncomfortable to sell their stock at the revised lower value that investors were offering and were rather willing to wait for markets to improve, he added.
The difficult conditions have created a long pipeline of companies that have filed their prospectus with Sebi but are waiting on the sidelines for right market conditions.
In December, Sebi chairman Ajay Tyagi said for 2018, the capital markets regulator approved about 70 companies to raise over ₹60,000 crore.
“We expect deal activity to pick up post the general elections in May, given the long pipeline of deals that are ready to launch. So, next fiscal, should be better in terms of fees," the first person cited above said.
Investment banks have been looking at other transactions to shore up their revenues in the absence of lucrative IPO deals.
Mint reported in November that investment bankers are pitching for more share buybacks due to low activity in the IPO market. According to Prime Database, fiscal 2019 has so far seen 44 share buybacks. A second investment banker, who did not wish to be named, said the lack of IPOs is likely to pinch those investment banks more that do not have a strong private equity and M&A advisory practice.
“Banks that are more dependent on capital markets transactions will be more affected than those that have a strong M&A and PE practice, as those areas have continued to see strong activity with both M&A and PE/VC deals hitting new record highs in 2018," he said.