Expect IPO mart to come alive again

Tags: Stock Market
After a dull year for IPOs in 2013, the new year promises a revival in initial public offerings (IPOs) for three reasons; pent-up demand for fund raising and investors’ exits, a concerted effort by market regulator Sebi to revive the primary market and a revival in the investor confidence on equities on improvement in the macro environment.

The year gone by proved to be the weakest in at least seven years for the IPO market, with 37 firms raising a meagre Rs 1,723.53 crore, compared with over Rs 6,000 crore raised in each of 2012 and 2011.

Big and even mid-sized IPOs were missing throughout 2013, with Just Dial being the largest one mopping up Rs 927.36 crore followed by Repco Home Finance (Rs 270 crore) and a couple of sub-Rs 100 crore issues like V-Mart Retail (Rs 94 crore) and Kushal Tradelink (Rs 27 crore), among others.

Market experts say things may not improve in a hurry, but a recovery is likely in the second half of the calendar. “There is a huge demand for capital. However, we don’t see things improving in the near future. A strong political leadership with a clear mandate and improvement in macro fundamentals can bring back appetite for big IPOs,” said Prithvi Haldea, CMD of Prime Database.

Some analysts pointed out that while inflows from foreign institutional inves-tors remained a major force behind the rise in large-cap stocks in 2013, mid-cap and small-cap stocks did not perform well, which hurt confidence in the IPO market. “IPOs generally have a positive correlation with the midcap stocks. The periods that have seen good performance by midcap stocks have also seen more private firms hitting the market to raise funds by selling equity. Since the midcap stocks did not perform well in 2013, potential IPO candidates decided to stay away,” said Prakash Diwan, director at Altamount Capital.

The BSE midcap index is down 6.56 per cent so far this calendar compared with 8.48 per cent rise in the BSE Sensex. Diwan expects midcaps to perform well in 2014 and expects an uptick in IPO activity in 2014.

Sebi has taken a number of investor-friendly steps over the past two years to revive the subdued primary market and boost the inv­estor confidence. It enfo­rced norms like minimum share allotment to retail investors, electronic bidding for IPO shares and extending the reach of Asba (application supported by blocked amount) during 2012-13.

Sebi is also said to be considering the idea of allowing IPOs through the OFS platform to help issuers to cut down on costs and shorten the share allotment and listing time. Just a week back, Sebi did away with the mandatory grading of IPOs to make share issuance simpler.

These measures seem to have enthused greater retail interest in IPOs, with the average number of individual investors bidding for shares in a public offer rising over three times to 1.17 lakh since these reforms came into effect.

“IPOs hit the market when there is investor appetite. Investors will be sitting tight till the outcome of the general elections. Also, the pace of US Fed tapering needs to be seen, as it would influence liquidity in the market,” said Pani Sekhar, fund manager for PMS at Angel Broking.

amitmudgill@mydigitalfc.com

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