IPO in emerging markets set to recover first from the economic downturn, says an

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Ernst & Young Institutional Investor IPO survey. Investors believed a handful of IPO markets worldwide would show recovery by the end of 2009. India (57%), China (75% of respondents) and Brazil (57%) were highlighted as the most likely, the survey based on responses from more than 300 institutional investors across the world found out.

R Balachander, Partner and IPO Leader, Ernst & Young, said “IPO activity in the last two quarters confirms that some IPO markets are making an early recovery, notably in the emerging economies of, India, China and Brazil. A stable government and booming sensex has led to the revival of IPO activity."

There was pent up demand for capital, and Indian corporates were quick to realise that investors were looking for fresh avenues to deploy funds. All this augured well for the capital markets and the first signs of revival were visible in the series of successful Qualified Institutional Placement s (QIPs) and IPOs followed soon thereafter, Balachander added.

Commenting on the IPO market, he said, “As the markets bounced back, we are seeing that a number of companies are once again preparing for listing. More than a dozen IPOs have happened in the last few months, most of them successful in terms of subscriptions, though we have not seen frenzied response from retail investors as was the case in 2007 an early 2008.”

The survey revealed that 38 per cent of the respondents in India felt that mid-cap companies will get into an IPO mode first. Amongst them companies from the power, real estate, infrastructure and PSU disinvestment will lead the pack. However, globally investors believe that the technology sector will lead IPO recovery, followed by financial services and the oil and gas sector.

The global survey further reveals the importance of financial factors in influencing the IPO investment decision-making process. In the 2009 survey Debt to equity came right on top in

“Our survey result highlights investors’ concern with companies’ leverage, as a result of the financial crisis.- Investors are looking for less risky investments, which mean that they are more concerned with debt to equity ratios and invest in companies that performed well in the downturn and are able to service their interest and debt. When the market returns, investors will require a track record of significant growth," concludes Bala.

For many of the developed markets like the UK, Australia and Germany (all 57 per cent) and Canada (62 per cent) investors believed domestic IPO markets will start to recover between Q1 2010 and Q2 2011. A surprisingly large minority in many major markets – in France and Japan up to 42% - of investors thought a recovery could be more than 18 months away.