Indian Economy News

IPOs seen picking up pace despite multiple headwinds

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.

“Globally, we are witnessing a sort of trade war, the rupee is weakening, oil prices are going up, and we have state elections coming up. With all these factors combined, one can expect the markets to remain volatile for the next 9-12 months,” said Debasis Panigrahi, executive director at Nomura’s India investment banking unit.

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.

“When you compare India to other emerging markets, India has still been insulated from the global FII pull-out. While FIIs (foreign institutional investors) are pulling out money from India, if you compare all emerging market indices, Sensex is the best performing market index for now. Most of the mutual funds are sitting on a large amount of cash, which needs to be invested,” said 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. Nobody wants to take the risk of launching a deal pretty close to the election. So, most of these deals will get bunched up during the timeline of October-December,” 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.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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