An increase in risk appetite among investors is now a big driving force for the companies looking to hit Dalal Street with initial public offerings (IPOs).
“In the runup to 2014 elections, you didn’t hear of companies going public. But now every Tom, Dick and Harry wants to hit the market before May 15,” said Arun Kejriwal, Founder at Kejriwal Research & Investment Services.
Asked what has changed, Kejriwal says new-found risk appetite of investors in one factor, while private equity (PE) investors and promoters are in a hurry to exit positions and make a quick buck.
“Why wait for the uncertainty? If something goes wrong with election outcome, their fund raising might get delayed by not two-three months, but maybe a year,” he said.
Analysts said some 60-odd companies are in the queue to hit the IPO mart, and some others have already filed draft red-herring prospectus with market regulator Sebi.
Over the past six to nine months, the IPO pipeline has been very strong. Some 65 companies are said to be sitting with Sebi approvals and another eight awaiting it.
Since the IL&FS crisis in September, only four IPOs have been launched, said Pranav Haldea, Managing Director, Prime Database. “But now companies are eager to tap the primary market for fresh capital and for offers for sale. But a lot depends on the election outcome,” he said.
Most market analysts have rated IPO mart’s FY19 performance as dismal. Only 18 issues got listed on the mainboard in FY19 against 43 in FY18. However, the number of fresh issues stand at 14.
ICICI Securities, one of the major issues of the year, has seen its shares tank 53.37 per cent from its listing date as of March 29. Varroc Engineering, another new listing of 2019, is down 40 per cent.
Among others, Indostar Capital is down 26.72 per cent, Sandhar Technologies 21.33 per cent, Garden Reach Shipbuilders 17.42 per cent, Ircon International 15.48 per cent and MSTC 4.83 per cent
Meanwhile, some others have still managed to deliver solid gains to investors. Shares of Fine Organics have risen as much as 57.93 per cent and turned out to be the best debutant. Among others, Mishra Dhatu Nigam is up 56.72 per cent, Lemon Tree 43.66 per cent, Aavas Financiers 41.39 per cent, RITES 40.03 per cent and HDFC AMC 39.47 per cent.
IPO mobilisation during FY19 stood at Rs 14,674 crore (excluding SME IPOs), against Rs 81,553 crore in last financial year, Haldea said.
Some analysts attributed this to liquidity crunch, while Arun Kejriwal blamed it on the companies seeking lofty valuations.
The performance of the secondary market usually has a ruboff on the IPO mart. As existing shareholders seek high valuations in a IPO, investors can afford it only when the market is rallying.
While equity benchmarks Sensex and Nifty scaled all-time highs in August last year, the midcap and smallcap indices peaked out in last financial year itself.
The BSE Midcap index hit an all-time high of 18,321 on January 9, 2018 only to come down and hover around 15,500 level now. BSE Smallcap index too suffered a similar fate. After scaling record high of 20,183 on January 20, 2018, the index is off some 5,000-points from its all-time high to trade near the 15,000 mark.
When PEs want to exit a company, they not only want sky-high value but the sun, moon and earth too. “In last 5-7 years, PEs have not had it as good as they had in last 12-18 months. Where a PE player has driven up valuation more than promoters or merchant bankers, those issues have not done well,” Kejriwal said
With the euphoria over the possibility of the general elections throwing up a stable government, stocks have been rallying for the past few weeks, and this has brought the IPO mart back to life.
The issue of Rail Vikas Nigam opened last week, while that of Metropolis Healthcare will hit D-Street this week. Polycab is another issue all set to hit the market.
But analysts advised caution. “A buying frenzy may not mean the issues will fetch returns in the long term. Investors must apply discretion.”
