Home Economy Liquidity, strong markets fuel bigger Indian IPOs

Liquidity, strong markets fuel bigger Indian IPOs

By Karen Yap Lih Huey, IANS

New Delhi : The size of initial public offerings (IPOs) in India is getting larger – at least Rs.40 billion ($1 billion) – and the trend is expected to continue till next year as the appetite for investment remains strong in a bull market, say market watchers.

With the economy projected to post a robust growth of 9.2 percent and factoring in the sound liquidity in the markets, this year’s strong showing of the biggest ever funds raised – notably Rs.91.87 billion by DLF despite worries of bubbles in the property sector – sets the stage for another record-breaking round.

This year alone, besides DLF, ICICI Bank raised Rs.200 billion through an IPO in India and American Depository Receipts in the US. The fund-raising exercise by State Bank of India targeted later in this fiscal is anticipated to be another record-breaker – it is rumoured to top Rs.145 billion.

Sparked by the money flush, enthusiasm among investors is certainly soaring and IPOs are seeing over-subscriptions of at least three-four times. The rally in the sensitive index (Sensex), the 30-share index benchmark of the Bombay Stock Exchange (BSE), pushed total investor wealth past the Rs.50,000 billion for the first time Sep 21.

“We are seeing a lot of interest in the equities market. Listed companies are also going for secondary listing,” said a senior investment banker in a local bank requesting anonymity, as he’s not authorised to speak to the media.

“Valuations of the IPOs are fair and the trend is going towards larger size IPOs,” he said, adding, “There are no constraints on liquidity…tremendous demand from investors – be it retail or institutional.”

Another analyst from a securities firm saw more participation from real estate companies. “So far, the real estate sector has less representation. The trend is showing there will be more participation from property companies.”

He, however, cautioned that the quality of companies seeking to float IPO is a big concern among the investment bankers.

“Quality has started to decline. There were a few companies without proven track record and there were those who don’t have profit or loss for the past two to three years in their business. They couldn’t show a proper balance sheet,” he said.

“Everybody wants to cash in,” he said, adding investors’ appetite remained strong and would continue to remain upbeat, taking cues from the markets.

“I expect to see bigger issuance. The valuations are not overstretched. It has been quite fair so far. We’ve not seen exorbitant valuations.”

Eighty-five companies raised Rs.249.93 billion in 2006-07 and investors were rewarded handsomely, especially those who bought shares of companies involved in high-growth sectors such as energy and real estate.

Gujarat State Petronet, an energy transportation company that operates the second-largest pipeline in the country, raised $84 million in its IPO on February 2006 and shares jumped 75 percent during its first day of trading.

“Money is definitely coming into equities. We’re not seeing any liquidity crunch. If an IPO issuance were rightly priced, the demand would be greater. I see big appetite for IPOs – both from foreign and local institutional and retail investors,” said a head of research at a local securities firm.

During DLF’s IPO, it received overwhelming participation from across the globe. Nearly 90 percent of institutional demand came from global institutional investors with almost equal contribution from the US, Europe and Asia.

“The foreigners are scouting for good bargains and at the moment, the Indian equities market is attractive. We’ll be seeing more interests, more cash, more euphoria in the market,” said another analyst who tracks the stock markets.