By IANS,
New Delhi : The outlook for initial public issue offerings is expected to remain sluggish this year on account of high inflation and economic slowdown, says a study released Monday by a leading industry lobby.
The IPO Outlook 2008, the study by the Associated Chambers of Commerce and Industry (Assocham), said a large number of companies are planning to postpone their investment plans or opting for external borrowings following the slowdown.
It said the number of primary market issues declined to 19 in the first five months of the year, as compared to 44 during the corresponding period in 2007. But the funds raised so far are higher: Rs.162.58 billion ($4.06 billion), as compared to Rs.89.26 billion ($2.23 billion).
“This (lower number of IPOs) is primarily because of the difficult time the economy is going through on account of high commodity prices, reduced capital inflows, high interest cost and global recessionary expectations”, the study said.
“Considering the pace, the year may witness around 30 to 35 public offerings as compared to 101 IPOs in 2007,” said Assocham president Sajjan Jindal.
Companies raised Rs.341.19 billion ($5.8 billion) from IPOs across 29 sectors last year.
“The situation in the IPO market may improve in the last two-three months of the year, if the economies like the US and the UK come out of the recession cycle, and inflation comes down owing to base effect and steps taken by the government,” Jindal said.
Around 90 percent of the amount raised during January-May 2008 was restricted to power and construction sector. Reliance Power alone accounted for 60 percent of the funds raised from the primary market during the period.
Financial services IPOs witnessed a negative growth of 47.38 percent between January and May, as against the same period in the previous year. During the period, financial services firms raised IPO proceeds totalling Rs.4.96 billion.
The sectors including telecom, IT and textiles registered negative growth in terms of amount raised in the primary market in the five-month period.
The telecom sector too witnessed a decline in funds raised during January-May: Rs.1.99 billion this year that accounted for a meagre 1.24 percent of all IPO funds raised. Last year, the sector in the same period raised Rs.24.43 billion, commanding a share of 27.38 percent.
Textile IPOs declined 79.06 percent and the only company in the sector to have raised money from the primary market was Bang Overseas Ltd, which offloaded its shares for Rs.1.54 billion.
The IT sector witnessed a negative growth of 79.46 percent. As compared to three IT companies that went for public listing in January-May 2007 – contributing Rs.6.81 billion – only one company listed its shares in last five months of the current year, raising Rs.1.39 billion.
Global slowdown has also led to a reduction in the number of sectors going for an IPO, even among those active in 2007: healthcare, real estate, media, agriculture and allied services.