Indian companies have earned Sebi approval to raise about Rs 30,000 crore through initial public offerings (IPOs) in the coming months, after raising over Rs 31,000 crore from the primary market in fiscal 2020-21.
Big IPOs in the pipeline include LIC, HDB Financial Services, NCDEX and ESAF Small Finance Bank. LIC alone is expected to raise around Rs 70,000 crore to Rs 1 lakh crore from the market in the third quarter of the next financial year.
According to data available with the stock exchanges, 30 firms raised Rs 31,277 crore through initial public offerings (IPOs) in 2020-21, significantly higher than Rs 20,352 crore mopped up through 13 initial share-sales in the preceding fiscal year. As many as 14 companies had floated IPOs in 2018-19 to raise Rs 14,719 crore and 45 main-board IPOs during 2017-18 collectively raised Rs 82,109 crore.
Apart from IPOs, 2020-21 witnessed Rs 15,000-crore follow-on public offer of Yes Bank. Companies from diverse sectors like jewellery, technology, specialty chemicals, banking and financial services have made their way to the IPO space during the period under review. “As interest rates are at rock bottom and there is no intention of the Fed to increase rates in the near future, the excess liquidity in the system is a key catalyst fuelling the IPO frenzy,” said Nirali Shah, Head- Equity Research, Samco Securities.
In fact, as per Prime Database, the number of stocks with first-day gains on Indian exchange debut was the highest in at least three years. As many as 18 out of the 23 IPOs so far this year saw first-day gains — 78 per cent of stock listing in FY21.
The excitement in public issues is due to liquidity but there is no doubt that it would be the growth which will drive the rally in some of these stocks.
“With the secondary market recovering, the primary market activity has taken a good pace wherein 23 companies have raised money via IPO route during July 2020 and February 2021. In 2021, already 8 companies have raised around Rs. 12,720 cr through IPOs and many companies are in line to get listed in the upcoming months,” said Vinit Bolinjkar, head-research, Ventura Securities.
“If we analyse the companies that were listed during the above period, it can be seen that only quality businesses could get listed in the current environment. Out of the 23 IPOs that were listed, 19 of them have used the liquidity and valuations that were available in the market to monetise their own shareholding,” Bolinjikar said. The shareholders of these companies booked the profits during the bull market as they got higher valuations during this period.
The IPO chart in 2020-21 was led by Gland Pharma (about Rs 6,480 crore), Indian Railway Finance Corporation (Rs 4,633 crore), CAMS (Rs 2,240 crore) and UTI Asset Management Company (Rs 2,160 crore).
The biggest factor driving companies to fund-raising through IPO is the Bull Run in the stock market with the Sensex crossing the 50,000 mark. Excess liquidity and better than expected economic recovery lifted the market sentiment and the same was visible in the primary market.
When the market witnessed a bull run in the recent past, a host of IPOs had lined up to raise funds from the market. The IPO queue is increasing. “IPOs are taking away some liquidity from the market. More IPOs, especially big ones like LIC are in the pipeline,” said stock dealer Pawan Dharnidharka. “An investor must be cautious in such situations and should invest in fundamentally strong stocks rather than trying to make quick money only through listing gains in any and every IPO,” said an analyst.