People look at a screen displaying the Sensex on the facade of the Bombay Stock Exchange (BSE) building in Mumbai, India, June 29, 2015.Reuters
Undeterred by the recent turmoil in the stock markets, at least half a dozen companies are planning to issue Initial Public Offers (IPOs) over the next few weeks.
The equity markets have been facing heavy selling pressure since the beginning of January on the back of concerns over China’s slowdown and falling commodity prices. The sell-off has led the indices to hit 20-month lows.
Despite this, some companies remain optimistic and plan to roll out IPOs. Automobile ancillary company Precision Camshafts is expected to come out with a Rs 450-crore IPO next week. L&T Infotech, the IT arm of Larsen & Toubro, and dairy company Parag Milk Foods are planning to go for public issues before mid-February, sources told Business Standard.
Volatile market conditions are not a big worry for reasonably priced IPOs by good-quality companies, say experts.
“For a flood of IPOs, we need a stable secondary market. But, for IPOs by credible companies with a good track record, market conditions don’t matter so much. Even now, there is enough liquidity and investor appetite in the market. This was reflected in the recent IPOs and their post-listing performance. However, this is definitely not the market for IPOs with expensive valuations,” said Prithvi Haldea, chairman of IPO tracking entity Prime Database.
With the last five IPOs issued in the past few months generating decent returns after their listing on the bourses, the upcoming issues will be received well by the investors, according experts.
IPOs such as Narayana Hrudayalaya, Alkem Laboratories and Dr Lal PathLabs, which got listed last month, have gained more than 30% each on their listing day. The gains in these stocks extended after the debut despite a slump in the broader market.
“Investors who have made money in recent IPOs would be willing to bet on future ones. Mutual funds (MFs) are flush with money and are keen on IPOs as mid-cap valuations have turned expensive. Liquidity is available with retail (small) investors as well. Whether or not there will be strong FII demand remains to be seen, but small-sized IPOs can do without them,” said an investment banker, who did not wish to be named.
Even as foreign institutional investors (FIIs) aggressively offload their holdings in the stock markets, domestic investors, particularly mutual funds, continued to buy shares, bringing relief to issuers and bankers for IPOs.
In 2015, mutual funds had invested Rs 72,200 crore in stocks.
“FIIs aren’t big investors today. We, as domestic investors, have to find issues attractive for them to come,” said S Naren, chief investment officer, ICICI Prudential AMC.
Activity in the Indian IPO market is set to hit a six-year high in 2016 as companies looking to go public, supported by a growing appetite for equities led by rising corporate profit and uptick in economic growth, are estimated to raise over $5 billion in the year.