Initial public offer market lull likely till mid-2019

Year 2018 saw a drop in fund raising through various primary market instruments, especially fresh public issuances, on the back of a volatile market.

On Tuesday, the Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi, during an investment banker's summit in the city, said this year market has been very volatile, especially February onwards.

"Globally, it has been volatile, there is uncertainty and in the near future I think this volatility will continue," he said.

According to him, anyone looking to raise money through initial public offer (IPO) and has already got approval is perhaps looking for some more time for the market to become better.

Prithvi Haldea, founder chairman, PRIME Database Group, said the capital market saw a phenomenal run last year. "So much money was never raised in a single year in the entire history of the capital markets. This year started off well, but for some reasons we have come to a new standstill," he said.

He said that 70 companies have received Sebi approval to raise around Rs 60,000 crore.

However, the regulator is worried over the fact that despite the approvals in place, the companies are yet to hit the market. Tyagi said alternative investment funds (AIFs) and private equities have done better this year compared to last year, and preferential allotment has almost doubled this year. However, qualified institutional placements (QIPs) has not taken off this year.

"People have found ways to raise money, but IPO not clicking is a cause of worry," he said, adding merchant bankers have a role to see that the issues are reasonably priced and are acceptable to both issuers and investors.

According to data available with Prime Database, Rs 75,539.82 crore has been raised through the primary market instruments this year till November compared to Rs 1,52,609.60 crore in 2017.

In the IPO space, there were 24 issues in 2018 till November compared with 36 issues in 2017, while public issue by fresh capital was Rs 7,444.48 crore till November this year compared to Rs 11,679.62 crore in 2017. Public issue by offer for sale (OFS) in 2018 till November was Rs 23,514.59 crore compared with Rs 55,467.81 crore in 2017. The data does not include refunded issues and SME IPOs. Of the 24 public issues this year, at least 14 are trading currently below their issue price.

Also, the first quarter of 2018 witnessed 14 of the 24 public issues raising around Rs 18,591.73 crore.

Ishita Vora, head – listings (equity & debt), National Stock Exchange, said, "In 2017-18, record fund raising happened, as in the equity capital market we crossed Rs 1.1 lakh crore. Thereafter, there has been a muted year. Obviously, there are a lot of companies that are wanting to raise funds and filing papers. But the number of IPOs that have actually opened have only raised Rs 11,500 crore. This is the lowest in the last three years."

Qualified institutional placements (QIPs) also performed poorly with money raised through that route till November this year is Rs 16,076.64 crore compared to Rs 56,152.08 crore in 2017. There are 24 QIPs till November as against 43 last year. Institutional placement programme (IPP) saw no takers this year, while there were two issues last year with a fund raising about Rs 4.668.28 crore.

Pranav Haldea, managing director, PRIME Database Group, said not too many companies make use of that method right from the beginning. It was primarily introduced to make companies compliant with the minimum public shareholding requirement of 25%, but companies have preferred to take OFS and QIP routes to raise additional capital, which also helps to dilute promoters' shareholding to an extent. QIP is far easier for companies to execute and quicker as well.

On the other hand, rights issue seen investors interest with funds raised through route was Rs 17,856.65 crore for nine issues as against Rs 6,547.67 crore for 19 issues in 2017. Overseas capital market offering also saw investors interest this year with Rs 12,440.90 crore being raised. There was none last year.

Haldea said that the market volatility is likely to continue and he does not expect "too much action" in the next 5-6 months on account of the impending elections. According to him, there is a long pipeline and while some of those issues may happen in January and February assuming that the secondary market will sort of remain upbeat, but most issuers are likely to wait till the general election.

Rahul Shah, VP – equity advisory group, Motilal Oswal Financial Services, said the primary market instruments react depending on how the overall market behaves. He said that 2018 had been a very bad year for the markets and things will react positively if the macro-conditions start improving.

Navneet Munot, chief investment officer, SBI Funds Management is in agreement. He said that the valuations of large caps of BSE 100 have come down quite a bit, with corporate profits being at its lowest in 20 years in terms of the percentage of GDP.

However, elections may not be a deciding factor for the markets in 2019, feels Shah of Motilal Oswal.

According to him, elections are a secondary thing, and the market has done well last week despite the election results being negative for the government.

"If the macro factors sustain for a while, I think the election will be a temporary scenario. Everything then is going to be balanced, and the money market will play out accordingly," Shah said.