IPOs off to best start in 12 yrs as Budget uncertainty spurs rush of offers

Four deals worth Rs 7,376 crore launched, most since Jan 2008; bullish sentiment in secondary market fuels new offers

The initial public offering (IPO) market has kicked off the New Year on a strongest note in more than a decade. Four maiden offerings have managed to raise a cumulative Rs 7,376 crore—most since January 2008, when the now-infamous Rs 11,700 crore of Reliance Power was launched.

Uncertainty around the Budget and bullish sentiment in the secondary market has prompted the IPO rush this month, say experts.

“There is a buzz that the Finance Minister will tinker with stock market related taxes to make up for the loss in revenues due to the covid-19 pandemic. To avoid the possibility of higher tax burden or volatile market conditions, promoters have rushed with their listing plans,” said an investment banker.

The IPOs that have got launched this month include Indian Railway Finance Corporation (Rs 4,633 crore), Indigo Paints (Rs 1,176 crore), Home First Finance (Rs 1,154 crore) and Stove Kraft (Rs 413 crore).

In terms of number of deals, this is the busiest month since September, while in terms of amount raised it is most since March last year.

All IPOs this month were well-received by investors thanks to the bullish undercurrent, which has seen the Sensex top the historic 50,000-mark for the first time.

Industry players say increase in the capital gains tax could increase the tax liability on promoters and other shareholders looking to sell through the IPO. Since the re-introduced long-term capital gains (LTCG) tax on IPOs in 2018, selling shareholders have to pay 10 per cent gains on their sale proceeds.

To be sure, the market will have two more months until April 1 for any changes to tax structure to take effect. Experts say we could see more issuers race to use this window in an event taxes are raised.

Unusually, start of a new year is a slack period for IPOs. Six out of previous 14 Januarys has drawn a blank. And the average number deals have been 2.4 and average amount mobilised less than Rs 2,000 crore for the month.

The good start both in 2008 and 2020 was underpinned by the rally in the secondary market---on both the occasions, the benchmark Sensex has topped the psychological barriers of 20,000 and 50,000, respectively, on the back of stellar gains in previous few months. However, market players maybe hoping the similarities end there as the markets had then crashed due to the Global Financial Crisis.

Analysts believe the benchmark indices could see single-digit gains this year. However, the forecasts for the primary market remains positive.

“There is a strong momentum in the IPO markets, and we are seeing an increased interest from companies across sectors looking to raise capital in the near term. Additionally, companies are keenly awaiting the guidelines for direct listing in overseas markets. Market sentiment remains positive for what could be a stellar 2021,” said Sandip Khetan, IPO Leader, EY India.