Initial public offerings (IPOs), which had been the stars in the bull market last year, have lost their charm this time around and are likely to face bleak days in 2009.
Dalal Street, which saw a mega offering by the Anil Dhirubhai Ambani Group firm Reliance Power hitting the capital markets this year, fell prey to the bears with the benchmark index Sensex plunging by over 10,000 points from its peak in January.
IPO activity in 2008 witnessed a dramatic fall in volume, with a fall of 51 per cent to around Rs 19,360 crore as against nearly Rs 40,000 crore at the end of 2007, as per data compiled by NexGen Capitals, the merchant-banking arm of brokerage firm SMC Global Securities.
However, the decline in volume would have been sharper if Reliance Power’s mega offering of close to Rs 12,000 crore is excluded from the IPOs in 2008 (till December 10).
Analysing the sharp downturn in the primary markets due to the bearish trends in the secondary market, most experts believe 2009 would be a difficult year and prospects for new issues remain dim.
“The IPO scenario in 2009 is expected to be bleak and would be much tougher. The IPOs in 2008 were the leftovers from 2007, when there had been a rush of offers but the pipeline for 2009 has almost dried up, so we may not see any significant offer in the coming year,” NexGen Capital equity head Jagannadham Thunuguntla said.
Echoing the sentiment, global consultancy KPMG’s head of the private equity department, Vikram Uttamsingh, said the meltdown in the stock markets has led to dwindling offers in the primary market, which would be more pronounced in the coming year.
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Excluding Reliance Power’s contribution, the total IPO volume this year dropped to just one-fifth (Rs 7,675.97 crore) of the funds raised by firms in 2007.
The number of IPOs has also drastically dropped to just 37 this year, close to 2005 levels, from as many as 103 in 2007 and 79 in 2006.
Amid the global financial crisis, stock markets around the world have received a severe battering and the Indian market saw stocks falling to their life-time lows in what analysts believe is the worst year for equities.
The BSE benchmark index Sensex plunged even below the 8,000 level in October from its peak of 21,000 in January, but the index had started losing ground soon after that amid the global turmoil. The index is now searching for a stable level and hovering between 9,000 and 10,000 levels.
Moreover, foreign institutional investors have pulled out over $13 billion this year, adding to market woes, as the liquidity crisis in the global markets had several international financial giants in a tight squeeze.
“Foreign investors have taken out as much as $13 billion from the Indian markets this year and the amount is unlikely to return. The IPO outlook for 2009 remains bleak as market sentiment is unlikely to improve,” Uttamsingh said.
He further added that the slump in capital markets would compel promoters of companies to look for alternative avenues to raise funds, including private equity investments, which are expected to gain prominence.
Meanwhile, this year also witnessed three major firms withdrawing their IPOs as they did not get the requisite investor response to their offers.
Realty major Emaar MGF Land, Wockhardt Hospitals and SVEC Constructions withdrew offers this year, while a host of other firms that got approval from SEBI for their IPOs are awaiting a better market situation.
According to data available on the SEBI website, after September no final draft offers have been filed, while several companies whose draft red herring prospectus has been approved are awaiting sound market conditions.
Reliance Infratel, the telecom infrastructure unit of Reliance Communications, the Multi Commodity Exchange and UTI AMC have deferred plans to bring out their IPOs this year.
According to Nexgen Capitals, the stocks of firms that came out with IPOs this year have suffered a 65 per cent drop in returns, while companies that got listed last year are now trading down 56 per cent.