Foreign equity seen at $15 bn

Huge share offerings line up record inflow in 2007.

Foreign inflows into the Indian equity markets are expected to reach a record high of over $15 billion in the 2007 calendar year owing to a line-up of multi-billion-dollar share offerings.

The list includes the mega initial public offer by real-estate major DLF Ltd (Rs 9,625 crore) opening Monday and big follow-on public issues by two of India's largest banks, State Bank of India and ICICI Bank.

In the first five months of the current calendar year, foreign institutional investors (FIIs) invested just over $4.1 billion in domestic stocks. 

THE BIG BANG
COMPANY	SIZE ($ mn)
IPO
DLF	900
Follow-on/ADR/GDRs
ICICI Bank	3200
ADR/GDRs
Vedanta	800
Hindalco	640
Tata Steel	540
FOLLOW-ON ISSUES
HDFC Bank	420
SBI	400
UTI Bank	240

Analysts expect the remaining seven months to attract foreign inflows of $8-10 billion, given the equity-raising plans of Indian firms for the rest of the year.

A CLSA Asia Pacific Markets study shows that 19 Indian firms may raise $18-20 billion through equity issues in the remaining part of the calendar year.

Of this, nearly 40 per cent or $8.55 billion may come from FIIs in the domestic market and Global Depository and American Depository Receipts (GDR/ADRs), which are negotiable certificates in one country representing a specific number of shares of a stock traded on an exchange of another country.

With likely inflows of $8.55 billion through public issues, follow-on offers and ADR/GDRs, the foreign inflows are likely to touch $12.64 billion.

In addition, with a part of the $11 billion foreign currency convertible bonds (FCCBs) issued in 2005-06 and 2006-07 to be converted during the year, foreign inflows can easily cross $15 billion in the year.

"We feel that foreigners' appetite for these IPOs and follow-on issues will be good," said Sandeep Sharma, senior vice-president of Societe Generale. "Valuations in the secondary market are not cheap, but FIIs are smart investors and use IPOs and FPOs to buy into Indian equities," he adds.

Of the $8.55 billion of overseas inflows in the pipeline, nearly $4 billion will be through ADR/GDR issues and the remaining $4.5 billion through FIIs in domestic issues.

Among the major issues lined up, ICICI Bank is expected to bring in forex inflows of $3.20 billion through a follow-on issue ($1.20 billion) and ADR ($2 billion). Among others, Vedanta ($800 million), Hindalco ($640 million) and Tata Steel ($540 million) will raise around $2 billion through ADR/GDR issues.

The other big issues include DLF's IPO in which FIIs are likely to bring in $900 million. HDFC Bank ($420 million), State Bank of India ($400 million) and UTI Bank ($240 million) will offer shares to FIIs through follow-on issues.

"It is quite obvious that overseas inflows will be huge this year," said Andrew Holland of DSP-Merrill Lynch, while refusing to comment on primary share issuances.

Analysts also point out that the foreign appetite for banking issues would be big, considering that FIIs have either touched or are close to touching the approved limit in many banking stocks through the secondary market. "More banking paper would mean more exposure by FIIs through the primary market," said an analyst with a foreign brokerage.

Foreign investments peaked to a record high of $10.70 billion in the 2005 calendar year. FIIs, which have been allowed to buy Indian equities since December 1993, have bought equities worth $53 billion till now.