Fund raising via IPOs in first half of 2019 at four-year low

Volatile equity market saw the fund mobilisation, during the first half of the calendar year 2019 (H1CY19) via the initial public offer (IPO) route, hit a four year low. 

In H1CY19, eight companies, including the recent offering by IndiaMART Intermesh, raised a cumulative Rs 5,509 crore through IPOs. This is the lowest amount raised in the last four years, the last low being in 2015, when an equal number of companies had raised Rs 3,849 crore via the IPO route. On a corresponding period basis, as many as 18 companies had mobilised Rs 23,452 crore from the primarily market.

Analysts attribute the tepid H1CY19 to the overall market sentiment, especially the mid-and small-cap segment that underperformed the frontline benchmarks. That apart, political uncertainty and the overall economic scenario kept companies at bay from raising fresh capital, they say.

“H1CY19 was impacted by political uncertainty. Investors were deferring decisions to invest in new opportunities. This further got compounded by the slowdown in the consumption space. While the first uncertainty has gone away, people are still waiting to see the first quarter consumption pattern numbers,” explains Munish Aggarwal, director (capital markets) at Equirus Capital.

And the data does support this argument. In H1CY19, the benchmark S&P BSE Sensex gained 9 per cent as compared to up to 5 per cent decline in the S&P BSE Mid-cap and S&P BSE Small-cap indices.

The Sensex hit an all-time high of 40,312 on June 4, as the NDA came back to power for the second consecutive term. Currently, the benchmark index is down 2 per cent from its all-time high, while BSE Mid-cap and the S&P BSE Small-cap indices are down 20 per cent and 30 per cent from their respective highs hit in January, 2018.

THE ROAD AHEAD

However, analysts do believe the second half could turn out to be better and more companies could tap the primary market for funds provided the overall market sentiment improves and there is an uptick in the economy. 

“If the consumption numbers do not disappoint and there are proactive steps taken by the government in the budget to support growth, the second half of CY19 (H2CY19) will be better,” Aggarwal of Equirus says.

G Chokkalingam, founder and managing director at Equinomics Research, on the other hand, does not expect companies to come back in a big way to the primary markets to raise funds via the IPO route till the valuations become attractive and there is buoyancy in the broader markets.

“Most of the companies that have raised funds via the IPO route are part of the mid-and small-cap basket. Valuations have been steep and the stocks of both these segments haven't done well over the past few months,” he says.

There are 56 companies that have Securities and Exchange Board of India’s (Sebi) approval to raise about Rs 54,000 crore and another seven wanting to raise about Rs 13,300 crore and are awaiting regulatory approval, data from PRIME Database show.

“Services (security, media, transport, hospitality/facility management, IT Services, new age businesses etc), Retail/Fashion, Pharma, Select infra and select PSU are some sectors from which one can expect IPOs to come over the next 6 – 12 months,” suggests Deepak Jasani, head of retail research, HDFC Securities.

CRISIS OF CONFIDENCE?
YEAR	No. OF ISSUES	AMOUNT RAISED (Rs cr) *
2015	8	3,849.10
2016	12	8,182.57
2017	13	11,774.41
2018	18	23,451.59
2019	8	5,508.98
Data Source: PRIME Database
* Amount raised in the first half of a calendar year