Fund mobilisation via IPOs hits eight-year low.
The ongoing turmoil in the capital market has paralysed the Indian primary markets. With the secondary market losing steam worldwide in 2011, fund mobilisation through initial public offers (IPO) has hit an eight-year low.
The meltdown in the stock market and overall dull scenario has shrunk India’s primary market by over 64 per cent during January-September, 2011, compared to the year-ago period. Thirty-eight companies have entered the capital market in the first nine months of the current calendar year, mobilising Rs 6,004 crore — the lowest since 2003.
As many as 50 companies had collectively raised Rs 16,709 crore through public issues during the same period, last year. In 2010, 64 companies had mobilised a record Rs 37,535 crore.
“With the poor show of public offers and the bad mood of the capital market, several Indian promoters have withdrawn their plans to raise funds through IPOs to avoid compromising on their valuations,” said Prithvi Haldea, chairman and managing director, Prime Database.
Many real estate and power sector companies were planning to hit the market, but are now completely out of favour because of dismal post-listing returns from their peers who raised funds recently, he added.
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So far in the current calendar year, the Bombay Stock Exchange (BSE) benchmark index Sensex has shed 17 per cent, compared to a 17 per cent rise recorded in 2010.
Interestingly, of the 38 public offers, only eleven are trading above the issue prices, while 22 are trading at a discount. Five have not yet been listed. IPO investors have become cautious as 80 per cent public offers made in the last calendar year are currently trading at a discount.
As many as 24 companies, which had planned to mobilise Rs 30,000 crore, have called off their issues due to poor market conditions. All 24 companies had valid approvals from the Securities and Exchange Board of India (Sebi).
“This trend in the IPO market will surely set panic in the mind of private equity (PE) funds, as they will not be able to exit from their investments. PE funds generally invest in unlisted companies in the hope of exiting through IPOs,” said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities.
However, market experts feel it would take another two-three months for any improvement in the primary market after the revival of the secondary market. Big ticket issues like TCS and NTPC in 2003 and Cairn India and Idea Cellular in 2007 may boost the primary market sentiment in the near future. Lodha Developers, Ambience Real Estate, Kumar Urban Developers, Neptune Developers, BPTP and Raheja Universal from the real estate sector and Sterlite Energy, Jindal Power and Avantha Power from the power sector are among the few companies that have called off their IPOs.