An uptrend in the stock market and various reform measures being undertaken by the government and regulator Sebi may help revive the initial public offering (IPO) segment in the coming months, experts believe.
While the number of the companies having filed IPO papers with Sebi (Securities and Exchange Board of India) is not very high, a number of entities have already got the go-ahead from the market regulator but have been holding on their plans in the absence of conducive market conditions.
In the quarter ending today, at least four companies, including Bharti Infratel, G B Tools and Forgings Ltd, Just Dial Ltd and V-Mart Ltd have filed their respective Draft Red Herring Prospectus (DRHP) to raise funds through IPOs.
Market analysts expect the trend to pick up in the coming weeks, as the government and Sebi have expressed their intention to revive equity culture in the country and help channelise the household income into stocks, mutual funds and insurance sectors, rather than in idle assets like gold.
A revival in the secondary market trends will also help the firms shift their focus to IPOs for their fund-raising plans. Most of the companies plan to utilise their proposed IPO proceeds for capacity expansion as well as working capital requirements.
"The current market conditions has turned favourable for companies planning to come out with their IPOs mainly on account of various initiatives taken by the government," Sudip Bandhopadhyay MD and CEO at Destimoney Securities said.
"Besides, festive season is also approaching so I expect many companies that withdrew their IPO and companies that have not hit the capital market despite getting Sebi's approval on subdued market conditions would definitely plan to go ahead with their public issues," he said.
In the last three months, broader market Sensex gained over 1,300 points or more than 7% as Foreign Institutional Investors (FIIs) invested a hefty sum of a little over Rs 40,000 crore on the back of a slew of reforms initiated by the government.
According to market analysts, several tough economic decisions, including to open up FDI in retail and aviation sectors, capping up of cooking gas subsidy and hike diesel prices, taken by the government recently have boosted the secondary market, which would eventually help companies to launch their IPOs.
"Any company which was planning for the IPO in the last two-three years can hit the market as it is any excellent time for the IPO," Wellindia President (Research) Vivek Negi said.
He further said that the success of any IPO depends on the sound fundamentals and pricing issue.
Sebi has already floated a discussion paper on 'mandatory safety net mechanism' in IPOs, a move that would help in fair-pricing of the public offers and would provide capital guarantee on a certain portion of investments.
Besides, the regulator has also announced various other IPO market reforms, steps for enhanced distribution network, incentives for brokers, bidding through electronic IPO platforms and allotment of a minimum lot of shares.
These steps are likely to help in creating a greater appetite for IPOs in the near future, provided the market conditions remain conducive and there are no adverse global developments that might affect the domestic investor sentiments.
Earlier this month, Bharti Infratel, tower unit of telecom giant Bharti Airtel, had filed papers for an IPO with Sebi and is expected to raise up to $1 billion (about Rs 5,500 crore).
Rashtriya Ispat Nigam Ltd (RINL), which had deferred its IPO plans twice since the filing of the draft documents in May due to volatile market conditions, is most likely to hit the capital market in the middle of the next month.
The RINL's IPO, which would mark the kick�off the government's disinvestment process for the current fiscal. The government is targeting to raise Rs 30,000 crore through share sale plan during the period.
Besides RINL, four other firms -- Goodwill Hospital and Research Centre, Fast Train Cargo, Ace Tours Worldwide and C Mahendra Infojewels -- had filed their respective IPO documents during April-May period with the Sebi, but none of them hit the capital on lacklustre market conditions.
Besides, two companies packaging materials maker Plastene India and auto parts manufacturer Samvardhana Motherson Finance - shelved their IPO plans in May citing poor response from investors amid weak broader market.
Goodwill Hospital had also pulled out its IPO in January, but once again filed draft papers in May to mop up Rs 98 crore through share sale. The IPO was shelved after the issue failed to get subscription of even 1% of its shares on sale. It was the first company to withdraw its IPO in 2012.
In addition, around 20 companies including Reid & Taylor, Micromax Informatics, Embassy Property, Joyalukkas and Tata Autocomp System had called off their IPO plans totalling nearly Rs 9,000 crore in this year, according to SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla.
