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Does the current rally favour old and established companies over newcomers? That is the indication if one looks at primary market data. While the figures for initial public offerings (IPOs) were the worst in the past 10 years, qualified institutional placements (QIPs) for equities have seen one of the best years since FY10.
In all, 43 companies raised about Rs 29,000 crore through QIPs in FY15, three times the amount raised in the previous year. In terms of the amount raised, only FY10 was better; that year, India Inc had raised about Rs 40,000 crore through 67 issues.
"The current market is conducive to QIPs from well-established companies, which have a track record to show and can wrap up an issue in matter of days, rather than months, which an IPO takes. It has become easier to price a QIPs and sell it to investors, given the stock is already listed and traded on exchanges," says Ashutosh Maheshwari, head (investment banking) at Motilal Oswal Financial Services.
By comparison, IPOs involve a process of price discovery that is difficult in a volatile market. "The benchmark index marked new highs last year but the market remains volatile and susceptible to news flow. Most of the gains are based on the hope of a better future rather any substantive improvement in the economic activity or corporate earnings," he adds.
In the absence of a secular bull-run and strong earnings growth, investors are reluctant to give top valuations to a newcomer, leading to an expectation mismatch between promoters and investors. For QIPs, however, prevalent share price and valuations become the benchmark, making it easier for both sides to agree on a price.
Investors have been rewarded for their trust in old names. In FY15, two out of every three QIPs gave positive returns to shareholders within months of the issue and investors doubled their money in five cases. Some of the best bets for QIP investors are J Kumar Infra (stock price up 127 per cent from the issue price), ITD Cementation (up 119 per cent), Ashok Leyland (up 106 per cent), YES Bank (54 per cent) and Idea Cellular (up 41.2 per cent).
Relative transparency in QIP valuation, however, doesn't eliminate chances of a loss for investors. About a quarter of the QIPs issued in FY15 are underwater, with the issuer (company) stock price below the issue price. This ratio is about half if the issues are considered on the basis of the funds raised. Of about Rs 29,000 crore raised by India Inc through QIPs in FY15, about Rs 15,000 crore worth of issues are trading below the issue price. The biggest losses for investors were in the infrastructure sector.
Experts blame this on opportunistic fund raising by many companies. "Last financial year, two kinds of companies raised capital - those that were highly indebted and needed capital to sustain operations and those with a good track record, which used the rally to raise capital to fund growth. The first group disappointed investors, while latter offered a win-win to all," says Nitin Jain, head (capital markets), Edelweiss Financial Services.
Infrastructure developers such as Jaiprakash Associates, GMR Infra, KSK Power Ventures, Jyoti Structures and Supreme Infra fell in the first category. They took advantage of the market euphoria about infrastructure growth, following the National Democratic Alliance government coming to power at the Centre in May last year. But the euphoria gave way to losses when growth and earnings growth fell short of expectations. The stock prices fell sharply, as investors moved to quality stocks.
