On its first day, Equitas stock settles 23% above listing price

Licence holder of small finance bank soars as much as 34%

Shares of Equitas Holdings surged as much as 34 per cent during their first day of trade on Thursday. Microfinance lender Equitas is India's first small finance bank licence holder to make a stock market debut. Shares of the company ended at Rs 136, up 23 per cent over its issue price of Rs 110 per share. The stock touched a high of Rs 147 and a low of Rs 134 on the NSE (National Stock Exchange). Over Rs 2,300 crore worth of shares changed hands on the NSE and the BSE (formerly Bombay Stock Exchange).

Equitas's good debut follows robust demand for its shares during its IPO (Initial Public Offering of shares) earlier this month. The company's Rs 2,170-crore IPO saw over 16 times more demand than the shares on offer, despite no participation by FIIs (Foreign Institutional Investors) due to lack of legroom.

  After the IPO, FII shareholding in the company came down from 93 to 35 per cent. According to rules, FIIs are allowed to own up to 49 per cent in a small finance bank under the automatic route. This leaves 14 per cent legroom for FIIs. It should be noted that Equitas, a microfinance lender, aims to enter the small finance bank category. Amount of shares purchased by FIIs in Equitas through the secondary market can't be found out as of now. Primary market refers to the market where stocks are created such as through IPO. Secondary market is one in which stocks are traded among investors.

"FIIs that were not able to invest in the IPO have come in through the secondary market. Equitas has a diversified business model and a strong management.  It operates in verticals like SME (small and medium enterprise) lending, vehicle financing, and affordable housing, where banks don't have too much presence," said Ajay Saraf, executive director, ICICI Securities.

"Being the first small finance bank licence holder to list, Equitas created a lot of excitement among all categories of investors," adds Saraf.

Equitas IPO was bought over 15 times in the institutional (or big money) category; 57 times in the high networth individual (HNI, or super rich) segment; and 1.3 times in the retail (or small investor) segment. At the IPO price of Rs 110, Equitas was valued at 1.7 times its estimated FY17 book, lower than peers such as SKS Microfinance and Cholamandalam Investment, which trade at 3.8 and 3.3 times, respectively.

"After the IPO, the FII shareholding has fallen to 35 per cent and that has created some legroom for foreign investors," said Sanjay Bajaj, head, equity capital markets, HSBC Securities. Investment bankers said Equitas's good listing would help improve sentiment towards the primary market. The IPOs of Ujjivan Financial Services (another licence holder of small finance bank) and diagnostic chain Thyrocare Technologies are hitting the market next week.

Investment bankers said the IPO pipeline in the near term was strong.

"Last year, the Indian equity capital market saw over 20 listings, and we expect more companies to come to the market this year," said Bajaj.

"The IPO market will remain strong in the current year," added Saraf.