Dream run for Indian IPOs continues
Dixon Tech sees 117x subscription while Bharat Road was subscribed 1.8 times; 4 more to hit the markets in 2 weeks
The buoyancy in the primary market continues with the initial public offering (IPO) of Dixon Technologies receiving an impressive response from investors. The issue was subscribed over 117 times, indicating strong demand from all quarters of investors. The share sale of Bharat Road Networks also sailed through successfully with 1.8x subscription. This demand augurs well for the primary market as IPOs of four companies are scheduled in the next two weeks.
Put together, these companies will raise more than ~14,000 crore. Taking the tally closer to the ~30,000-crore mark for 2017. So far this year, 17 companies have tapped the IPO market to raise ~14,185 crore, data compiled from Prime Database showed. Historically, fundraising has crossed the ~30,000-crore mark only twice — in 2007 and 2010.
“This is a great time for IPOs as we are seeing some good quality companies with sound business models launching their initial share sales. The secondary markets, which are trading at their lifetime highs, are also providing good support to the IPO markets. The outlook also looks positive for IPOs as we are expecting some big-ticket share sales in the coming months,” said Shilpa Kumar, chief executive officer, ICICI Securities.
IPO of infrastructure company Capacit’e Infraprojects is expected to hit the markets next week along with internet player Matrimony.com. ICICI Bank-promoted general insurer ICICI Lombard’s IPO will open on September 15. Another insurer, SBI Life Insurance, is expected to make an official announcement on its IPO launch early next week.
Investment bankers say one of the major reasons behind the success of all the recent issues is wide participation from all sections of investors, including domestic institutions, foreign funds and retail investors. While domestic mutual funds, which are sitting on huge piles of cash, are aggressively bidding for the new paper, retail portions of the issues are also witnessing multi-fold subscriptions.
Another interesting theme in the current IPO markets is the listing pipeline of the insurance sector. ICICI Prudential, which launched its IPO in 2016, is the only listed insurance player in the Indian markets currently. But, at least half a dozen insurance companies have lined up their IPOs over the next few months. Apart from ICICI Lombard and SBI Life, stated-owned General Insurance Corporation (GIC Re), New India Assurance and Oriental Insurance are expected to come up with their IPOs by the end of the current fiscal year. Another private player, HDFC Standard Life, has already filed its draft prospectus with the market regulator.
“The sector offers immense growth potential as India is a heavily underpenetrated market in terms of insurance. Even within the insurance sector, we will see IPOs from all the segments, including life, non-life and reinsurance. This provides a good opportunity for the investors to be a part of the sector’s growth story,” said Nipun Goel, head of investment banking, IIFL.
The government’s push for divestment has also contributed to the buoyancy in the primary market. So far in 2017, the government has launched the share sales of Hudco and Cochin Shipyard. Investment bankers say government-promoted entities will alone contribute close to ~30,000 crore to the IPO markets during the current financial year.
However, one of the key headwinds for the market seems to be the premium valuations. Due to skyrocketing demand and limited supply of paper, some of the companies this year have sought 20-30 per cent higher valuations, say investment bankers. Despite reports from various brokerages advising their clients to not subscribe to some of the IPOs, investors have lapped up these issues expecting good upside. Any disappointment from the stock performance of these companies could sour the mood of investors, bankers have cautioned.