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How investment bankers have been gaining from the revival of the primary market

T he rush of initial public offerings, or IPOs, means investment bankers are doing good business. They are happy that the fee market has revived. “The revival of the IPO market has led to an improvement in the fee market. The fee is now around 2.5 per cent per deal,” says Samarth Jagnani, Executive Director – Head of Equity Capital Markets, Morgan Stanley. Last year, it was 1.5-2 per cent. “We are not signing deals where we are not compensated adequately. Depending on the deal size, the fee can go as high as 3.5 per cent,” says Dharmesh Mehta, Managing Director & CEO at Axis Capital. He gets at least one request a day from a promoter looking to get his or her company listed.

According to Thomson Reuters, in the first six months of 2016, the equity capital market (ECM) segment earned a total fee of $40.2 million for raising $3.77 billion (See table below). This is the first time in four years that the contribution from the IPO business has been the highest — around 28 per cent, as against 10 per cent in 2015. In 2012, 2013 and 2014, the figures were 9 per cent, 4 per cent and 3 per cent, respectively.

The business has been dominated by Indian bankers. According to Prime Database, Kotak Mahindra and Axis Capital dominated the IPO market with market shares of 47.4 per cent and 43.6 per cent, respectively. If it would not have been for the IndiGo issue, no foreign bank would have been in the top five of the IPO league tables. “The size of the IPO matters. We (foreign bankers) don’t take the mandate unless it makes business sense. The IPO has to make us money. So far, the IPOs hitting the market have been small,” says Sanjay Sharma, Managing Director and Head (Equity Capital Market), Deutsche Equities. India.