By Mathew Joseph
2017 went down as a blockbuster year for Indian IPO market. The bull run in the secondary market lifted India’s primary market to a record high. All together 36 companies (mainline IPOs) raised over Rs75,475cr in 2017, which was highest ever in IPO history. In the past one decade, Indian IPO market has witnessed several ups and downs owing to changes in market sentiment.To analyse the IPO market let us start with the year 2007, which was a very euphoric market with a solid return of 47% YoY. To tap the market, about 103 companies had offered its shares to the public raising more than Rs33,000cr capital. However, in 2008 both global and Indian equity market crashed due to global financial crisis affecting primary market activities for the next two years. In 2010, the primary market showed some signs of recovery, but longer consolidation in secondary market put India’s IPO market on a downside track till 2014. This scenario changed during the period 2015-2017 as the market gained traction backed by economic reforms and both primary as well as secondary market witnessed record highs.
15 Biggest IPOs in 2017
We saw many big size IPOs in 2017. Including SMEs, close to 160 IPOs got listed in the calendar year 2017 wherein ~15 IPOs were of more than Rs1000cr offer size. Three of the major listings based on the issue size were General Insurance Corporation of India (Rs11373cr), The New India Assurance Company Ltd (Rs9600cr) and SBI life Insurance (Rs8386cr). The GIC’s IPO was the biggest in the last 7 years and second largest in IPO history (after Coal India’s Rs15,200cr initial share sale in 2010). All together the insurance companies alone raised around Rs43,769cr through the public issue which is about 60% of the total in 2017.
How the IPOs in 2017 performed in primary as well as secondary market…
From the start of 2017, the equity market in India rallied to new highs primarily driven by the economic initiatives like tax reforms (GST) and increased infra spending. Further, the inflow of retail investors to equity via mutual funds brought more liquidity to the market driving the valuations to new highs. To our surprise, in spite of having higher valuations, most of the issues in 2017 got fully subscribed. Few IPOs such as Avenue Supermarts, MAS Financial Services, Dixon Technologies, CDSL and Capacite Infra were even subscribed more than 100 times.
Post issue, many of these IPOs have given remarkable returns and have doubled the wealth of investors, while, some of them listed at a small discount. Of the total 36 mainline IPOs in 2017, 15 companies posted a listing day gain of more than 20%. Avenue Supermarts posted a listing day gain of 115% followed by CDSL and Dixon Technologies with 76% and 64% return respectively. On the other hand 9 companies including the big sized GIC and The New India Assurance failed to perform in the secondary market and they showed a listing day loss of -4% and -9% respectively.
Also in the secondary market, the newly listed companies performed well as investors preferred them over existing ones due to premium valuation across sectors. Some companies listed in 2017 gave multi bagger returns within a limited span of time.
Year 2017 was the best year for PE exits
2017 was a fantastic year for the Indian IPO market. This, of course, reflects the general cheerful mood in the Indian stock market. But if we watch closely the break-up of the total IPOs in 2017 we can see that the picture isn’t all that encouraging. Because, fresh capital is only about 17% of the total money raised whereas the remaining 83% is contributed through the offer for sale (OFS) mechanism. In an OFS existing shareholders including promoters, private equity investors and venture capital funds sell their stake and this money does not go to the firm’s kitty to use the funds. On the other hand, money raised through fresh capital is typically used for investing in new projects or for capital expansion. In fact, in 2017, 21% of the fresh issue funds (fresh capital) were meant to be used for prepayment or repayment of debt and 9% for issue related expenses. This further lowers the contribution of fresh funds to spend on other purposes such as strategic investments/acquisition, capital expenditure, working capital requirements and so on.
Auspicious outlook for 2018
Even though volatility exists in the secondary market in recent times, the outlook for primary market looks promising. Around 15 companies holding SEBI approval are looking to raise approximately Rs12,000cr and another 10 companies are awaiting SEBI approval to raise around Rs19,000cr in 2018. Moreover, in the budget speech Finance Minister Arun Jaitley said that the government will continue with strategic divestments of 24 Central Public Sector Enterprises as planned. He also said that, the finance ministry has planned to merge Government owned National Insurance Company, United Insurance Company, United India Assurance and Oriental insurance into a single entity and get listed in the stock exchange as part of the divestment plan. This makes the outlook for IPO market in 2018 auspicious. This gives enough reason for Indian IPO market to be cheerful for the current year provided high volatility as seen since February is addressed well.