Volatility Halts India’s IPO Boom
It’s been the dullest three months for initial public offerings in more than four years as the stock market volatility turned companies cautious.
There have been no IPOs in the last quarter of the calendar year—the worst phase since May 2014. In fact, the entire second half of 2018 has been tepid with six companies raising closed to Rs 7,500 crore. That compares with Rs 23,000 crore mopped up in 18 offers in the first six months, continuing the boom from 2017—the best year for IPOs yet.
About 70 companies seeking to raise more than Rs 60,000 crore have the market regulator’s approval but have stayed away from the primary markets due to volatility, Ajay Tyagi, chairman of the Securities and Exchange Board of India, said at an investment bankers’ conference in Mumbai on Dec. 17. The regulator, he said, is concerned with this standstill in the primary market.
Liquidity concerns around non-bank lenders after IL&FS defaults, trade war fears, higher crude prices and a weaker rupee led to volatility in equities. The recent rout in the broader markets also dissuaded promoters and private equity firms—the biggest beneficiaries of the IPO boom—from offloading stakes and raising funds.
The poor run of the primary market started after state-owned Garden Reach Shipbuilders & Engineers Ltd.’s IPO had to be extended because of poor response. The initial offer of mortgage lender Aavas Financiers Ltd. also received muted a response and Dinesh Engineers Ltd., a communication infrastructure provider, called off its maiden issue.
Negative returns for investors who bought shares in recent IPO also weighed on the sentiment. More than three-fifths of the companies that listed in 2018 are trading below their issue price.
Even the companies that went public in 2017 failed to generate stellar returns this year, show data compiled by BloombergQuint. Half of the 36 firms that raised more than Rs 67,000 crore last year are also currently trading below the IPO price.
Market experts are not optimistic for at least next six months. The secondary market is expected to remain volatile till the general election and that could keep the primary market dull, according to Deven Choksey of KRChoksey.
Agreed Gaurav Sood, co-head of equity capital market at ICICI Securities, among India’s three largest merchant bankers. He expects to see a few IPOs in the first two months of 2019 but then the market will start factoring in the general election. Sood, however, said 2019-20 is likely tobe a good year for capital markets and IPOs.