The Sensex may be scaling new heights, but for the last three years, the primary market has remained dull. The amount raised through initial public offers (IPOs), follow-on public offers (FPOs), and offers for sale (OFSs) has been falling every year since 2009/10. In the last month, however, qualified institutional placements (QIPs) have boomed, with close to $3 billion being placed with institutional buyers by Indian corporate houses. Is it an indication that, with the hopes raised by the Narendra Modi government coming to power, the broader primary market will follow?
But other bankers are more cautious. "Institutional interest is back, but broad participation will take some more time. The IPO market will take nine to 12 months to revive," says V. Jayasankar, Senior Executive Director and Head, Equity Capital Markets, at Kotak Investment Banking. Prithvi Haldea, Chairman and Managing Director of Prime Database, which monitors the primary market, agrees. "I really do not see this as a true revival," he says. "True revival is when fresh capital is raised by unlisted companies. Today the issues are aimed mainly at the institutional investors. I see a lot more OFSs and QIPs."
"A 10 per cent reservation for retail investors in the OFSs may see some retail money coming in, but the OFS is structurally not a retail-convenient method. Mainly, high net worth individuals may come in," says Haldea. There is a proposal for the PSUs to place some proportion of the shares at a discount for retail investors, as compared to the price sought from institutional investors, for which the government is in talks with the Securities and Exch-ange Board of India.
"We bemoan the absence of retail investors, but our policy initiatives are all tailored to attract institutional investors," adds Haldea. In the last three years, almost all the funds raised in the primary market have been through QIPs, institutional placement programme (IPPs) and OFSs - all aimed at institutional investors.
He expects infrastructure and financial services companies to dominate the issuance market. Be it PSU disinvestment or private sector IPOs, success is only possible if the company fundamentals are good, combined with an offer price that the market thinks is attractive. If a couple of offers start quoting at a premium to the offer price, investors will be drawn.
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