The economy is on song (despite recent data that reveals a slowdown in manufacturing growth), and India Inc. is in rapid expansion mode. Is it any wonder that Indian companies are flocking to the stock markets in droves to raise capital?
A recent study by Thomson Financial, a global research firm, reveals that India has leapfrogged its way to #7 among the world’s largest IPO markets in the first eight months of 2007. Last year, it was at #14. Its share of global IPO proceeds: 3.5 per cent, compared to 1.7 per cent last year.
In fact, IPO mobilisation so far this year, at $6.4 billion (Rs 26,240 crore) has already exceeded the $4.8 billion (Rs 21,600 crore) raised in all of 2006. Powering India’s stellar show in 2007 were DLF’S $2.26-billion (Rs 9,266-crore) IPO, the largest ever by an Indian company, Genpact ($568 million or Rs 2,328.8 crore), Idea Cellular ($555 million or Rs 2,275.5 crore) and Power Finance Corporation ($226 million or Rs 926.6 crore).
On the anvil are several IPOs in the coming months this year particularly from retail and infrastructure companies. The flurry of IPOs is driven by the extended bull run in the Indian equity markets that started in 2004 and continues till date notwithstanding scares like the appreciation of the rupee against the dollar and the more recent US sub-prime meltdown.
Says Lalit Thakkar, Head (Research), Angel Broking, an equity research and broking firm: “The primary market usually gives better returns than the secondary market in a rising market scenario. This explains the retail and institutional interest in IPOs.” Then, interest rates have hardened over the last year, increasing the cost of borrowed money and compelling companies across the board to approach the primary market for cheap funds to finance their expansion plans.
There’s more action in store. Says Sandeep Nanda, Head (Research), Sharekhan, a brokerage firm: “There are a large number of unlisted companies that require capital, particularly in sectors like real estate, media, retail, infrastructure and banking.”
There’s another factor fuelling this boom. Over the last three-tofive years, private equity investors have taken significant stakes in technology, media, telecom and pharma companies. They are now looking to make profitable exits. Says Nanda: “The high P-E multiples in the market make valuations attractive for companies looking to raise money.”
The only possible flies in the ointment could be a further appreciation of the rupee and rising interest rates impacting demand. Says Nanda: “A slowdown will lead to a fall in appetite for IPOs.” Ominously, exports, credit growth and manufacturing growth have all slowed down. But Finance Minister P. Chidambaram has assured that this is because the economy is taking a breather, not slowing down. India Inc. and millions of investors will be praying that he is right.