Market observers, and at times even investors, compare equity markets to gambling dens. Many a time the description has proved apt.

Take 2017, when equity initial public offerings (IPOs) garnered ₹68,827 crore. Over the 248 trading days, the S&P BSE Sensex and the S&P BSE IPO indices averaged around 30,928.83 points and 4,375.88 points, respectively.

Cut to 2019. Over 241 trading days till December 24, the Sensex and the IPO index averaged around 38,308.18 points and 4,856.41 points, respectively. In absolute terms, the three-year rise in the averages of the Sensex and the IPO index is a cool 23.86% and 10.98% each.

But, fund raising from IPOs, which also includes small-and-medium-enterprise IPOs, saw an absolute decline of 81.14% to ₹12,982 crore—a fifth of the record ₹68,827 crore in 2017. At aggregate level, equity fund raising fell 49.28% in three years, from the record ₹1,60,032 crore in 2017 to ₹81,174 crore in 2019. Even qualified institutional placements fell 42.37% from ₹61,148 crore in 2017 to ₹35,238 crore in 2019.

On an annual basis though, data compiled by New Delhi headquartered PRIME Database, shows that 2019 witnessed a 28% increase in equity fund raising from ₹63,651 crore in 2018. According to Pranav Haldea, managing director, PRIME Database Group, only 16 main-board IPOs came to the market collectively, raising ₹12,362 crore—more than 60% lower than ₹30,959 crore raised through 24 IPOs in 2018. Of the total amount of ₹81,174 crore, the fresh capital amount was ₹45,937 crore (57%), the remaining ₹35,234 crore being offers for sale.

According to Haldea, the largest IPO in 2019 was from Sterling & Wilson Solar for ₹2,850 crore, while the average deal size was ₹773 crore. Interestingly, only three out of the 16 IPOs that hit the market had a prior private equity/venture capital (PE/VC) investment, a notable change from previous years. Offers for sale by such PE/VC investors at ₹803 crore accounted for just 6% of the total IPO amount, while offers for sale by promoters at ₹7,513 crore accounted for a further 61% of the IPO amount.

Out of the 16 IPOs, 12 companies had anchor investors, which collectively subscribed to 35% of the total public issue amount. “The domestic institutional investors played a significant role as anchor investors, with their subscription amounting to 13% of the amount,” says Haldea. “This was however lower than the 22% from FPIs.”

The overall response from the public to main-board IPOs of the year, according to PRIME Database, was good. While seven IPOs received a mega response of more than 10 times subscription. IRCTC led the pack at 109 times followed by Ujjivan Small Finance Bank (100 times), CSB Bank (48 times), Affle (48 times), Polycab (36 times), Neogen Chemicals (29 times) and Indiamart Intermesh (20 times). Of the rest, one was oversubscribed more than three times, and the others one-three times.

As far as retail investors are concerned, the year witnessed a good response from them as well. The highest number of applications was received by Ujjivan Small Finance Bank at 14.36 lakhs followed by IRCTC (12.94 lakhs), Polycab (11.37 lakhs) and CSB Bank (9.20 lakhs).

According to Haldea, the response to IPOs was further buoyed by strong listing performance of IPOs of the year. Of the 16 IPOs which got listed, seven gave a return of over 10% (based on closing price on listing date). IRCTC gave a stupendous return of 128% followed by CSB Bank (54%), Ujjivan Small Finance Bank (51%), Indiamart Intermesh (34%), Neogen Chemicals (23%), Polycab (22%), and Affle (17%). “Moreover, unlike in previous years, only two of the 15 IPOs are presently trading below the issue price,” says Haldea. The balance 13 IPOs are trading between 21% and 170% above the issue price (closing price of 23 December 2019).

In 2019, 47 companies looking to raise over ₹51,000 crore allowed the approval from the Securities and Exchange Board of India (SEBI) to lapse despite approvals being valid for a period of one year and after having incurred a lot of time and costs.

Beyond the main-board issues, for the first time since the SME platform started, activity in this segment declined; there were only 50 SME IPOs, which collected a total of ₹621 crore in comparison to 141 IPOs in 2018 which collected ₹2,287 crore.

According to PRIME Database, offers for sale (OFS) through stock exchanges, which is for dilution of promoters’ holdings, saw a huge increase, from ₹10,672 crore raised in 2018 to ₹25,811 crore raised in 2019. Of this, the government’s divestment accounted for ₹5,871 crore or 23% of the overall amount.

On disinvestments, Haldea opines that 2019 has been a mediocre year with ₹68,047 crore being raised by the government. Exchange traded funds (ETFs) at ₹34,124 crore have constituted a lion’s share of 50% of the divestment followed by central public centre enterprise (CPSE) sale at ₹15,629 crore (23%). Buybacks (Indian Oil, ONGC, Coal India, NMDC, OIL, NHPC and MOIL) at ₹8,402 crore accounted for 12%.

For FY20, the government has set a target of ₹1,05,000 crore, of which only ₹17,744 crore or 17% has been achieved thus far. “Reduction in the government’s holding in 26 listed CPSEs to 75% (which is also a mandatory SEBI requirement) alone can contribute to over ₹23,000 crore of this. Haldea points out that the government has also placed a roadmap for several unlisted profit-making CPSEs to get listed. The government has also identified 44 CPSEs for strategic sale.

Going in to 2020, Haldea is of the view that the recent buoyancy in the secondary market and the listing performance of IPOs in the last few months have provided some impetus to the primary market. “The IPO pipeline continues to remain strong with 21 companies holding SEBI approval wanting to raise nearly ₹18,700 crore and another 13 companies wanting to raise nearly ₹18,000 crore awaiting SEBI approval,” says Haldea.

Equities apart, public bonds saw a near 45% decrease with 35 issues raising ₹17,039 crore in 2019, compared to 20 issues which raised a huge ₹30,701 crore last year. The largest public bond issue of 2019 was from Tata Capital Financial Services raising ₹2,158 crore followed by Mahindra & Mahindra Financial Services (₹2,147 crore) and L&T Finance (₹1,500 crore).

Though equity fund raising declined, the mobilisation of resources through rights issues recorded a huge increase in 2019. “By amount, 2019 saw ₹52,053 crore being raised, which was higher by 176% compared to ₹18,827 crore raised in 2018. This was primarily on account of two large issues of Vodafone Idea (₹25,000 crore) and Bharti Airtel (₹24,939 crore). “By number, the year witnessed 12 companies using the rights route in comparison to 13 companies in the previous year,” says Haldea.

To conclude, the lack of sanity in the IPO issuances versus Sensex and IPO index changes gets amplified when one compares the proportion of rights issues as a percentage of IPO raises. In 2017, at ₹6,639 crore, rights issue mobilisation accounted for less than 10% of the IPO issuances worth ₹68,827 crore. In 2019, at ₹52,053 crore, rights issues raises account for over 400% of the IPO raisings in 2019 worth ₹12,982 crore.

Clearly, the skyrocketing of the benchmark indices has failed to ignite the animal spirits of primary capital market stakeholders. And, a reality check is waiting to be encountered in the coming year.

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