Market watch: The IPO high tide

The current fiscal is turning out to be the busiest year for equity initial public offerings (IPOs) since 1990, with a total of Rs 66,521 crore raised by February.

Historically, the boom-years before 2008 are remembered for record highs on the equity market indices and capital raisings. In India, the Rs 41,323 crore mopped up by 84 initial public offerings (IPOs), in FY 2008, was a record in itself. It was 1.7 times more than Rs 23,706 crore raised in FY 2007, and 3.8 times more than Rs 10,798 crore raised in FY 2006.

But things changed after September 2008, as the global economy was hit by the financial meltdown emanating from the sub-prime crisis in the US.

The record mop up in FY 2008, through 84 issuances, was 48% higher than the total Rs 85,958 crore raised from 5158 issues, between FY 1990 and FY 2007. But, the current fiscal is all set to rewrite that bit of history.

The total IPO earnings of FY 2018, through 37 IPOs until Feb, account for 27% of the total raised from the 5,454 IPO issuances between FY 1990 and FY 2017 that raised Rs 2.46 lakh crore.

A research note by Mumbai-based Centrum Broking highlights that there are 8 more IPOs lined up in the remainder of the fiscal. These IPOs will be just in time before the long term capital gain (LTCG) taxation kicks-in.

“These 8 IPOs are expected to raise nearly about Rs 16,000 crore, taking the total tally of IPO fund raise during the financial year to ₹82,000 crore,” the note says.

Interestingly, the rise in the IPOs has been accompanied with fall in the number of issues. That means there has been a steep rise in the average ticket size of the IPOs compared to the past years. In FY 2018 (until Feb), the ticket size of Rs 1,797 crore is 3.7 times higher than the average ticket size of FY 2008 of Rs 492 crore, and nearly 60% higher than the average ticket size of Rs 1,129 crore noted in FY 2017.

In terms of performances, the Centrum Broking note highlights that of the 38 IPOs listed during the current financial year, 26 IPOs have given positive returns, while the remaining 12 posted negative returns with textbooks publisher S. Chand & Co being the biggest underperformer with 37.1% decline.

The best returns have been delivered by buildings materials maker Shankara Building Products (up 271.1%) followed closely by shrimp exporter Apex Frozen Foods (up 269.4%). Other IPOs which have given more than 100% plus returns are Salasar Techno Engineering (up 199.9%), Astron Paper & Board Mills (up 134.1%) and PSP Projects (up 126.2%).

“The average return from these IPOs is very healthy at 39.2% plus,” says the Centrum Broking note. For the next fiscal, Centrum Broking expects the IPO market remains to be healthy, but with a caveat; “the health of primary market is a function of health of secondary market.”

Although, the IPO market robustness depends largely on sustainability of secondary market conditions, political certainty and government disinvestment program, but for now FY 2018 will be registered as the busiest year for IPOs in India’s capital market history. That is, until we have another IPO high tide in future.