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The buzz has returned to the primary market, with India Inc planning to raise over Rs 75,000 crore over the next few months through qualified institutional placements and public offer of shares.
The signals are loud and clear from the frenetic pace at which India Inc has been raising money from the market in the last couple of days. The Mahindra Holidays initial public offer --the third public float in the current year and the single largest issue over the last 12 months--was subscribed 11 times and four companies raised an estimated Rs 4,000 crore yesterday through QIPs. This came after realtor Unitech's announcement on Friday that it has raised over Rs 2,700 crore via a QIP at Rs 81 a share.
Today, five more companies--Hindalco, Max India, GVK Power, City Union Bank and Gammon Infrastructure--announced that they will collectively raise around Rs 6,500 crore via QIPs.
The trickle that started a couple of months ago is slowly turning into a flood. Experts said most of the fund-raising would be by way of QIPs, with 60 companies announcing their intent to mobilise over Rs 65,000 crore through this route.
And the IPO pipeline is also getting crowded. According to data compiled by Prime Database, there are another 18 companies with valid approvals from the Securities and Exchange Board of India for IPOs.
Altogether, the declared intention is to raise Rs 8,900 crore through IPOs. Another 15 companies, proposing to raise Rs 2,200 crore, are awaiting regulatory approval.
Bankers are, however, still wary of terming this upsurge of IPOs a revival of the primary markets. Many said the flood of QIP issues could suck out liquidity from the secondary market and eventually hit sentiments in the primary market, too.
Vibhav Kapoor, group chief investment officer of IL&FS, said too many QIPs could "certainly affect the secondary and IPO markets as there is a fixed pool of money and a fixed appetite for risk for equities.
The first signal of the fatigue over QIP issues became apparent today when GMR Infrastructure withdrew its proposed $ 500-million (about Rs 2,500 crore) QIP, citing unfavourable market conditions. "The management committee of the board of directors of the company have decided to withdraw the QIP in light of existing market conditions,'' GMR Infra said in a filing to the Bombay Stock Exchange.
Analysts said low pricing was the key issue here. The floor price of QIPs is fixed by a Sebi formula in which the higher of average of daily highs and lows of the preceding two weeks or 26 weeks prior to the placement is taken into account. This is done to prevent companies from issuing shares at a discount to "friendly investors."
But many argue that this might not be a general trend.
ICICI Securities Managing Director and CEO Madhabi Puri Buch said, "There is a pull factor and a push factor at work. The stimulus packages and liquidity have to find an outlet and India, along with China, is among the few economies that are growing. Our structural strengths, transparency and the mandate for the government are the pull factors," she said.
DSP Merrill Lynch President Kevan V Watts agreed. "Indian markets have bounced back very, very quickly. What we are seeing is companies taking opportunity of the rally to reduce their gearing," he said.
For starters, there is more than sufficient liquidity in the system and global investors are pumping money into Indian stocks.
And S Ramesh, investment banker with Kotak Securities, which completed the fund-raising for Mahindra Holidays, said the Mahindra issue had shown that investors had appetite for good quality, attractively priced issue.
But Buch said it was the speed with which companies can raise funds that was prompting them to opt for QIPs, where the whole process can be completed in 45 days.
Enam group Chairman Vallabh Bhansali said the volatility in the secondary market would cause the QIP market to swing due to the day-to-day perceptions on liquidity and valuation.
Bankers are asking companies to be ready with approvals in place and paperwork done, but timing the IPO is something that will be decided once the government makes its disinvestment plans public.
Issues worth over Rs 40,000 crore, which includes those from Bharat Heavy Electricals (Rs 10,000 crore), National Hydro-Electric Power Corporation and Oil India have already made headlines.
The floodgates are expected to open, but experts like Prithvi Haldea, CMD of Prime Database, felt IPO issuers were waiting for the Budget to provide signals for the direction of the market. "The actual revival will depend on how the secondary market behaves after the Budget," he said.
