IPO market set to buzz in December

The primary market for equities is promising to end with a bang in an otherwise dull 2012.

Four companies, including Bharti Infratel and CARE Ratings, are set to raise close to Rs 5,700 crore (Rs 57 billion) through initial public offerings (IPOs) over the next couple of weeks, as issuers seek to cash in on the cheerful investor sentiment in the stock markets.

The Rs 4,500-crore (Rs 45 billion) IPO of Bharti, which will open on December 11, would be the largest issue since Coal India's Rs 15,000-crore (Rs 150 billion) share sale in October 2010. The amount proposed to be raised by Bharti, which has priced its issue in the range of Rs 210-240 apiece, is almost four times the money raised through IPOs in 2012.

CARE Ratings and PC Jeweller, also planning IPOs in the next couple of weeks, aim to raise Rs 1,000 crore (Rs 10 billion).

Bankers to the issues, however, are a tad worried if the market has the appetite to absorb these issues, especially as Rural Electrification Corporation (REC) and NMDC are also aiming to raise almost Rs 11,000 crore (Rs 110 billion) in the same period. Seven IPOs (barring issues by small and medium enterprises) have raised Rs 1,500 crore (Rs 15 billion) in 2012.

To add to this, REC would launch a Rs 4,500-crore (Rs 45 billion) tax-free bond issue during the first week of December, and state-owned NMDC is planning a Rs 6,500-crore (Rs 65 billion) offer for sale in the second week of December. The flurry of primary market activity has raised some doubts as to all the six issues sailing through comfortably.  

"At this late stage in the year, getting deals over the line can prove to be tricky," said Tarun Kataria, chief executive officer, Religare Capital Markets. "FIIs (foreign institutional investors) tend to wind down and DIIs (domestic institutional investors) have little new AUMs (assets under management). In an environment like this, valuations need to be compelling."

What is making issuers and bankers confident of pushing through the issues is that foreign institutional inflows have not slowed. "Given that FIIs have invested over $19 billion into the market this year, absorbing $1 billion won't be difficult. All IPOs this year have made money for investors," said V Jayasankar, head of equity capital markets, Kotak Investment Banking, a banker to Bharti's IPO.

Echoing Jayasankar, S Subramaniam, managing director of Axis Capital, another banker to the Bharti issue, said, "There have been years in the mid-90s when the market has seen new issuances of 10 per cent of market capitalisation, that too without much participation by FIIs."

Brokers said FIIs and local investors are unlikely to shun the issues just because it is the year-end. "There is appetite to absorb all these issues, but the key is pricing and quality," said Nirmal Jain, chairman, IIFL.