Indian companies raised ₹27,417 crores through initial public offerings (IPO) this year, the highest in at least a decade compared to six months of previous years, driven by the abundance of liquidity and investor euphoria, reported Mint. Private equity and venture capital funds took advantage of buoyant stock markets to exit their investments.
Data showed that amid the robust liquidity chasing primary markets, most of the funds raised through IPOs were used to offer an exit to existing PE or VC funds or existing shareholders and promoters—rather than for growth capital for companies. Investors and promoters raised around 62.5% or ₹17,140 crores through offer-for-sale (OFS) out of the total money raised through IPOs, according to data from primary market tracker Prime Database. The remaining ₹10,278 crores, or 37.5%, went towards fresh capital raising by companies.
The dominant contribution of secondary share sales in the overall fundraising in the first six months of 2021 is a continuation of a trend seen in the past few years, with PE or VC funds, which have invested large sums of capital in Indian companies in the past decade, increasingly using the primary market route to exit their mature investments.
As a result, most IPOs hitting the primary markets have had a PE/VC backer in recent times, thus leading to a higher proportion of secondary share sales in IPO. It was the same story in the past two years. In 2019 and 2018, too, the proportion of OFS in the total IPO fundraising was 73.8% and 72.5%, respectively.
According to Gaurav Dua, head of capital market strategy, Sharekhan by BNP Paribas, promoters and other institutional investors have used favourable market conditions to exit or book partial profits rather than raise fresh capital for business growth.
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“The trend is not ideal but not necessarily negative for retail investors. The listing has enabled retail investors to participate in some fast-growing companies. At the same time, there are cases of IPOs priced at high valuations with little left on the table for retail investors. Consequently, it is essential to be very selective in investing in the medium-to-long term. We believe that the hyperactivity in the IPO market will continue in the near future—many mega-IPOs are in the pipeline, including Zomato, LIC and Paytm,” Dua said.
Favourable market conditions have made it attractive for companies to raise equity capital at relatively higher valuations, and many companies have taken advantage of the situation, he added.
Despite the pandemic’s second wave in India and delayed economic recovery, investors continued to pump money into equities, making it the best-performing asset class in the six months to 30 June. Gains from the Indian stock markets outpaced emerging markets (EMs) in the first six months of 2021.
So far this year, India has seen 22 IPOs. MTAR Technologies was subscribed 139 times, the highest in these six months. Others that drew high subscriptions included Nazara Technologies Ltd (96 times), Easy Trip Planners (88 times), Shyam Metalics and Energy (85 times) and Indigo Paints (82 times).
The biggest IPOs in this period were Sona BLW Precision Forgings or Sona Comstar ( ₹5,550 crores), Indian Railway Finance Corp. ( ₹4,633 crore), Macrotech Developers ( ₹2,500 crore) and Krishna Institute of Medical Sciences ( ₹2,120 crore).
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