Equity capital markets (ECM) activity jumped 50 per cent during the first half of the year led by big-ticket transactions of large companies such as Reliance Industries (RIL) and Hindustan Unilever (HUL). However, ECM fee collection dipped 7 per cent as investment banks sacrificed fees to bag bigger mandates.

ECM underwriting fees stood at $96 million for the January-June 2020 period, 6.7 per cent lower from the same period in 2019, according to Refinitiv, a financial-information provider.

This came even as equity capital raising jumped 52 per cent, surpassing the $20 billion mark and almost nearing full-year tally of 2019.

ECM activity covers any equity fund raising transaction such as initial public offerings (IPOs), rights issue, qualified institutional programmes (QIPs) and block sales.

Market experts said the dip in the fee pool was due to lower share of IPOs in the overall ECM pie. So far this year, only one IPO that of SBI Cards has hit the market. The ECM activity was largely boosted by block sales.

“What we have seen this year are predominantly follow on offerings like rights issues, QIPs and block deals. Fee is much higher for IPOs than for any subsequent offerings as the effort involved and time taken by investment bankers for initial offerings is far higher than for follow on offerings of already listed companies. Also, large-listed companies always bargain hard on fees. Going forward, for fee income to increase, the IPO market must revive," said Pranav Haldea, managing director, Prime Database.

The top ECM transactions in the first half include the RIL rights offering, $3.4 billion worth of stake sale in HUL by GlaxoSmithKline, $2 billion QIP in Bharti Airtel, $1.4 billion IPO of SBI Cards and $1.15 billion stake sale in Bharti Airtel by its promoter Bharti Telecom.

"The bulk of the activity this year comprised of block deals. The fee for block deals is lower compared to QIPs and IPOs. Block deal is just a placement transaction at the most you will get 50bps if the marketing is to be done. The effort is only towards marketing; there is no other documentation or Sebi process involved. For a QIP, you have to prepare a document and take it to the stock exchanges trend is likely to continue. Going forward there could be some rights issues, but they don't fetch much fee unless underwriting is involved,” said Pranjal Srivastava, independent capital markets professional.

Market players said deal-making during the first half was boosted by an improvement in foreign portfolio investor (FPI) sentiment. After a record sell-off in March, overseas investor buying picked up during the June quarter. Most equity share sales in large companies saw huge FPI participation.

"ECM activity has been driven by appetite from FPIs, who are looking at India as a priority region within emerging markets, and wanted to buy stakes in quality, large cap names, especially in sectors that were beaten down and offered attractive valuations over the long term," said Samir Bahl, CEO, Anand Rathi Advisors.

He added the first quarter results may be a “reality check” and impact ECM sentiment.

The coming quarters may May see QIP’s and rights issues in the large cap space, however, mid and small cap companies valuations and activity would continue to lag for the foreseeable future, he added.

JP Morgan emerged as the ECM table topper in the first half. It handled share sales worth $3.3 billion, 3.5 times more compared to same period of last year.