Indian primary market may rock on after the fund-raising boom in COVID-hit FY21

Primary market activity is poised for even more excitement in the new fiscal year after the fund-raising boom in FY21, when global liquidity helped benchmark indices defy gravity in the pandemic-hit economy and triggered a rush of initial public offerings (IPOs).

Most experts are bullish as they expect the ample availability of low-cost funds to continue and the government is pushing for the heavyweight listing of state-run Life Insurance Corp of India, which can ignite the market. The market regulator recently tweaked rules to facilitate such large IPOs.

Indian equities received over Rs 2.73 lakh crore from foreign institutional and portfolio investors in FY21, helping the BSE Sensex and Nifty50 rally 66 percent and 69 percent, respectively.

The broader markets, Nifty Midcap 100 and Smallcap 100 indices, did even better, rising 98 percent and 122 percent, respectively. Improving economic sentiment and better-than-expected earnings growth with more upgrades than downgrades ratio also aided sentiment.

As a result, 32 companies launched (mainboard) IPOs in the year to raise Rs 39,576.67 crore including Brookfield India Real Estate Trust and Mindspace Business Parks REIT IPOs.

Fund raising via IPOs (Rs 39,855.26 crore including SMEs) was the highest since FY18. As per the PrimeDatabase, fund raising via IPOs (main board and SMEs) stood at Rs 83,767 crore in FY18.

"As seen in the past, liquidity tailwind had led to a mad rush of IPOs and other capital raising initiatives by companies," said Poonam Tandon, CIO at IndiaFirst Life Insurance Company.

Among main board offers, Gland Pharma was the biggest IPO, raising Rs 6,479.54 crore; followed by Indian Railway Finance Corporation, Rs 4,633.38 crore; Mindspace Business Parks REIT, Rs 4,500 crore; Brookfield India Real Estate Trust, Rs 3,800 crore; Computer Age Management Services, Rs 2,244.33 crore; UTI Asset Management Company, Rs 2,159.88 crore; Indigo Paints, Rs 1,176 crore; and Home First Finance Company India, Rs 1,153.72 crore.

Ten public offers received stellar subscription of more than 100 times each. MTAR Technologies led the pack with the highest subscription of 200.79 times, followed by Mrs Bectors Food Specialities, Nazara Technologies, Mazagon Dock Shipbuilders, Easy Trip Planners, Burger King India, Happiest Minds Technologies, Chemcon Speciality Chemicals, Indigo Paints and Laxmi Organic Industries.

As per PrimeDatabase, overall, Indian corporates raised an all-time high amount of Rs 1,88,900 crore through public equity markets, including QIPs, REITs and IPOs, despite the entire financial year 2020-21 being overshadowed by the pandemic.

"This was more than double of the Rs 91,670 crore that was raised in 2019-20. The previous highest amount raised in a financial year was Rs 1,75,680 crore in 2017-18," said Pranav Haldea, Managing Director at PRIME Database Group.

"Strong retail participation in IPOs, huge listing gains and highest-ever amount raised through QIPs and InvITs/ReITs were the key highlights of the year," he added.

Outlook for FY22

Majority of experts feel the mad rush of IPOs is expected to continue in the financial year 2021-22 given the ample of liquidity available and if the market sentiments remain bullish.

"Given the availability of ample money at lower cost, we will continue to see higher public issuance in the coming financial year," Tandon said.

Raghvendra Nath, MD at Ladderup Wealth Management said the market may see a multi-year rally. "And if the market sentiments remain bullish, there should be a spate of IPOs in the coming years."

From here on, only IPOs with robust business model in growing sectors can sustain such filthy valuations, Vinod Nair, Head of Research at Geojit Financial Services said.

The primary market is also expected to be strong in FY22 especially after the promise by Finance Minister Nirmala Sitharaman in her budget speech that LIC IPO and other divestments, including two PSU banks, will take place in the coming financial year.

"In my view, the government is committed for LIC IPO in this FY 2022, however for two PSU banks, it may wait more for appropriate time to get fair valuation," Amit Jain of Ashika Group said.

Nath feels markets are eagerly expecting the LIC IPO as that would be one of the biggest companies in India to enter capital markets. "As for the other disinvestments, it would solely depend on the kind of valuations that the government expects on divestments."

The government has set the FY22 divestment target at Rs 1.75 lakh crore, lower than the initial target of Rs 2.1 lakh crore for FY21.