Mumbai: In a blockbuster performance, over two dozen companies have managed to raise more than Rs 26,000 crore through IPOs in 2016 -- with funds mop-up more than doubling since the previous year to make it the best one for public offers since 2010.
However, the outlook does not appear to be that bullish for the new year amid lingering domestic and global headwinds threatening to slow the IPO market activity, at least in the short run.
Marketmen are keeping their fingers crossed about the fate of initial public offerings (IPO) worth Rs 12,500 crore that are already at final stages of hitting the market.
So far in 2016, 26 companies have managed to collectively raise over Rs 26,000 crore through their respective IPOs, which is more than double the Rs 13,564 crore grossed by 21 issuers in 2015.
Marketmen say that while the first nine months of 2016 saw strong activity in the primary market, weakness started trickling into the secondary market from September and the activity has been slow in the past two months. They also warn that the deepening uncertainty over the impact of the note ban may see a marked slowdown in the short term.
With several issues from diverse sectors such as business services, small finance banks, medical diagnostic companies tapping the market, total funds grossed by 26 issuers in 2016 is the highest since the Rs 37,534.65 crore garnered in 2010, which is the best in history for the market.
While the highlight of 2016 is the first life insurance company -- ICICI Prudential Life -- hitting the market with a Rs 6,057-crore issue and making it the largest share sale of the year, 2017 is set to make history, too, as Asia's oldest bourse BSE is set to hit the market with a Rs 1,300-crore share sale. If all goes well, even the larger rival NSE may go public towards the end of the year.
The robust show was aided by a proactive regulatory environment coupled with general uplift in investor sentiment following the best monsoons in two years and the resultant positive macro environment.
Market watchdog Sebi has taken numerous steps that have encouraged companies to sell shares. One key enabler was making Asba (Application Supported by Blocked Amount) mandatory for all investors, including retail. Also, Sebi's proactive approach to the market has ensured investors need not fear about frauds.
The year also saw scores of small firms entering the market through the SME platform of BSE and NSE and raising hundreds of crores of rupees collectively.
Of the over 150 small companies on the BSE SME Exchange now, most entered the market only in 2016 after Sebi made it easy for small companies to go public. These 150 companies together raised more than Rs 1,100 crore, with a market capitalisation of over Rs 12,325 crore.
SMEs together raised Rs 721 crore in the year going by, mostly on the BSE platform till September. In the entire 2015, small companies mopped up only Rs 252 crore.
BSE had launched the SME platform in March 2012 while the rival NSE Emerge was launched some time later that year, but is yet to make a mark.
Besides, the performance of the newly-listed companies has also been fairly strong, with over 70 per cent of the main-board IPO companies generating over 25 per cent returns for investors over the issue price.
Marketmen point out that barring 4-5 companies, all others have generated positive returns for investors, with firms like Advanced Enzymes and Quest Corp giving over 100 per cent.
The IPO chart in 2016 was led by ICICI Prudential (Rs 6,057 crore), PNB Housing Finance (Rs 3,000 crore), Equitas Holdings (Rs 2,175 crore), Laurus Labs (Rs 1,332 crore), RBL Bank (Rs 1,211 crore), L&T Infotech (Rs 1,236 crore), Varun Beverages (Rs 1,112 crore), Endurance Technologies (Rs 1,162 crore) and Mahanagar Gas (Rs 1,039 crore).
"From a primary market perspective, the first nine months of the year was very good," Ambit MD for Corporate Finance Premal Doshi told PTI.
"However, with the weakness trickling into the secondary market after September, things have been slow in the past two months," he added.
According to Samco Securities Chief Executive Jimeet Modi, the price band of the offers is the key driver in the success of issues in 2016.
"However in general, the overall bullish sentiment in the market was the reason for a larger number of IPOs hitting the market than the previous years," he added.
Going forward, the IPO market is expected to witness at least 20 issues worth at least Rs 12,500 crore, which are already lined up for the new year, going by the data available with Sebi and investment bankers.
Noting that 2017 looks as promising as 2016, ICICI Securities Executive Director Ajay Saraf said equity markets are expected to jump next year across sectors such as consumer, logistics, infrastructure, technology, media and financials.
"Capital-raising requirements from corporates, PE exits, broadly positive IPO returns for investors and strong demand from domestic investors would be the main drivers in the primary markets next year," said Saraf.
"Even though there is volatility, there is enough liquidity in the market."
As many as 11 companies have already secured regulator Sebi's go-ahead for share sale worth over Rs 5,000 crore and may launch their issues early next year.
These include Aster DM (Rs 2,000 crore), Matrimony.com (Rs 550 crore), GVR Infra (Rs 500 crore), Hinduja Leyland Finance (Rs 500 crore), Sandhar Technologies (Rs 400 crore), VLCC Healthcare (Rs 400 crore) and Nihilent Technologies (Rs 350 crore) and CL Educate (Rs 300 crore).
The issue size for Seaways Shipping, New Delhi Centre for Sight and KPR Agrochem, which received Sebi nod earlier this year, is not available.
Moreover, nine more companies are awaiting Sebi nod to mop up Rs 7,500 crore from the market. These issuers include Avenue Supermarts (Rs 1,850 crore), BSE (Rs 1,300 crore), Continental Warehousing Corporation (Rs 1,000 crore), Security & Intelligence Services (Rs 1,000 crore), Genesis Colors (Rs 650 crore), Prataap Snacks (Rs 500 crore), GR Infraprojects (Rs 400 crore), Shankara Building Products (Rs 400 crore) and Music Broadcast (Rs 400 crore).
The country's top stock exchange NSE is also likely to file for an IPO early next year while BSE's listing plans are already in process and awaiting regulatory approval.
However, the year which was witness to various shockers like UK referendum on exiting the European Union and the domestic shock of demonetisation, the IPO market is likely to face powerful headwinds, going forward.
Trivikram Kamath of Kotak Securities said IPOs such as MGL, ICICI Pru and L&T Infotech saw good retail response and expects more retail participation post-demonetisation and with decline in interest rates.
There were several quality IPO like Equitas, Ujjivan, Mahanagar, RBL, ICICI Pru, L&T Info and L&T Technologies and Laurus Lab that received solid response from all investor segments.
"Most IPOs have given a return of almost 25 per cent and more in less than a year," he said.
Acknowledging that some IPOs bore the brunt of demonetisation and the US elections, with Green Signal offer getting withdrawn due to poor response, he said such impacts should not be long-lived and will fade away soon.
"Demonetisation definitely came in as a surprise. I would say the people are still grappling with understanding the impact of this. To that extent, we believe that the stock market as well as the primary market will be negatively impacted in the short run," warned Doshi.
"The primary market over the next two quarters will be guided by the budget. Markets in general and IPO market in specific will act according to cues from the budget."
Making a similar point, Systematix Shares & Stocks MD Nikhil Khandelwal said, "The overall pace may slow down a bit for the next 3-4 months, especially with some companies' financials getting impacted due to the demonetisation shocker."
Yes Securities Senior Vice-President Nitasha Shankar noted that investors are looking at medium-to-long term prospects from listed companies and also new issues rather than concentrating on short-term aspects.
"Issues like demonetisation are very short-term in nature and are therefore not a major risk for the primary market," she explained.
The year also saw healthy participation from retail over 2015. "I think it has been a great year for the retail investor. Today, retail investors are more savvy and alert on the IPO price," Saraf said, adding that unlike in the past, 2016 saw the retail book getting oversubscribed multiple times, indicating that investors have an appetite for quality issuances despite the market conditions.
"We have seen a healthy participation of retail investors in IPOs, particularly on the last day. Investors seem to be more interested in better fundamentals and attractive valuations now," he pointed out.
Modi noted that though retail participation has been good in both 2015 and 2016 and can be expected to remain the same for good stocks, "as the bull market fever catches up maybe in next one to two quarters, the gush of liquidity arising out of demonetisation will surely bring in hyper vibrancy in the primary market for years to come".
Summing it up, Saraf said 2016 has proved that investors across categories have appetite for quality issues. "Given the size of our economy, I think we are ready for larger issuances," he concluded.