By Lav Chaturvedi
Despite the challenges of the coronavirus pandemic, the coming 2021-22 fiscal year is likely to be again an overwhelming year for IPOs (IPOs). There are a number of factors that will help make the current year favorable for fundraising in the primary market.
Growing interest from retailers
The rapid increase in the number of retail investors, even during times of extreme volatility, has been a major driving force for the markets over the past year. There was a record addition of more than one new master demate account in 2020 and in January 2021, new investor accounts hit a record 5 crore. Growing interest from retail investors, along with the increased need for companies to tap markets to raise capital, had injected strong momentum into the IPO markets last year, which will spill over into this year as well. .
Last year was a success
Between April and January of fiscal year 2020-21, at least 34 companies went public, raising more than Rs 21,000 crore through IPOs, even as the COVID-19 pandemic dampened market sentiment in the market. start of the exercise.
According to Prime Database figures cited in public forums, IPOs in the main market have generally received a good response from investors. The public took advantage of the big and small players who made their debut last year. IRCTC stock was 109 times oversubscribed and SBI cards 19 times, Ujjivan Small Finance Bank was relaunched more than 100 times, CSB Bank 48 times, Affle 48 times, Polycab 36 times, Neogen Chemicals 29 times. times and Indiamart Intermesh of 20 times. On top of that, at least 8 IPOs were oversubscribed more than 10 times, 1 other IPO was oversubscribed more than 3 times and the remaining 4 IPOs were oversubscribed by 13 times, according to figures from the Prime database.
The positive IPO momentum seen over the past year is also expected to continue into this fiscal year as more companies tap into the primary market to raise funds in the post-pandemic recovery phase. A huge crore of Rs 41,863.24 is likely to be raised this year. Apart from that, companies that already have SEBI approval for their IPOs would increase Rs 19,146.24 crore, and companies awaiting SEBI approval are likely to raise Rs 22,717 crore. Kalyan Jewelers, NCDEX, RailTel, Aditya Birla Mutual Fund, Zomato, NSE and IRFC are among the top IPOs of 2021.
Abundant liquidity and lower financing cost
The interest rate scenario remained extremely low in 2020-2021, as the abundance of liquidity in the system led financial institutions to offer IPO financing products at lower and reasonable rates. Going forward, given that the interest rate scenario is expected to remain favorable in 2021-2022, IPOs are expected to enjoy continued support through a lower cost of funding.
In the Union budget, the Minister of Finance Smt. Nirmala Sitharaman this year announced mega divestment plans for two public sector banks and a general insurance company. She had said the public list of PFRs would be completed in 2021-2022. In our opinion, the successful divestment of these PSUs is quite crucial for the government to meet its divestment target of Rs 1.75 lakh crore in 2021-2022. These hit lists have the potential to help maintain the current strength of the 2021-2022 IPO market.
Increased participation of foreign investors
The huge fiscal stimulus measures announced by the United States and European countries in 2020 have resulted in huge liquidity in domestic stocks. With India’s strong resilience against the Covid-19 epidemic and an improvement in key economic indicators month after month from June 20, foreign investor confidence has been renewed in domestic markets. As a result, REITs invested ~ US $ 24 billion in Indian stocks in 2020, the highest on record in at least the past 20 calendar years. As India continues to offer promising growth prospects globally, we believe REIT flows to Indian equities are expected to remain favorable in 2021-2022.
India is expected to experience a sharp increase in capital spending in 2021-2022 from the central government and some large states, which will certainly lead to improved capacity utilization in several industries and hence a need for expansion of capacity. In addition, a number of reform measures undertaken by the government, including PLI programs to stimulate investment activity in the country, are likely to result in increased capital requirements for companies. Therefore, a large number of companies will certainly be eager to raise funds through the IPO.
(Lav Chaturvedi is ED and CEO of Reliance Securities. The views expressed are those of the author.)