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1,000 IPOs in 4 years! Primary market is where the money is

With the secondary market reflecting positive sentiment, there have been many new issuances in the primary market in the recent past and many are in the pipeline. The Indian capital market, more specifically the primary market, is expected to have a very busy schedule in financial year 2018.

Over the past few years, investor perception about IPOs has changed from just being a fund-raising option for companies to being an excellent opportunity for them to enter the market or a good way to earn decent market returns.

Going by the recent performances of IPOs (year and a half), it would not be wrong to say primary issues can hold a substantial portion of overall investments in the coming years. The IPO market is heading for a rush with a number of high-profile names such as CDSL, UTI Mutual Fund, NSE, Indian Renewable Energy Development Agency (IREDA) Reliance Nippon Life Asset Management, HDFC Life and SBI Life, to name a few, lining up issues.

In June alone, few companies are in the process of raising approximately Rs 5,300 crore. In the last 12 months, the IPO market has given investors the opportunity to invest in companies such as Equitas Holdings, Avenue Supermart and Shankara Building Products to name a few.

By taking the IPO route, companies will have the benefit of listing their equity shares on the bourses. Improved business confidence and regulatory reforms are also driving Indian companies to look at growth and expansion opportunities overseas by way of cross-border IPOs.

Few measures such as application through ASBA (application supported by blocked amount), which is mandatory for all the investors – be it retail or institutional – and concentrated efforts by the government to channel savings into financial markets has helped the IPO market. In addition, Sebi has permitted major non-banking finance companies (NBFCs) to be eligible for the quota reserved for QIB in IPOs, bringing them at par with banks and insurers. This is expected to strengthen the IPO market and channel more investment.

Investor participation has increased manifold in the primary market. Even the implementation of GST may prompt more companies to list on the exchanges, as smaller firms will become tax-compliant. It is expected that some 1,000 companies would follow the IPO rote to get listed on the bourses over the next four years. An IPO gives an opportunity to companies to re-invent themselves.

The flurry of IPO issues is likely to continue, driven by a supportive political environment, upbeat economic sentiment, improved business confidence, easing inflationary pressure and stable flow of foreign direct investment.

Foreign investors are willing to buy the India growth story and are looking for more issuances going ahead due to a lot of positivity around (markets making new highs, decent corporate earnings, reforms initiative by the government). This is probably the best time for companies to raise funds through IPOs. With more companies waiting to go public, it is expected that the IPO market would see continued growth with more private equity-backed companies making it to the market.