The calendar year 2020, so far, has been a lacklustre year for IPO (initial public offering) market, disrupted due to the COVID-19 pandemic. In CY19, 16 companies launched their IPOs, raising over Rs 12,000 crore and CY20 was expected to be a rebound year, but it got derailed due to COVID-19. A number of companies that had received regulatory approvals also put off their IPOs, waiting for a recovery in the equity markets.
Now, with the sharp turnaround in secondary markets and broader market also participating in the rally, the primary market is reviving once again. Slew of IPOs are expected to hit the street in the second half of the year. Promoters are rushing to the primary market to make most of the opportunity. The increase in liquidity flows is also helping their cause.
After SBI Cards IPO at the start of the CY20, there was lull in the primary market till the month of July. Then two companies— Rossari Biotech and Mindspace Business Parks REIT—finally decided to hit the market that month and successfully closed their IPOs.
Together they raised Rs 5,000 crore amid heavy demand. Rossari Biotech was subscribed 80 times and surged more than 60 percent on market debut. Even Mindspace REIT saw 13x subscription and listed with 11 percent premium.
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Their stellar debut instilled faith in investors. In September, Happiest Minds Technologies and Route Mobile, too, saw a stellar demand for their IPOs. Happiest Minds got subscribed 151 times while Route Mobile got subscribed 73 times.
In the last five months, a lot of new retail investors have come into the market. As there were no lucrative IPO opportunities since March, retail investors participated heavily in these recent IPOs. They were attracted by strong grey market premium, which has the potential to give substantial listing gains.
Further, the recent IPOs were good offers that came after a long time. With rising interest in midcaps and smallcaps, investors were on look-out for new ideas to invest in and these IPOs provided them the same.
A slew of more IPOs like CAMS, UTI AMC, Angel Broking, Chemcon Speciality Chemicals, etc are likely to open in September.
Besides them, Kalyan Jewellers, NCDEX, Barbeque Nation, Burger King, Bajaj Energy and Lodha Developers are some of the names likely to hit the market during the year.
Of this, CAMS and UTI AMC will be big ticket IPOs. LIC could also join the bandwagon later this year and could be one of the largest IPO in the country ever—going by the company's size. The government is looking to offload 25 percent stake in LIC in tranches, as it is falling short of its divestment target of Rs 2.1 lakh crore this fiscal.
For this, it is likely to incentivise the participation of retail investors/employees/policy holders by providing some discount.
LIC issue is expected to become India's biggest IPO. Given its sheer size, it could make stock exchanges quite broad-based and could change India's weightage and rating across various global indices, including MSCI. It could draw huge foreign investments into India.
The listing can make LIC one of India's biggest companies in terms of market capitalisation along with Reliance Industries, TCS and HDFC Bank.
If we look back at the Coal India IPO, the participation of retail investors was unprecedented. The retail offering was oversubscribed 2.1 times and more than 1.7 lakh retail investors applied for its shares. LIC is likely to raise about Rs 80,000 crore from the IPO.
Assuming 35 percent retail portion, about Rs 25,000-28,000 crore would be raised under the retail category which is 2.5x retail participation witnessed during Coal India IPO. Thus LIC IPO could broaden the retail equity shareholders participation in the country.
(The author is Head – Equity Strategy - Broking & Distribution at Motilal Oswal Financial Services.)
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