The Securities and Exchange Board of India (Sebi) in February made major changes in the norms for initial public offerings (IPOs) to allow a smaller float for large issues paving way for big-ticket companies to get listing without squeezing out the liquidity from the market.
Experts are of the view that the change in norms, including amendments to underwriting provisions and portfolio management rules, is expected to help large companies.
The new norms are expected to be a boost for large issues like Life Insurance Corporation and tech-based companies which may come later this year. E-companies like Zomato, Policy Bazaar, Flipkart, Ola, Paytm could be in the queue to list in the market, they say.
“New IPO rule will help big-ticket IPOs like LIC to go through smoothly. Existing norm of 10% minimum dilution of post-issue capital might have been challenging to raise huge sum at one go,” Binod Modi, Head - Strategy at Reliance Securities told Moneycontrol.
Under the prevailing IPO norms, if the post-issue capitalisation is more than Rs 4,000 crore, the dilution requirement is 10 percent. For Rs 1,600 crore to Rs 4,000 crore, it is Rs 400 crore, and for smaller IPOs, it is 25 percent.
At a board meeting chaired by Finance Minister Nirmala Sitharaman, the regulator has approved a five percent dilution requirement, compared to 10 percent at present.
In the first SEBI board meeting since the Union budget, the board has made it easier for bigger issues to be listed on the exchanges by reducing the dilution requirement from a post-issue capitalisation perspective.
“The new norms are definitely pro large companies like LIC as it helps them come to the markets in tranches to raise money from investors, thus preventing larger liquidity to be sucked out from secondary markets in one go. In the past, large issues such as Coal India had caused a liquidity squeeze in secondary markets. Therefore, this new rule could be beneficial in that sense,” Nirali Shah, Head - Equity Research, Samco Securities told Moneycontrol.
“The e-commerce theme has gained good traction in the past year due to work from home and the boom in the tech cycle, hence, we feel companies like Zomato, Policy Bazaar, Flipkart, Ola, Paytm could be in the queue to list in the market, supported by positive market sentiments and ease of listing norms by SEBI,” she said.
Fund Raising in 2021:
The year 2020 saw 24 IPOs hitting D-Street, cumulatively raising more than Rs 22,000 crore in the primary market space, amid the COVID-19 pandemic, according to data collated from AceEquity.
India was quick in addressing COVID-related challenges by introducing reforms last year which are now showing results. Companies were also quick to sort out the issues related to cost. Pick up in GST collections as well as other micro triggers point towards recovery in the economy.
As the economy continues to be flushed with liquidity and as the sentiment remains conducive for IPOs amidst the rising markets, majority of IPOs are witnessing a good response, suggest experts.
In 2020 too with the opening of the economy, IPOs lined D-Street for raising capital. 2021 would also follow suit as the economy has seen swift recovery better than anticipated and stock markets are making new highs.
“Historically, at the bull market top of 2007-08, the number of IPOs, FPOs and OFS’ that had hit Indian markets had touched 90 touching an amount of approximately Rs 52,219 Crs. Comparing this to the current year of FY20-21, the amount raised till Jan end is close to Rs 58489 Cr,” says Shah of Samco Securities.
“If we adjust it for inflation and given the various OFS’ and IPOs in the pipeline, India could witness a healthy fundraising spree of over Rs 1 lakh Cr in next financial year. The liquidity in the system driven by helicopter money and the bullish sentiment will drive the capital raising spree,” she added. Having said that, 2021 is expected to be a much better year for the IPO markets.
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