Fund raising in the primary markets have just witnessed the best ever quarter since the Narendra Modi-led government took over in 2014. A large number of companies coming out with IPOs is a sign of a healthy stock market and economy.
Though the SME market has been hyper active in recent times and witnessed a big increase in primary offerings over the last few months, the activity that is happening quietly at the main boards of the BSE and the NSE is worth noting.
The main board of BSE and NSE saw 24 companies tapping capital market this quarter to raise funds. Overall, ₹17,500 crore have been raised this quarter (July-September) by India Inc, which is 65 per cent of the funds raised for the whole of calendar year 2023.
A noteworthy observation is the diverse array of sectors from which IPO companies have emerged. These include hospitality and small finance banking, biotechnology and supply chain management, infrastructure and cable manufacturing, as well as apparel and jewellery. This is a departure from the past, when a single sector tended to dominate the market during popular and trending themes.
It may be recalled that a lot defence companies hit the capital market in 2022, when the sector was much sought after. Of course, it is a different matter that most of stocks have given decent returns.
Besides, the size of issue ranges from ₹2,800 crore (JSW Infrastructure) to as low as ₹71 crore (Plaza Wires). This signals that companies are raising funds only to the tune of their exact requirement at the time of going to IPO. TVS Supply Chain, in fact, even pruned its IPO size from ₹2,000 crore to ₹880 crore.
Another welcome development is almost 65-70 per cent of funds raised are fresh issues, which means the funds will go to companies for their future growth. Earlier, more than 50 per cent of the IPO was offer-for-sale that would go straight to the promoter/investors of the companies.
After market regulator SEBI’s nudge, most companies are coming out with a reasonable price band i.e. the gap between the lower and upper price band of the issue. It is now mandatory to maintain at least 5 per cent gap. Some of the companies that had hit the market recently came out with a gap higher than the prescribed minimum limit.
The participation of big corporate houses after a long gap is another praise-worthy development.
TVS Supply Chains Solutions Ltd is the first company to hit the capital market nearly in 30 years from TVS group, one of the largest, credible and successful conglomerate in Tamil Nadu. The ₹880-crore IPO consisted of a fresh issue worth ₹600 crore and offer-for-sale of ₹280 crore. TVS Electronics was the last company in the group to be listed way back in 1994.
Similarly, the ₹2,800-crore IPO of JSW Infrastructure was the first from Jindal group after 13 years after JSW Energy went public in January 2010. Jindal Infrastructure shares will be listed in the first week of October.
The Tata Group – nearly after 20 years — will also hit the capital market. Tata Technologies, a subsidiary of Tata Motors, plans to hit market soon with ₹5,000-crore IPO. Besides, IPOs of Tata Sons and Tata Play (erstwhile Tata Sky) are also on the horizon from Tata group.
Other eagerly-awaited offers included the country’s premier exchange, National Stock Exchange, National Security Depository Ltd, Asianet Satellite Communication, Bharat FIH and Fab India.
However, what is worrying even now is that a sizeable investors want to make a quick buck. Some of them are investing in IPOs based only on grey market premium. With IPO listing now reduced to just three days after issue closing, some even invest with borrowed money. This is quite dangerous.
Minimising volatility in the initial days of listing is essential for the sustained growth of the company and, by extension, the economy.