The year gone by was a spectacular one for equities. The Sensex hit record highs in 2014 and gained 30 per cent — the highest annual gain in five years. But, the initial public offering (IPO) pipeline was almost dry.

Last year, there were only six IPOs on the National Stock Exchange, the largest domestic equity bourse.

This is in sharp contrast to other markets. Data from the World Federation of Exchanges shows that 1,013 companies listed through an IPO in 2014. This is up from 964 issues in 2013.

Companies in the US appear to have made the most of the strong equity market there; 96 companies debuted on the New York Stock Exchange last calendar, the largest and most popular being Alibaba.

Asian markets

The fetish for e-commerce stocks was stoked by 168 offers on the Nasdaq. Despite concern over slowing growth and an equity market that remained somnolent for most of the year, 34 companies listed on the Shanghai Stock Exchange last year. Other Asian markets such as Korea, Thailand and Indonesia also saw a healthy line-up of IPOs.

Only smaller offers could go through in India in 2014. The seven IPOs that debuted last year were in the ₹180-350 crore range.

There were four large offers that did not see the light of the day. While offers by IndiGo (₹2,404 crore), Lavasa Corp (₹750 crore) and Sadbhav Infrastructure Project (₹600 crore) are pending, GMR Energy (₹1,450 crore) scrapped its IPO plan. The company wanted funds to set up power plants and repay a portion of its debt but cancelled the plan and withdrew the offer without citing any reason.

Samir Bahl, Head, Investment Banking, Anand Rathi, says companies are hesitating because they are not sure if investors have an appetite for IPOs. “Though the broader market has rallied, investors are still sceptical. Infra companies promised big in 2008, but the execution hasn’t happened for various reasons. Now, investors are waiting for actual change on the ground and companies know this….”

“To plan and file an IPO, you need about 12-18 months. Last year, not many anticipated the reversal in the market, so they were not prepared…,” adds Bahl.

Ashutosh Maheshwari, CEO, Investment Banking, Motilal Oswal, agrees.

He said that the IPO market is becoming unexciting for an investor now.

“The preferred sectors for investors are technology, pharmaceutical and financial services. If there had been IPOs in these sectors, investors would have picked them up.”

Tough regulations

Stiff regulations imposed by the securities market watchdog have also kept a check on the number of IPOs in the last few years, says Dara Kalyaniwala, Vice-President, Investment Banking, Prabhudas Lilladher.

“SEBI has specified a minimum operating profit for companies that can make an IPO. Companies that do not meet the specification have to get 75 per cent QIB (qualified institutional borrower) subscription. But unless the company is very large, QIBs don’t show interest.”

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