The prevailing investment pessimism, particularly in the industry sector, is reflected in the massive reduction in the amount of capital raised through the primary market in FY 2014-15 compared to five years’ back. However, there are some indications pointing to a revival of investor interest in primary market issuances.

This will be a break from the past trend. Total capital raised through 88 issues came down to ₹19,000 crore in 2014-15 from ₹55,600 crore in 2013-14. Another trend seen between FY 2008-09 and FY 2013-14 was a clear shift of preference of issuers from equity issues to debt issues.

Debt issues, which accounted for 14 per cent of the number of issues in 2010, accounted for 76 per cent in 2013-14, nearly half the capital raised.

Corporate debt market One of the major reasons for this shift was the thrust given by the government and regulators for development of the corporate debt market. Interest on debt is deductible from the taxable profits of corporates. Moreover, increase in debt does not change the ownership and management of the company.

While unrealistic pricing of equity issues may have impacted the confidence of investors, costly and cumbersome compliance requirements made equity issues a virtual non-starter for many issuers.

But this trend has reversed this year. Based on the data available up to July 31, 2015, primary issue of equity is gaining back its momentum in FY 2015-16 wherein more than 90 per cent of the primary issues by number were equity issues, accounting for 85 per cent of capital raised. Between 2008-09 and 2010-11, the primary market was dominated by companies securing a premium on their capital, with the share of such premium issues ranging from 85 per cent to 95 per cent. Thereafter, this registered a continuous decline till it reached 22 per cent in 2013-14.

SEBI is taking various steps to provide a favourable marketplace for issuers and investors. The regulator is planning to replace the lengthy IPO prospectus with an abridged version that is more effective and comprehensible by investors for making investment decisions. This will also reduce overheads of the issuers relating to public issues.

Improving the marketplace Based on the feedback of prospective issuers and to curtail migration of capital issues, SEBI had allowed ‘electronic IPOs’ with minimal turnaround time for listing.

The entire ecosystem around primary market is going to be much more efficient by implementing a system-driven platform for issuance, disclosures and clearances.

The regulator and the exchanges are trying to attract startups to the IPO market by providing a fast track window for listing with diluted disclosure norms. As a result, 2015-16 is the first year of revival in the primary market particularly in the IPOs market; if this trend can be sustained, investors’ participation will push up the primary market.

During the last two years, investors have been with mutual funds. Now given the attractive pricing factor, the primary market will be boosted by retail investors and various government policy decisions and initiatives of the regulator. Though there have been only 16 IPOs during 2015-16 till September this year, it is expected that retail investors will enter the market provided IPOs of good quality are floated in the ensuing months.

The country is likely to see many startups coming up with innovative business solutions, products and services. These businesses would require significant capital infusion at the right time to establish themselves and to encash the potential of their innovation. Currently, the capital needs of these startups are mostly serviced by venture capitals and private equities.

An efficient IPO platform shall better serve these businesses with the right size of capital, an exit route for its investors and promoters, and an opportunity to the public to partner in the success of these firms. The downward trend in interest rates and expectations of further cuts in RBI policy rates can direct more bank depositors to the equity market.

The writer was economic advisor to SEBI

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