DSIJ.in JULY 10 - 23 , 2017 I DALAL STREET INVESTMENT JOURNAL (^47)
YEAR No. Of CO. TOTAL ISSUE SIZE (cr)
2007 108 43251.87
2008 38 18411.96
2014 6 1706.34
2015 21 11362.3
2016 25 26372.49
OUTLOOK FOR SECOND HALF
2017
The outlook for equity markets in India
is robust in spite of worries on disruption
in markets owing to GST
implementation.
On the global front, the markets
continue to trade at all-time highs and
are not showing any signs of correction
even though the markets do look little
fatigued at the top.
As far as primary markets goes, ample
Pranjal SrivastavaSr. VP& Head, Capital Market Products, ICICI Securities
Why are we seeing so many
IPOs flooding the markets?
We expect India to remain well-placed
among emerging markets on the back of
continued decline in the twin deficits,
adequate forex reserves, improving debt/
GDP ratio and with the inflation
trajectory below RBI benchmark. The
government’s pro-reforms agenda
remains a positive in the medium to long
term. Further, the domestic and foreign
institutional investors have a positive
outlook on the Indian growth story,
which keeps the primary market active.
Also, several differentiated companies
hitting the markets are attracting the
investors and keeping the IPO market
flooded.
What would you advice retail
investors at this juncture on
investing in IPOs? How does
one identify the right IPO to
invest in?
Retail investors' appetite for initial public
offers in 2016 and 2017 is probably the
highest if bids on day one of IPOs are any
indication.
A long term or short term investor
should go through the information
disclosed in the offer document as
extensive information is available in the
format prescribed by SEBI. Apart from
pricing and other company-related
attributes, success of an IPO also depends
a lot on the market sentiments at the time
of listing.
The most popular method of valuation is
through 'peer valuation'. A comparison
of the price of an IPO with the share
price of its peers which are already
trading can give an idea whether a new
offer is overvalued or undervalued. One
should compare vital ratios, such as 'book
value' and 'operating margins' of the IPO
issuing company with those of other
companies in the industry.
Do you buy the argument that
the large number of IPOs hitting
the market will eventually suck
out liquidity from the
secondary markets?
Over the past two years, cumulative DII
inflows were at ~USD 16 bn vis-à-vis FPI
inflows of USD 7.3 bn. The two
preceding years saw cumulative FPI
inflows of ~USD 36 bn and DII outflows
of ~USD 18 bn. The emergence of DIIs in
recent times has been driven by liquidity
arising from strong retail flows into MF
schemes. From the perspective of IPOs,
foreign institutional investors have
contributed ~INR 7,125 crore to anchor
investments over the past five years,
while domestic institutional investors
have contributed ~INR 5,821 crore.
Typically, we have seen DIIs play a larger
role in issuances of size upto ~ INR 500
crore, while foreign investors play a
predominant role in issuances greater
than INR 1,000 crore. Both international
and domestic institutional investors are
vital for healthy capital markets. Given
the high cash ratio of the MFs and the
keenness of FIIs to invest in the India
growth story, I do not see any liquidity
crunch in both primary and secondary
markets.
POST LISTING GAINS
First Day
Average
Return
Share Price
Development Since
Listing Day
London Main Market 12.8 10.2
Hang Seng 4.6 4.4
US 16.1 12.1
India 22.34 10.21
- figures are rounded off and may not be accurate
Both the tables highlight the benefits of
investing in IPO stocks post getting listed.
We can see that IPOs in India post getting
listed have delivered decent returns as
reflected in the BSE IPO index
performance. While the YTD returns for
BSE IPO index stands at impressive 33.31
per cent the average returns for all the
listed IPOs on main board excluding SME
IPOs stands at 10.21 per cent. The IPO
index has clearly outperformed the
benchmark indices, including the
small-cap and mid-cap indices. This goes
to show the kind of outperformance an
investor can enjoy if the right IPOs are
chosen for investment. As a strategy, it
may not be a bad idea to buy shares on the
day of listing for those shares that have
seen hefty oversubscription and retail
investors are not happy with the quantity
of shares being allocated to them.
Here is how IPO index has
outperformed benchmark indices
Source : EY, DSIJ research
COMPARATIVE INDICES PERFORMANCE
Indices YTD 1Yr 3Yr*
S&P BSE IPO 33.31 37.96 27.68
S&P BSE Sensex 15.80 16.25 7.10
S&P BSE Small Cap 25.86 31.38 14.88
S&P BSE Mid- cap 20.54 26.56 16.36