IPO markets

The IPO markets seem to be reviving with a bang…

The successful completion of the Café Coffee Day IPO was probably the first indication that there is retail appetite returning to IPOs. The oversubscription may not have been too flattering but it is surely a good starting point. More importantly, it also gives greater confidence to the much-awaited Indigo IPO later this month.

Indian IPO markets have been typically driven by institutional participation and retail interest. The previous IPO rallies in 2007 and 2010 ended when the secondary markets turned negative. So what could drive IPO markets from here?

Quality paper at a decent price…

The bane of Indian IPO markets has been that new issues were either low quality or aggressively priced. Both did not go down well with investors. The last 1 year has seen quality issues like Syngene and VRL Logistics among others that have given positive returns since listing. Also the pricing of IPOs this time around has been less aggressive leaving sufficient room for capital appreciation post listing. Back in 2002, this trend started off with Maruti, which set the tone for a multi-year IPO boom.

Equity markets are at a cusp…

A strong IPO market pre-supposes a strong secondary market. Over the last 2 years, the secondary markets have shown maturity and resilience. This has added to the confidence of IPO issuers and investors. Additionally, cheap oil and falling rates will ensure that equities continues to be an interesting asset class. That is again keeping the primary markets enthused.

Retail investors are back in equities

For many small and retail investors, equity is now becoming a Hobson’s choice. Gold prices are lackluster, real estate is unpredictable and interest on debt is only headed down. In these circumstances, retail investors rightly believe that equity is the one asset class that can outperform other asset classes. Less aggressive pricing of IPOs has also added to the confidence of retail investors. Since 1992, markets have been testimony to the fact that IPO markets have boomed only when retail investors have participated in full measure.

Mutual funds are back in action…

In September 2015, Mutual fund AUM touched $200 billion. In the last 1 year, equity mutual funds have seen record collections and a record increase in the number of folios. Mutual funds have been key players in the IPO market and this liquidity can only add to the attractiveness of IPO markets. It looks like happy days may finally be back for IPOs. The next couple of years will actually bear this out! ©

You can ask us your stock related questions with #AskReligareOnMarkets via our Twitter channel @religareonline

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