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After 50% returns, 2020 may be even better for Indian IPOs

BSE IPO Index, a gauge of shares in their first two years of trading, has climbed 36% in 2019.

Bloomberg|
Updated: Dec 14, 2019, 06.30 AM IST
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The 14 mainboard IPOs this year have risen by an average of more than 50% since listing, data compiled by Bloomberg show.
By Nupur Acharya and Baiju Kalesh

India’s market for initial public offerings (IPO) is expected to gather pace in 2020 after this year’s relatively small crop saw strong gains in the stock market.

The 14 mainboard IPOs this year have risen by an average of more than 50% since listing, data compiled by Bloomberg show. The S&P BSE IPO Index, a gauge of shares in their first two years of trading, has climbed 36% in 2019, compared with a gain of 13% for the benchmark S&P BSE Sensex Index.

“We expect this trend to continue in 2020,” said Satyen Shah, the Mumbai-based head of investment banking at Edelweiss Financial Services Ltd. “The year 2019 may look subdued in terms of the number of issues, but most of them were well subscribed and investors made good money.”

Shah said there are 21 companies that have filed documents with market regulator Securities & Exchange Board of India for planned IPOs, looking to raise a total of about 300 billion rupees ($4.2 billion). Of these, 11 have already received approval to tap the market as soon as next year, he added.

Companies planning IPOs include SBI Cards and Payment Services Ltd., UTI Asset Management Co., Computer Age Management Services Pvt. and Fincare Small Finance Bank Ltd.

IPO snip 3

The outperformance of recent debutantes is notable given the sluggish performance of smaller Indian shares in general. Gauges of small- and mid-cap stocks are in the red for 2019. With a record-setting rally in larger gauges missing the broader market, investors have been eager to participate in new offerings.

The IPO of Ujjivan Small Finance Bank Ltd. was oversubscribed 166 times, the most for an this year. The share sale of railway monopoly Indian Railway Catering & Tourism Corp. in October attracted bids of 112 times the offer size, and the stock doubled on the first day of trading.
Company Issue Price (Rs) Gains since listing (%)
IRCTC 320 175
IndiaMart InterMesh 973 117
Affle India 745 100
Polycab India 538 85
Neogen Chemicals 215 64

Amid the nation’s ongoing crisis in non-bank lending, market participants expect a larger number of financial companies to list shares next year in order to raise funds or meet regulatory requirements. Others see public sales driven by large shareholders needing to repay debt, large foreign partners looking to exit investments in a buoyant market and other backers looking to cash out.

“Private-equity investors who have a time horizon for their investments have started selling their shares in the public market,” said V Jayasankar, head of equity capital markets at Kotak Investment Banking.

Venture capitalist and former Infosys Ltd. official Mohandas Pai recently said he expects 10 to 15 internet and tech companies to list in India over the next three years.

“There is a large appetite for good-quality papers at the right price from companies that have good governance, large businesses and leave some value on the table for the investors to make money,” Edelweiss’s Shah said.

--With assistance from Paresh Jatakia and Zhen Hao Toh.

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