Primary woes

Call it the great Initial Public Offering (IPO) flop show. Corporate efforts to raise money on the stock market have just not taken off. In CY12 alone, 12 issues worth ₹5,461 crore, including those of Micromax, Joyalukkas and Lokmat Media, have been called off. In fact, last year, 29 offerings worth ₹32,400 crore were put on hold — a majority of these companies were from the real estate and power sectors. 

What is more, the government’s attempt to bring several blue chip state-owned companies to the primary market through its disinvestment programme has been a complete non-starter. The lukewarm response to the follow-on public offer of ONGC hasn’t helped matters, either. That the government has scaled down its divestment target for the upcoming fiscal to ₹40,000 crore is an indication of the weak investor appetite.

Says Jagannadham Thunuguntla, head of research, SMC Global s, “Depressed sentiment is largely to blame. Also, the IPOs that came in 2011 gave negative returns, impacting sentiment further.” The only two IPOs that have been listed in 2012 so far have been those of BCB Finance and the Multi Commodity Exchange, which was over-subscribed 54 times.

Brijesh Koshal, head of investment banking at Daiwa Securities, believes a couple of factors are to blame. “Given that valuations are low for most of these companies, it doesn’t make sense for private equity investors or promoters to exit at current levels. Also, with both the primary and secondary markets being depressed, no one is sure what response they will get. So people are adopting a wait-and-watch approach.”

The net result of all this inactivity? Companies have been finding it even more difficult to raise money, a situation compounded by tight liquidity in the banking system. Overseas debt, too, is not coming easy. Indian companies garnered $2.7 billion (₹13,500 crore) through external commercial borrowings this January — much lower than the $4.46 billion (₹22,300 crore) raised in December. 

No one thinks the situation will change in the near future. Thunuguntla feels that given the macro and political overhang, volatility will increase in the markets. Koshal, too, does not see the situation improving till the end of the year. Till then, corporate India can only twiddle its thumbs.