Another Primary Market Boom in 2016?

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One of the hot-topics during the year was the IPO boom. This included a surge in offers for sale (OFS) by many Indian companies.

Indian firms raised Rs 686 billion through the public equity markets in 2015. This was 76% higher than the previous year. Breaking it down, fund raising via IPOs stood the highest since 2010. Moreover, OFS issues saw a big jump as compared to the last year.

Changing times for primary markets

The Modi euphoria has fuelled the primary markets this year. After being in doldrums for four long years, IPO markets witnessed a major revival. As an article in Livemint states, 21 main-board IPOs came in to the markets this year. Collectively they raised around Rs 123 billion.

Further, investors are expecting this positive trend to be followed in the next year. And that may happen. There are number of IPOs lined for 2016. There are already 20 companies holding SEBI approval to go public at the start of this year.

The OFS buzz...

Running parallel with the IPOs are the OFS issues. These are issued by companies to sell a part of the promoter's holding. During 2015, OFS issues raised Rs 355 billion. This was as against just Rs 50 billion raised last year. To note, more than half of this came from a single issue of Coal India Ltd. The government, going with its divestment program, sold Rs 25 billion worth of shares of the company. Tanushree Banerjee, Managing Editor, Stock Select had shared her views on this. You may read it here.

The OFS can also gain markets attention this year. That can be said by looking at the optimistic divestment targets set by the government. While lesser funds were raised than targeted during 2015, estimates for this new year seem to be very high.

Will all this fund raising change the fortunes of Indian Inc?

Well, it won't be wise to answer that. While many funds have been raised, private investments haven't yet seen any pick up. One can blame poor corporate health and their indebtedness for this. Maybe these companies are still waiting for clearer signs of recovery.

Either way, this is perhaps a good time to remember 2007 when investors made a beeline for IPOs? Ultimately they were left with losses. Furthermore, one should also not get carried away with a promoter stake sale (OFS).

One should keep all these distractions aside and follow the value investing approach. You only need to react when there seems to be a permanent change in the business model of a company. A surge in IPOs and OFS should not make your investment decisions waver. As Benjamin Graham has said, "You are neither right nor wrong because the crowd disagrees with you. You are right (or wrong) because your data and reasoning are right (or wrong)."

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