In 2010 Indian companies mopped up a massive US$ 8.3 bn through the primary route. The capital it raised was the fourth largest in the world, according to data from Ernst & Young. But things completely reversed in 2011. The Initial Public Offering (IPO) market completely dried up in 2011. During the last calendar year (2011), the primary market saw only 39 equity offerings with total size of Rs 140.2 bn. The response to these IPOs was mostly tepid with only a few IPOs like Muthoot Finance and Lovable Lingerie seeing significant investor demand. Other companies saw muted response and almost 30 players had to shelf their listing plans. Only one public sector offering of Power Finance Corporation came through last year, netting Rs 11 bn for the government. Well, the performance of the primary market pretty much followed the secondary market trend, which tanked about 25% in 2011.
So will 2012 be any better? Well fortune favours the brave and Multi Commodity Exchange (MCX) is the first company to take the plunge this year. Plus it will have the distinction of being the first listed exchange in the country. This offering will be the most significant one in more than six months. The company plans to raise Rs 7.5 bn from the markets. The success of this offer could possibly set the tone for other companies to follow. Already talks are being revived for the follow on offerings of PSU behemoths Oil and Natural Gas Corporation Ltd. (ONGC) and Bharat Heavy Electricals (BHEL).
In a huge reversal of losses from last year Indian stock markets are already up 17% on a YTD basis. With secondary market sentiment improving, it seems to be a good time for the MCX-IPO. A plus point is that the company has a good promoter background and healthy financial statements. However judging this one company to be the harbinger of good tide for the IPO market may not be justifiable. While inflation numbers have reduced and there is anticipation of monetary loosening, the story hasn't changed much. Globally a lot of uncertainty is still afoot and GDP growth is also slowing in India. Investors would be advised to not jump back into the IPO market based on momentum but rather look for solid companies with strong fundamentals.