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What Rising QIP Activity Tell Us About Stock Market Sentiments?
Fri, 7 Apr Pre-Open

There are many ways in which companies can raise capital through the financial markets. If they wish to go public, they can raise fresh capital from the general public through issue of securities. The securities offered may be through various channels such as an Initial Public Offering (IPO), follow-on-public offer (FPO), preferential issues, and through qualified institutional placement (QIPs).

In QIPs, listed companies sell shares and debentures to an institutional buyer.

QIPs tend to be a faster way to raise capital as the dealing happens with a few investors. And this is why companies prefer this route - because of its convenience and less resource requirements when compared to other methods of raising equity.

But why do we bring up all of this today?

It's because QIP activity has boomed in recent months. An article in Business Standard states that funds raised from institutional buyers touched their 33-month high in March.

In March, Hindalco Industries, Yes Bank, Minda Industries, and United Bank of India, collectively raised Rs 86 billion via QIP.

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This represents a huge jump in the QIP activity from last year, when it stood at its lowest in five years. One shall note that the notebandi move coupled with the volatile markets had dampened fund raising through the QIP route in 2016.

So, what gives?

It seems that the ongoing rally in domestic markets has attracted most of the QIP. As the stock markets scaled new highs, companies went on to grab the opportunity in a rising market. Another possible factor for this rally can be the revival in sentiments after the notebandi move.

The question that comes to mind is if this rising trend will continue in the coming months?

A lot will depend on the overall sentiment in the stock markets. If the ongoing optimism continues, it will augur well for the QIP activity going forward.

How the above trend crystalizes remains to be seen. However, one thing is clear: The stock markets have picked up steam. But does it mean that you rush and buy stocks? No.

We believe it's important to not get swayed by the above buoyancy. Instead, one should look for the fundamentals of the business and the attractiveness of valuations before buying any stock. As the best thing to do in an overheated market can be to stay focused on the value and take comfort of the safest stocks.

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Jan 22, 2018 (Close)