With market valuations moving around the frothy zone, investors were finding it increasingly difficult to participate in the domestic stock markets. However, with the success of initial public offerings (IPOs) by mid-sized companies such as VRL Logistics and Inox Wind, it has set the tone for a strong revival in primary equity markets. One look at the subscription numbers says it all. The Rs 4.6 bn VRL Logistics issue was oversubscribed 74 times! The Rs 10.38 bn IPO of Inox Winds received bids close to 14 times its offer size. Even the offer for sale by companies such as Rural Electrification Corporation and Coal India received lot of interest from small subscribers.
Sensing the pick-up in interest, a number of mid-cap and start-up companies backed by private equity investors have lined up offerings to tap the primary market. Reportedly, the market regulator has received IPO applications worth Rs 250 bn so far. Among the major IPO proposals to be approved are the Rs 15 bn issue by Rashtriya Ispat Nigam, Rs 7.5 bn issue each by Lavasa Corp and UFO Moviz each and Rs 6.5 issue by Sadbhav Infrastructure. Companies such as AGS Transact and Dilip Buildcon have filed offer documents for IPOs valued at Rs 13.5 bn and Rs 7.5 bn respectively. Even companies such as Cafe Coffee Day, Catholic Syrian Bank, Indigo Airlines, DM Healthcare and Narayana Nethralaya are in the fray to tap the IPO market in the coming months. A number of startup companies are expected to enter the primary market after regulations for them are finalized by SEBI.
Thus, with a flurry of capital issues by companies, investors will be spoilt for choice. However, factors such as the quality of management and past performance track record of companies should act as a guidepost for any investment decision taken. And in case of fundamentally strong companies, investors should not limit to listing gains alone else they will miss benefitting from their long term growth potential. For example Sharda Cropchem rallied by around 48% from issue price of Rs 156 on the date of its listing on 23rd September 2014. However, the stock is presently trading at Rs 316 translating into absolute gain of 103%.