MUMBAI: A boom in tiny initial public offerings (IPOs) in India may soon be followed by larger deals, broadening options for global investors looking to join the nation’s equities frenzy.
Citigroup Inc, the top arranger of equity offerings in India this year, sees four to five IPOs of at least US$1bil each over the next year.
At least 10 companies are weighing offerings of more than US$100mil, according to data compiled by Bloomberg.
A flurry of small deals has made India one of Asia’s busiest IPO markets this year.
Bigger share sales brighten the nation’s chances of attracting global funds as investors rotate money amid a patchy recovery in China.
A mix of factors is behind the exuberance: stocks are scaling new heights, economic growth is solid and earnings are beating estimates.
At the start of the year, “we saw a lot of smaller IPOs coming to market, not large ones. What we are seeing is a big shift in this trend, with average IPO sizes going up meaningfully,” said Jibi Jacob, the head of equity capital markets for Jefferies in India.
The timing of going public is also influenced by India’s ongoing elections.
The poll outcome on June 4 will give a clear picture of political stability and policy continuity, removing any lingering uncertainty for companies.
Potential issuers include eCommerce startup BrainBees Solutions Ltd, which retails baby products under the brand name FirstCry.com, hypermarket operator Vishal Mega Mart and SoftBank Group Corp-backed ANI Technologies, which is the operator of ride-hailing app Ola Cabs.
Hyundai Motor Co is also exploring the listing of its India unit, which may raise about US$2.5bil.
The performance of recent mid-size debuts is also boosting sentiment.
Pharmaceutical company Indegene Ltd, finance firm Aadhar Housing Finance Ltd and travel distributor TBO Tek Ltd all popped on their first day of trade this month.
With a 72% surge in IPO proceeds to US$3.4bil so far this year, India has surpassed Hong Kong and South Korea, data compiled by Bloomberg showed.
Mutual funds, which have seen more than US$2bil in inflows coming through monthly investment plans, have emerged as key investors in IPOs.
“The appetite for bigger IPOs is also supported by the growing size of flows coming to mutual funds because they need paper,” said Sunil Shah, group chief executive officer at Mumbai-based Khambatta Securities Ltd.
“If there is no supply of new paper, where do they invest?”
While Indian stocks have beaten their peers in the emerging market on the back of domestic fundamentals, poll jitters in recent weeks have stoked volatility.
With Prime Minister Narendra Modi widely expected to secure a third term, India bulls are optimistic the outperformance will resume soon.
“Some large issuers have been on the sidelines for some time. While some were not ready for different reasons, others have been waiting to go to market post-elections, expecting big policy announcements to follow,” said Rahul Saraf, Citi’s India head of investment banking.
“In addition, there’s deeper liquidity and attractive valuations. All of these pieces are coming together in a way that doesn’t happen very often.” — Bloomberg