By Rohit Mishra
Indian companies have been quite involved in the Indian stock market domain this year. They have raised around Rs. 15000 crores through Initial Public Offerings (IPO) raising capital for the first time through stock markets.
The markets are making record highs every day. A majority of IPOs have not disappointed the investors, but some have given exception returns of around 150% of the issue price. Among the few biggest IPOs were HUDCO, IRB Infra Investment Trust and S. Chand & Co. However, the most important ones were Bombay Stock Exchange (BSE), D-Mart and Central Depository Services (India) Ltd. (CDSL), as they made a huge impact on the stock markets and delivered exceptional returns to investors.
BSE enters the realm
The Bombay Stock Exchange (BSE) is one of the oldest stock exchanges in the world and the largest in terms of the number of companies listed (around 6000). In late January, it came up with its IPO at a floor price of 801-806. This was quite an interesting feat since a stock exchange as a company or an entity was going to be listed on another stock exchange. The issue size was around Rs. 1250 crores, wherein the promoters were selling their stake and the company was not receiving any proceeds from the IPO.
The IPO was oversubscribed by 51 times i.e. for every share offered, 51 applications were received. The issue did remarkably well on its listing day and gave around 35% returns to investors on the very same day. A notable point is that the BSE got listed only on the National Stock Exchange (NSE), unlike all other companies which get listed on both the exchanges. This was due to a conflict of interest that the BSE should not be listed on its own exchange, as there could have been a manipulation of the prices. It was not a smooth ride for the BSE in the equities market. Yet, it has not disappointed its shareholders and has delivered exceptional Quarter 4 FY17 results i.e. a 3-times increase in net profits quarter-on-quarter.
D-Mart retains its glory
One of the most awaited IPOs for 2017 was Avenue Supermarts Limited. Their promoter, Mr Radha Krishna Damani, is one of the most successful value investors in the Indian stock markets and is held in high regard amongst investors, brokers, institutions, and the entire capital market fraternity. In fact, Rakesh Jhunjhunwala the ‘Warren Buffett of India’ given his remarkable track record in the Indian stock markets (having amassed a net worth of around Rs 10,000 crores from investing alone), considers him as his mentor in this field.
Started in 2002, D-Mart is a brick and mortar retail chain operating in Gujarat, Maharashtra, Karnataka and other Southern states. It has one of the highest profit margins in the industry. The IPO was enthusiastically received by the investors, resulting in an oversubscription by 104 times. On the first day, the stock doubled the investors’ money and made a day’s high of around 650 with an issue price of 299. Currently, it hovers around 800 with an all-time high of 850. Nevertheless, some suggested that the company not having fully utilised the IPO was cheaply priced and instead, could have helped the firm in raising more capital from the market.
New beginnings for CDSL
Recently, the Central Depository Services (India) Limited concluded its IPO with a bumper subscription of 170 times. Incorporated in 1999, it offers various services such as account opening, dematerialisation, processing delivery, receipt instructions and account statements. Additionally, it also includes rematerialisation services, pledging, nomination, transmission of securities as well as SMS services for depository participants. It operates in a duopoly market, with National Securities Depository Limited (NSDL) being the other participant. The listing is still pending and markets are expecting bumper listing gains on their maiden day.
IPOs help companies raise capital as well as create a brand image in the market. They assist existing shareholders in ensuring liquidity by providing a ready market for buying and selling. IPOs also boost the capital markets of the country as they increase the market capitalisation of the stock markets. This is one of the important barometers with respect to the global economy. Companies listed on stock exchanges have to periodically report their financials and hence, competitors have access to their accounts. This may prove to be a hurdle for the company since the competitors can strategize, keeping in mind their market position.
The upcoming IPOs for FY17 include NSE (Rs. 10000 crores), Vodafone (Rs. 16000 crores), SBI Life Insurance, Reliance Infrastructure Investment IT, amongst others. An interesting detail is that the markets have hugely rewarded IPOs which offered some value proposition like BSE, Avenue Supermarts and so on, unlike the period preceding the 2008 financial crisis that saw every company making huge gains through IPOs, irrespective of fundamentals and valuations.
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