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IPO market may recover in 2020, follow-on volumes to remain strong: Kotak Investment

Qualified institutional placements (QIPs) have witnessed a rebound in the year so far.

, ETMarkets.com|
Last Updated: Dec 11, 2019, 08.34 PM IST
The first half of the year witnessed $7 billion fundraising by Vodafone Idea and Bharti Airtel through rights issuances, and overall rights volume stood at $ 7.5 billion.
Mumbai: A recovery in the initial public offer (IPO) market is likely in 2020, and will be led differentiated businesses in the first two quarters as investors will be selective in their investment themes, Kotak Investment Banking said in a presentation on Wednesday.

While fundraising activity through the IPO route remained muted so far in 2019, qualified institutional placements (QIPs) witnessed a rebound in the year so far.

Sectorally, financial institutions group (FIG) will play an important part in IPO revival with deals such as SBI Cards, UTI Asset Management Co, Home First Finance Company India (HFFC), CAMS, Fincare Small Finance Bank among others.

The investment bank said consumer, real estate and aviation could see significant IPOs as well, and the market will likely witness it’s second REIT IPO and first REIT qualified institutional placement (QIP) in the first half of 2020.

The investment bank pointed out that there was less than $2 billion IPO fundraising so far in 2019 with just 5 IPOs, of more than Rs 1,000 crore.

Investor sentiment was strong for favourably prices IPOs demonstrated by stellar subscription levels for Polycab, Ujjivan, IRCTC. Also, quality was a key factor, which drove the market.

“Quantity may have come down, but the quality was key this year,” V Jayasankar, head- equity capital markets told reporters.

The investment bank said the follow- on volumes are expected to remain strong supported by sell downs and QIPs for growth capital. It said the QIP activity will be led by issuances from the FIG sector, deleveraging to support growth and specific events such as acquisitions

It also believes some NCLT winners may either opt for QIP or rights to strengthen their balance sheet.

“We expect secondary block trades and preferential allotments to continue. Some IPO candidates may shift to private equity format,” Jayasankar said.
He believed large caps could see more traction in trade situations given narrowing of the market.

Jayasankar said that QIPs made a strong comeback this year led by large financial institutions group (FIG) trades such as Axis Bank ($1.8billion), Bajaj Finance ($1.2 billion), RBL Bank ($ 280 million), Yes Bank ($275 million)

Also, real Estate QIPs such as that of DLF ($450 million) & Godrej Properties ($ 300 million) contributed to 15 per cent of QIP volumes. The follow-on offer volumes were propelled through two telecom rights and large insurance sell downs to more than $20 billion.

The first half of the year witnessed $7 billion fundraising by Vodafone Idea and Bharti Airtel through rights issuances, and overall rights volume stood at $ 7.5 billion.

The sell downs in insurance sector from HDFC Life, SBI Life and Prudential Life contributed to around $4 billion in follow on volumes.

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