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State Bank's credit card unit lines up IPO on bets Modi reforms to cheer investors

As many as 16 IPOs have already won regulatory approval

SBI has filed an initial draft with the Securities Exchange Board of India to sell up to a 4% stake in its credit card business.   © Reuters

MUMBAI (NewsRise) -- State Bank of India's credit cards unit is gearing up for the launch its initial public offering amid bets that improving liquidity in the banking system and more government reforms will boost the stock market.

Prime Minister Narendra Modi's administration is expected to unleash a slew of reforms to boost consumption in Asia's third-largest economy, which is in the throes of a prolonged slowdown as banks tightened lending in the face of ballooning bad debt. The economic growth has decelerated for six consecutive quarters even after India's central bank steadily cut interest rates to the lowest in almost a decade.

Last year, the government reduced corporate tax rates, which boosted the market sentiment, raising hopes of more such reforms this year. Finance Minister Nirmala Sitharaman is expected to announce a slew of measures at the federal budget next month, including a likely cut in personal income tax, according to media reports.

Analysts are expecting a host of companies including asset management firms, niche technology providers, infrastructure developers, and telecom players to tap into the primary market this year. Some of the top IPOs expected this year include offerings from SBI Cards and Payment Services, UTI Asset Management, Burger King, and Bajaj Energy.

SBI has filed an initial draft with the Securities Exchange Board of India to sell up to a 4% stake in its credit card business, according to its filings. SBI holds a 74% stake in the unit with private equity firm Carlyle Group owning the rest.

The two will together sell 130 million shares, or a 14% stake in the company, in the IPO. The share sale is likely to fetch 90 billion rupees ($1.3 billion) to 96 billion rupees, and may hit the market this month, according to local media reports.

As many as 16 IPOs seeking to raise a total of 160 billion rupees have already won regulatory approvals, and another 13 worth 212 billion rupees await the regulator's nod, Edelweiss Securities said in a note earlier this month. The S&P BSE IPO Index, a gauge of new listings in their first two years of trading, closed up 42% last year, compared with a 12% gain in the Nifty-50 benchmark index, Edelweiss said.

"We expect the pipeline to grow stronger and larger as the year passes by," it said. "Improving liquidity is a key factor underlying our optimism on the IPO market's prospects for 2020."

The hopes of a better fundraising environment come even as 2019 saw the total value of funds raised in the secondary market slump to the lowest in the four years to $2.8 billion, according to Refinitiv data. Some experts believe the revival in IPO market is dependent on the federal budget for the next fiscal year starting April 1.

"This year will be marginally better for the IPO market compared with last year, if the budget turns out to be good," said Varun Khandelwal, a director at Bullero Capital. "It will improve the market sentiment and arouse the animal spirits."

The BSE Sensex gained more than 14% in 2019, after advancing 5.9% in the previous year. The Sensex has barely gained 0.3% so far this year, even after hitting record highs several times as fears of the economy further slowing loomed large.

Overseas investors, who bought $14.2 billion of local stocks last year, have added $1.9 billion worth equities thus far in 2020. Investors had sold $4.8 billion worth of Indian shares on a net basis, in 2018.

A "good budget," which drives up consumption in the economy and therefore the level of aggregate demand, will induce confidence in investors to raise more money in the next three to four months, Khandelwal said.

--Dhanya Ann Thoppil

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