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India IPO market likely subdued in 2019 as Modi faces resurgent opposition in election

Slowing global economic growth another worry for investors

The IPO market in India has been buoyant in the past few years, with fundraising reaching a record high $11 billion in 2017.But it is likely to remain subdued in 2019 as upcoming federal elections and a slowdown in global economic growth damp investor sentiment.   © Reuters

MUMBAI (NewsRise) -- India's initial public offering market is likely to remain subdued in 2019 as upcoming federal elections and a slowdown in global economic growth damp investor sentiment.

The IPO market in Asia's third-largest economy has been buoyant in the past few years, with fundraising reaching a record high $11 billion in 2017. Indian companies raised half that amount from 161 IPOs last year, according to data from E&Y.

The nation is headed for polls by May when the re-election bid of Prime Minister Narendra Modi's Bharatiya Janata Party would be put to test. The BJP suffered a major setback last month, losing elections in three heartland states. The victory in these states has reenergized the main opposition Congress Party, raising the possibility of a less-certain outcome in the upcoming national elections. Some investors are concerned that the BJP may not be able to repeat its landslide victory of 2014 in the face of the stronger opposition.

"Ever since the beginning of last year, India's secondary markets have been volatile," said Pranav Haldea, managing director of Prime Database. "The IPO market follows the secondary market, which remains volatile if there is any kind of uncertainty. The general elections are one such uncertainty."

"For companies to launch their IPO, the broader market should be doing well and investor appetite should be there. There should be bullish sentiment."

The BSE Sensex gained about 5.9% in 2018, even after hitting a lifetime high earlier in the year. The index had advanced almost 28% in 2017. The Sensex has gained 1.3% so far this year.

India's stock market was rattled by fears of a domestic economic slowdown and a cash crunch in the shadow banking sector. A weaker rupee against the dollar also added to the gloom. The ongoing trade war between the U.S. and China and fears of Britain's exit from the European Union without a trade deal further damped investor sentiment. Earlier this month, the World Bank predicted growth of the global economy to slow down to 2.9% in 2019 from 3% last year.

Overseas investors sold $4.8 billion of local stocks last year, compared with a net purchase of $7.86 billion worth of Indian shares in 2017.

According to data from Prime Database Group, 59 companies are waiting for an opportune moment to list after receiving approvals from the capital markets regulator Securities and Exchange Board of India, or SEBI, to raise as much as 631.70 billion rupees ($8.86 billion) this year.

Another 19 companies are awaiting the SEBI approval to raise nearly 180.67 billion rupees, according to Prime Database.

Some of the big names looking to hit the capital markets include real estate firm Lodha Developers, which plans to raise as much as 55 billion rupees, Renew Power, and state-owned Rail Vikas Nigam. While Renew Power seeks to raise 60 billion rupees from the share sale, Rail Vikas plans an IPO for 30 billion rupees IPO, Prime data showed.

To be sure, analysts expect the benchmark stock index to offer better returns in 2019, buoyed by a likely revival in earnings growth and increased election-related government spending. According to Morgan Stanley, the Sensex is likely to touch 42,000 by December, trading at 16.5 times price-to-earnings ratio.

The IPO activity momentum is likely to gather momentum in the second half of this year, with the market set to witness the first listing of a Real Estate Investment Trust, brokerage Kotak Institutional Equities said in a report.

Last year, U.S. equity investor Blackstone Group-backed Embassy Office Parks REIT got the regulatory approval to list on the Indian stock exchanges. Embassy Office Parks REIT's offering consists of a fresh issue worth up to 52.50 billion rupees and an offer for sale.

"A lot of macroeconomic factors such as inflation, crude prices, and foreign exchange are favorable right now," Prime Database's Haldea said. "In case there is a stable government coming at the center, I won't be surprised if we see another strong year of the primary market."

--Dhanya Ann Thoppil

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