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India's red-hot IPO market primed for bigger bets

MUMBAI (NewsRise) -- Indian stocks may be struggling to regain momentum, but one segment of the market has been in top form: initial public offerings.

An array of offers in the so-far untapped high-growth sectors such as healthcare is luring both foreign and local investors, who have lapped up a number of IPOs with sales being subscribed many times over. The Indian unit of Vodafone is among the companies readying blockbuster share sale, as they bet that investor appetite will remain robust in coming months.

In the current calendar year alone, nine companies have gone public, raising 59.54 billion rupees ($891.3 million) until the end of April, according to database provider Prime Database. As many as 23 companies have received approval from the market regulator to raise capital.

"The overall positive market sentiment will keep the interest alive in primary market issuances and we could see a lot more money raising," said Siddhartha Khemka, Head of Research at Centrum Wealth. "Central banks across the world are likely to maintain an accommodative monetary policy through the year, and that should help check global market volatility."

In the financial year that ended in March, 24 companies raised capital worth 145 billion rupees in the primary market, in stark contrast to five IPOs in 2014.

Investors are also readying to welcome companies from India's rapidly expanding online retail sector to the bourses, with e-commerce firm Infibeam Inc. marking the segment's maiden foray into the stock market.

On its part, the nation's capital markets regulator, the Securities and Exchange Board of India, has been trying to make it easier for startups to go public, announcing a sub-platform to list early-stage companies.

Last week, micro finance company Ujjivan Financial Services' IPO was subscribed 41 times, while healthcare provider Thyrocare Technologies' offering saw demand 73 times more than what was on sale. In April, financial services firm Equitas Holdings' offer was oversubscribed 17 times.

Equitas and Ujjivan, readying to convert into small savings banks, are among the 10 companies selected by the Reserve Bank of India in September to set up lenders for small businesses and farmers by April 2017.

Analysts remain bullish on the prospects for India's small finance banks, as almost half of the world's second-most populous nation remains unbanked. They are also upbeat on the healthcare sector, as demand for drugs and medical services is expected to pick up in line with rising incomes.

Last year, diagnostics and medical test company Dr. Lal PathLabs received bids 33 times the shares on offer in its IPO, while drugmaker Alkem Laboratories' offering was oversubscribed by more than 44 times. InterGlobe Aviation, the parent of India's largest airline Indigo, went public last November in what was the nation's biggest IPO in at least three years. The offer was five times oversubscribed.

Such successes have primed the nation's market for major offerings. The most widely-awaited IPO is of Vodafone India, which expected to raise as much as $2.5 billion. The nation's second-largest private insurer HDFC Standard Life is also likely to make its stock market debut later this year. Another insurer that plans an IPO is

ICICI Prudential Life Insurance, which could raise as much as $700 million, according to Reuters. SBI Life Insurance could also list their shares in future, the newswire reported.

To be sure, not all issues have done well. Expensive valuations damped demand for cancer care network operator Healthcare Global Enterprises' IPO in March and the company slipped more than 20% on its debut at the bourses.

"The healthcare sector has significant activity and even in this space, issues which have not been priced reasonably have witnessed a muted response," said Centrum Wealth's Khemka.

The ongoing IPO of Parag Milk Foods has seen a somewhat tepid response, with the issue getting a 23% subscription on its second day. Analysts cite the company's "premium valuation" at 220-227 rupees per share as one of the reasons for the lukewarm investor reaction.

Still, given the global headwinds and slow pace of domestic reforms, some slowdown looks inevitable for the primary markets. Analysts say global growth worries, which have caused volatility in India's secondary markets, will trickle over to primary markets as well in coming months.

Indian capital markets took a beating earlier this year, as concerns of a China-led global slowdown sparked a worldwide equity rout. The benchmark BSE Sensex plunged to one-and-a-half-year-lows in February and the Indian rupee came dangerously close its record low. Frustrations about the slowing pace of reforms by Prime Minister Narendra Modi's government have also tempered local sentiment.

"There has been a general disappointment at the pace of reforms in India," said Rakesh Kadakia, Managing Director at Vishesh Capital. "This is likely to keep an overhang on the secondary market and appetite for primary issues."

One of the most anticipated economic reforms, the long-awaited Goods and Services Tax that seeks to consolidate the country's indirect taxation system, remains stuck in the upper house of Parliament where the Modi's Bharatiya Janata Party lacks majority.

Despite such concerns, some analysts nevertheless continue to believe that investor interest in India's niche issues and reasonably priced offerings will remain strong.

"Notwithstanding the volatility witnessed at the start of the year and the weak global macro-economic outlook, demand for issues which offers exposure to niche areas will remain robust," said Sameet Chavan, a fund manager at Angel Broking.

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