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Banking & Finance

Indian IPO market upswing lures more companies

MUMBAI (NewsRise) -- India's primary market has gone from strength to strength over the last 18 months, but more big ticket offerings are in the offing, including an estimated $800 million stock sale by ICICI Bank's insurance arm, slated to be the biggest local IPO in six years.

Indian companies are estimated to have raised as much as $1 billion in the first half of the year, with about $860 million coming from the latest quarter ended June 30, making it the highest quarterly primary market fund raising in more the nine years, according to researcher Prime Database.

Larsen & Toubro's technology services unit L&T Technology Services filed for an IPO last week, a few days after the diversified group's software services arm made its debut on bourses. Perhaps more eagerly awaited is the IPO of British telecom group Vodafone's Indian unit, which is said to be planning an offering worth a whopping $2.5 billion.

"The underlying strength in secondary markets and largely positive sentiment on domestic growth outlook are driving the activity in primary markets," said Siddhartha Khemka, head of equity research (Wealth) at Centrum Broking. "We expect this to continue in the second half of the year."

Investors are returning in force to the IPO markets, as they bet on India's improving economic fundamentals, a strong monsoon and a continued outperformance in secondary markets. The nation's benchmark index, the BSE Sensex, is currently on course for its fifth consecutive monthly advance and is trading near 11-month highs.

"The window of opportunity currently provided by the markets may possibly expedite the process of listing and advance the plans for listing on the bourses," Khemka said.

On Monday, ICICI Prudential Life Insurance filed for an IPO, becoming the nation's first ever insurance company to plan a listing on stock exchanges. The offering, set to hit the markets in December, could raise between $800 million and $1 billion, according to media reports.

India's largest private lender ICICI Bank owns about 68% in the insurer, which had 1.01 trillion rupees in assets under management as of December 31, 2015, nearly a fourth of the 4.61 trillion rupees managed by India's 23 private insurers.

Markets are expected to lap up the offering, echoing the recent cheer in India's primary markets.

Staffing firm Quess Corp's $60 million offering this month was subscribed 144 times, while L&T Infotech's $180 million IPO was oversubscribed over eight times.

"Sentiment is fairly positive," Pranav Haldea, managing director at Prime Database told NewsRise. "India is in sort of a sweet spot, at least as far as institutional investors are concerned - they see it as sort of a light in a very dark world otherwise."

Personal care major VLCC Health Care, online matchmaking service Matrimony.com and non-banking lender Hinduja Leyland Finance are among other approved IPOs likely to hit markets soon.

Lender RBL Bank, mortgage provider PNB Housing Finance Limited and hospital operator Aster DM Healthcare are among companies that have filed IPO documents with the nation's capital markets regulator and are awaiting approval, data from Prime Database showed.

"One of the good aspects of this particular run has been that you're seeing fairly quality companies with good promoters, strong management, sound fundamentals coming to the market," Haldea said.

Nearly 70% of the IPOs this fiscal year have been via the offer for sale route, which have been dominated by the exit of an institutional investor.

"The largely supportive macro-economic fundamentals for India, the government's divestment agenda and the opportunity the current positive environment provides for private equity players to cash out their investments will keep the deal pipeline for IPO fairly robust," said Kishor Ostwal, Managing Director at CNI Research.

Prime Database's Haldea noted the PE exits are essentially just a buy-sell transaction where no fresh capital is being raised.

From currently available data, Prime estimates Indian companies will raise about 110 billion rupees in the fiscal year ended March 31, 2017. In February, Ernst & Young estimated Indian companies will raise about $6 billion through IPOs this fiscal year.

"All things being equal and remaining fairly constant - I'd imagine you'd continue to see a lot of IPOs coming to the market," Haldea said.

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