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Indian IPO market poised to reach record as investors bet on Modi reforms

  © Reuters

MUMBAI (NewsRise) -- The initial public offerings of Indian companies are poised to touch a record this fiscal year as a strong investor appetite for stocks in Asia's third-largest economy spurs a boom in primary market.

A clutch of private and state-owned insurance companies -- HDFC Life, SBI Life, National Insurance Co. and General Insurance Co. -- are set to tap the stock market later this year with offerings worth as much as 370 billion rupees ($5.79 billion).

The listings come as foreign investors pour billions of dollars into India's stocks and bonds amid expectations of more economic reforms from Prime Minister Narendra Modi's government. A normal monsoon that would help boost farm incomes this year and bets of a further fall in interest rates also spur investor appetite for Indian assets.

Overseas investors pumped in $8.98 billion into local stocks this year through July end. The S&P BSE Sensex, India's benchmark index, is up more than 19% so far this year, turning it into the region's best performer after Hong Kong's Hang Seng Index. Foreign investors had purchased a net $2.90 billion of Indian shares last year.

"We could easily be heading for a record IPO year," said Sanjiv Bhasin, executive vice president for market and corporate affairs at Mumbai-based brokerage IIFL. "There is going to be very good demand for some of the government issues and insurance companies, which would be behemoths with huge market capitalization."

According to data from Prime Database Group, roughly 539 billion rupees worth of IPOs and follow-on offerings for this financial year are in the pipeline, awaiting approval from the market regulator. In fiscal year 2008, companies mopped up a record 522 billion rupees through initial share sales and follow-on offerings.

Last year, the IPO market made a strong comeback after a long hiatus. Indian companies raised as much as 366 billion rupees through share sales, 6.7% more from a year earlier, making it the best in six years, Prime data showed.

"People are looking at quality issues to invest their money," said Rambhushan Kanumuri, head of corporate finance at Investec Capital Services. "There is a lot of liquidity in the market."

Last month, SBI Life Insurance, a joint venture between State Bank of India and BNP Paribas Cardif, filed for an IPO, seeking to raise 70 billion rupees.

HDFC Life Insurance, controlled by Indian mortgage lender Housing Development Finance Corp. and the U.K.'s Standard Life, said its board has approved an IPO in the form of an offer for sale of up to 20% of the company's paid-up and issued equity capital by both owners. HDFC's mega IPO is estimated to be worth up to 100 billion rupees.

The offerings of state-owned National Insurance and General Insurance are estimated to fetch a combined 200 billion rupees. Government companies including Cochin Shipyard and Housing and Urban Development Corp. have already listed on the exchanges this year, helping New Delhi raise funds to meet its disinvestment target of 725 billion rupees and narrow its annual budget deficit.

The government is also planning to sell stakes in other state-owned firms such as Hindustan Aeronautics and Airports Authority of India through IPOs.

The insurers' rush to sell shares has also been triggered by India's move last year to ease rules related to foreign holdings in them. The new rules allow foreign companies to own as much as 49% stake in local insurance ventures, up from 26%.

Last September, ICICI Prudential Life Insurance, a unit of India's largest private lender ICICI Bank, turned the first insurer to list on the Indian stock exchanges. The share sale of more than $900 million, the largest in nearly six years, saw demand outstripping supply by more than 10 times. ICICI Prudential stock has since surged 30% on the BSE.

ICICI Bank is now looking list its general insurance arm ICICI Lombard General Insurance, while Reliance General Insurance, a unit of billionaire Anil Ambani's Reliance Group, is also looking to tap the stock market.

IIFL's Bhasin expects the IPO market to remain robust.

"It is a blockbuster year globally with equities outperforming and climbing all walls of worry," Bhasin said. "There is so much liquidity in India -- banks are flush with funds and fixed income is at a seven-year low. Equities are the best bet if you have a slightly longer term view."

--Dhanya Ann Thoppil

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