An uncertain and volatile stock market, along with a lack of appetite among retail investors, has forced many Indian companies that had obtained the capital market regulator's approval to launch their initial public offers to backtrack on their fund-raising plans through the IPOs route.
According to Prime Database, 19 IPOs have been shelved since the beginning of the current calendar year (CY13) that saw the domestic equity capital market lose around R5,200 crore worth of fresh paper. An additional two companies — Trimax IT & Infra Services (Rs 225 crore) and CRP Technologies (Rs 60 crore) — saw their approval expire in the last week of December 2012. In all, Indian markets have lost nearly Rs 5,500 crore since the December 2012.
Merchant bankers attribute this trend to the lack of depth in secondary equity markets. Weak economic conditions, lack of progress on policy reforms and a weakening currency saw the market trade in a narrow range, and squeezed investors’ appetite, they say.
“There is no stability in the market. The excess volatility is keeping the investors, mainly portfolio investors, as well as companies at bay,” said a senior official at SBI Capital Securities, requesting anonymity.
Market players also add that the window of opportunity is very small due to the volatility in the market and pricing plays a key role in the success of an issue. A section of market players also says that many companies were skeptical about going ahead with their IPO plans due to the safety-net mechanisms that forced promoters to earmark funds to buy back shares from retail investors. Under the safety-net scheme, promoters promise to buy back shares from original retail investors if the stock price drastically falls below the issue price during the first six months from the date of listing. The funds are kept aside in an escrow account.
Meanwhile, data also show that an additional 17 companies are in the pipeline with a potential to raise an estimated Rs 3,125 crore through IPOs. During January 2011 and June 2012, Indian capital markets lost around Rs 51,000 crore of paper, with 55 companies failing to launch their IPOs despite Sebi approval.