The 'stock' stops here

Circa 2007 could be a bumper year for capital markets in India. If all goes well, as much as $12.38 billion is expected to be raised from the primary markets.

The pipeline of IPOs and follow-on public issues (FPO) is, if anything, even bigger. Currently, over 450 companies are looking to raise around $39 billion over the next two-three years, according to figures compiled by Prime Database. Compared to this, only $5.35 billion was raised through the primary markets in 2006.

Whether all the issues in the pipeline see the light of day will depend on the secondary market. “There is clearly no dearth of issuers. Likewise, there is no dearth of investors. What is critical is a stable secondary market. The fate of the primary market now rests substantially on the state of the secondary market,” said Prime Database MD Prithvi Haldea.

Of the proposed IPOs and FPOs, real estate companies, including the much-talked-about DLF offer, account for nearly $4 billion. Utility companies such as Power Finance Corporation, Power Grid Corporation and National Hydroelectric Power Corporation are expected to raise $1-1.5 billion. Add another $1 billion for telecom companies — Idea Cellular and Spice Telecom.

Even though the proposed figure for 2007 is much higher compared to this year’s fund raising through IPOs, experts say the Indian capital markets can absorb these funds. “Institutional investors contribute about 70% to the total funds that are raised. Of this, a major share comes from foreign investors. Foreign investors are currently interested in having a larger bite of the Indian growth story. They have deep pockets and can make large investments in Indian issues,” said ICICI Securities senior VP Ravi Sardana.

Besides power and real estate companies, a number of banks are also planning to raise money at the capital markets. SBI has a follow-on public issue of Rs 12,000 crore in the pipeline, Canara Bank also has a Rs 4,000-crore FPO. Central Bank of India, United Bank of India, Indian Bank, Uco bank and Vijaya Bank are some of the other banks that will raise money at the capital market. Banks are raising money to shore up their capital bases to meet the capital adequacy ratios, besides funding their expansion plans.

Most expect the momentum to continue for some time. “The bulk of the money that will be raised at the capital market will come from real estate, infrastructure and telecom. This momentum will continue for the next few years,” said an investment banker.