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May 29, 2019

Modi victory in India set to give IPO markets a boost

Market activity in IPOs expected to pick up in early July

The resounding re-election victory in India of the National Democratic Alliance (NDA) led by Narendra Modi is expected to revive the IPO markets after nearly three quarters of limited activity.

So far this year 59 companies, with plans to raise INR530 bn ($7.6 bn), have been approved to launch IPOs by the regulator the Securities and Exchange Board of India, according to data from market data firm Prime Database.

But with the on-going political uncertainty prior to the election, only seven firms have raised INR50 bn through IPOs so far in 2019, compared with 24 that raised INR310 bn in the same period in 2018, Prime Database reveals. 

The victory of the National Democratic Alliance goes some way to end the political uncertainty and signals something of a clear continuity of reforms, and in turn looks set to boost the slow IPO activity.

‘Companies have already started conversations around the launching of their respective deals. We should see good activity in the IPO market starting early July,’ says Munish Aggarwal, director at Mumbai-based investment bank Equirus Capital in a statement. ‘The uncertainty that people had in their minds in terms of whether we will have a stable and predictable government is no longer there.’

While a significantly large number of IPOs are waiting to step forward, Prime Database says QIP deals are likely to come to the market first. A QIP is a capital-raising tool through which publicly traded firms can sell securities such as shares to institutional investors.

A similar trend was witnessed after the 2014 general election, with QIPs being the first to rev up the market.

But at the same time, the return to power of the NDA government does not mean every company will be able to exploit a booming market.

‘Not all companies will benefit from the change in sentiment,’ Aggarwal notes. ‘While transactions, which were stuck because investors wanted to wait to figure out how the elections will play out, will witness better do-ability, those where valuations in underlying sectors had been hit significantly will be difficult – even now.’