Investors spooked; IPO mop up falls 89% to $1.1bn this year
The key to the IPO market recovery lies in speedy resolution of the European debt crisis, which is likely to have a stabilising effect on the global capital market and restore investors' confidence
Indian companies mopped up barely $1.14 billion through initial public offers (IPOs) till November this year, around an 89 percent plunge over last year, according to Ernst & Young.
During January-November, Indian firms raised $1.14 billion, compared to $10.75 billion garnered in 2010.
"The Indian capital markets reacted in a similar manner to the global markets, (and) coupled with the domestic issues we are facing, the slowdown in IPOs was even pronounced in India," E&Y India Partner and IPO Leader R Balachander said.
"Both, the institutional and more prominently the retail investors are apprehensive of growth prospects and waiting for sentiments to improve," he added.
The number of IPOs was less than half of that last year, and stood at 34 in the first 11 months of 2011 as compared to 71 in 2010.
Looking ahead, Balachander said, "The recovery of IPO markets in India will depend on both, a somewhat stable global capital market regime and more importantly the recovery in the stock market indices in the country."
In addition, a revival in the PSU disinvestment programme will also help by offering shares at an attractive price to retail investors apart from a further easing of the regulations, with which SEBI is proactively engaged in.
Globally, in the first 11 months of 2011 capital raised by companies was down 45 percent and number of deals also fell 20 percent compared to 2010.
The report predicts that the value of IPOs in 2011 will be around $70 billion.
"After a promising start in the first two quarters, IPO activity dropped dramatically midway through the year, principally due to investors concerns about sovereign debt issues in Europe and Standard & Poor's downgrade of US credit rating," the report noted.
In Asia, stock exchanges completed 543 deals in the first 11 months of the year generating $ 77.7 billion, a 56 percent drop compared to the $177.6 billion raised in the whole of 2010.
IPO activity on US exchanges held up relatively well with a modest 16 percent drop in capital raised, to $36.4 billion in 114 share sale programme listed so far this year.
European exchanges raised $29.6 billion in value via 251 IPOs as compared to $36.7 billion mopped-up through 252 share sale programmes.
Overall, the report forecasts that the key to the IPO market recovery lies in the speedy resolution of the European debt crisis, which is likely to have a stabilising effect on the global capital market and restore investors' confidence.