After a lacklustre 2016, the Indian qualified institutional placement (QIP) market has seen a sharp uptick in activity with the first three months of 2017 seeing more funds raised through QIPs than all of last year.
QIP is a capital-raising tool through which listed companies can sell equity shares, fully and partly convertible debentures, or any securities other than warrants that are convertible into stocks, to a qualified institutional buyer.
According to data from primary market tracker Prime Database, so far in 2017, seven companies have raised Rs9,108 crore through the QIP route, while in all of 2016, 16 companies raised Rs4,712 crore.
The surge in the QIP fundraising was helped by two large offerings of Yes Bank Ltd and Hindalco Industries Ltd, which raised Rs4,907 crore and Rs3,300 crore, respectively. Other companies that raised funds through the QIP route this year include auto parts maker Minda Industries Ltd, state-owned lender United Bank of India, Sagar Cements Ltd and Mercator Ltd.
According to industry experts, a strong secondary market, liquidity and easing concerns over the impact of demonetization have helped QIP activity pick up this year.
“While a number of IPOs (initial public offerings) sailed through in the last few months, the QIP market was a bit slow for about six months, until early March. Since then, about half a dozen QIP deals have closed. The capital markets seem buoyant at the moment, with activity on both primary and secondary sides,” said Manan Lahoty, partner at law firm Luthra and Luthra.
So far this year, the benchmark Sensex has gained 10.65% to 29,461.45 points.
There is ample liquidity in the markets today and the effects of demonetization have largely been understood by investors, he said. “In such times, it is likely that institutional investors will look to build sizeable positions through QIP deals,” Lahoty added.
Improvement in the overall macroeconomic picture has also boosted sentiment, enabling companies to tap markets for fundraising.
“The fundamentals of corporate India have exhibited positive signs—growth outlook for FY18-19 has improved, additions to financial leverage have slowed and ROE (return on equity) appears to be bottoming out. Further, favourable election results, strong IIP (index of industrial production) growth, and progress on GST (goods and services tax) have boosted investor confidence,” said Shilpa Kumar, managing director and chief executive officer at ICICI Securities Ltd.
Kumar added that the Indian equities market is witnessing strong liquidity flows both from domestic and foreign institutional investors, which is another factor aiding QIP activity.
“In the month of March 2017, Indian equities witnessed highest FPI (foreign portfolio investor) flows since November 2010. FPIs bought equities to the tune of $5.14 billion. Mutual fund buying was positive at $371 million. Participation from retail investors rose to $0.8 billion in February as against $0.3 billion in January. Markets are witnessing a liquidity-driven rally making it an opportune time for fund-raising activity,” Kumar said.
The recent pick-up in market activity will also provide relief to the Securities and Exchange Board of India (Sebi). Last year in August, concerned by the drought in qualified institutional placement activity, the capital market regulator had invited investment banks to discuss measures to facilitate more activity in the product.
Source: Mint