2016 to be record-breaker for Indian IPO collections: study

The Indian Initial Public Offerings (IPO) market is set to hit a six-year high with $2.93 billion already completed and another $2.90 billion in the pipeline. Financials, insurance, telecommunications, manufacturing, consumer products and services and healthcare are set to be the busiest sectors in the next 12 months.

The flurry of IPO activity is likely to continue well into 2017, driven by upbeat economic sentiment, improved business confidence, easing inflationary pressure and stable foreign direct investment inflows, according to a research by Baker & McKenzie.

This year (2016) is set to be a record-breaking year for the Indian IPO market, which is the highest since 2011, it added.

To date, 50 companies have raised $2.93 billion, while another 22 companies are lined up for about $5.8 billion, more than double last year's total deal value of $2.18 billion from 71 listings.

A further 16 companies are in the pipeline to be listed domestically in 2017, raising as much as $5.86 billion, including Vodafone's highly anticipated $3 billion IPO, which could potentially surpass state-run Coal India's IPO in 2010 to become India's biggest IPO.

Momentum in the India IPO market continues to build, boosted by Prime Minister Narendra Modi's drive to cut bureaucratic red tape to improve the ease of doing business in India. These efforts include a rationalisation of the country's current tax regime, where a good is often taxed multiple times at different rates, whether it be at the production and investment stage or during interstate trading.

The recently passed Goods & Services Tax (GST) Bill, which will take effect on 1 April 2017, will unite India as an efficient common tax market for the first time. This will also have a positive long-term impact on the Indian economy. The implementation of the GST Bill is expected to boost India's GDP growth by as much as two percentage points, according to finance minister Arun Jaitley.

Ashok Lalwani, head of Baker & McKenzie's India Practice, believes that India will significantly benefit from the GST Bill. "The GST Bill will not only bring about the immediate benefit of widening the country's tax base and improving the revenue productivity of domestic indirect taxes, but more importantly, it sends the message to the people of India and the rest of the world that the Indian government is committed to the country's economic reform, further bolstering India's attractiveness as an investment destination," said Lalwani.

Domestic vs Cross-border IPOs

Domestic listings continue to dominate India's IPO scene. Dual listing on both BSE and NSE accounted for 98.8 per cent of Indian companies' listings by value in 2016  to date, raising a total of $2.9 billion from 19 IPOs. These included ICICI Prudential Life Insurance's $909 million IPO, which is the country's biggest IPO this year. A total of 33 companies are expected to dual list on both the BSE and the NSE by the end of 2016, raising a total of $4.62 billion.

Improved business confidence is also driving Indian companies to look at growth and market expansion opportunities overseas by way of cross-border IPOs. This provides a means to access risk capital that is not available in India, and also to connect with investors who better understand and appreciate their businesses.

Among the 22 IPOs in the 2016 pipeline is Strand Life Sciences' listing on NASDAQ, which if it goes ahead, will be India's first cross-border IPO since early 2015 when Videocon d2h listed on NASDAQ.

A number of mega IPO such as Vodafone's $3 billion IPO and PNB Finance Housing Ltd's $388.45 million IPO are also expected to fructify.

The healthcare and consumer products and services sectors also have a healthy deal pipeline with a total of 22 deals expected to debut in 2016-2017. These deals include Aster DM Healthcare's $176 million IPO and Varsity Education Management's $296 million IPO, which in part reflect the growing middle class demand for higher-end consumer products and better healthcare services.

The flurry of IPO is likely to continue for the rest of 2016 and well into 2017, driven by upbeat economic sentiment, improved business confidence, easing inflationary pressure and stable foreign direct investment inflows.

Also both BSE and the NSE announced plans to list their own shares via IPO after the Union Cabinet raised the foreign shareholding limit in Indian stock exchanges to 15 per cent from 5 per cent. This will also help deepen Indian capital markets.

More listings in the insurance sector could be on the horizon, particularly after the Indian government passed a bill last year which increased the foreign ownership threshold in the nation's insurers to 49 per cent from 26 per cent.

Equally significant, the Insurance Regulatory and Development Authority of India released a discussion paper in August 2016, proposing to make IPOs mandatory for all general insurance companies that have been in operation for eight years or more as well as for all life insurers that have been operating for 10 years or more.

"The insurance sector is definitely one to watch out for, although IPO momentum will be heavily influenced by the post-listing performance of ICICI Prudential Life Insurance and the readiness of the insurance companies to hit the market," Lalwani added.