FPIs take IPO route in search of value as mkts remain pricey

ET Intelligence Group: Secondary market valuations in Mumbai, foreign portfolio investors (FPI) seem to believe, have gotten a bit too rich. Hence, they are headed toward primary issues to buy large slices of the India growth story.FPIs have invested $2.59 billion (or Rs 17,612 crore) in Indian equities through the primary market — investments through IPOs or QIBs —in the current year so far. They have sold $3.44 billion (or Rs 23,392 crore) in the same period, according to NSDL data. On a net basis, FPIs are net sellers of $852 million in 2018.Global fund managers are lowering their wagers on Emerging Markets in the past few months due to the tariff wars, which may moderate growth. The rising US dollar is also affecting the interest serving ability of dollar debt liabilities for Indian companies. Consequently, FPIs are selling in the secondary market and trimming India’s over-weightage on the MSCI EM index.Between 2015 and June 2018, FPIs net invested $13.2 billion (or Rs 87,600 crore) in Indian equities: In total, $13.7 billion were deployed in the primary market, while FPIs sold cumulatively Indian equities worth $447 million. Indian companies have raised Rs 2 lakh crore from IPO and QIB between 2015 and June 2018, according to Prime Database. 64912221 The primary market accounted for 46 per cent of total flows in the six years before 2015, when the valuation of Mumbai stocks was lower than the historical average. This shows that FPI inflows from secondary markets increased considerably when India was an ‘attractive’ value buy, while allocations to primary market rose when the listed valuations started swelling.Between 2012 and 2014, the Indian markets saw inflows of $54 billion through the secondary market at a time when price-earnings were, on an average, 7 per cent lower than the 10-year average of 15.18.There are a couple of reasons why FPI are moving to the primary market.First, the valuation offered in an IPO to an investor is being provided at a discount to the listed peers to attract new investors. Typically, new companies price their issue at 10-35 per cent discount to listed peers. Second, the primary market offers investors the opportunity to buy companies where several earnings growth triggers are not priced in yet by the markets. Furthermore, buying through the IPO market assures sizeable stake with zero impact cost.Such a mechanism suits the alpha-seeking managers. Typically, the Street arrives at a fair value of a stock based on the discounted earnings of one or two years forward. 64813079

from The Economic Times https://ift.tt/2zmzs71