Expect 2-3 insurance IPOs in 18 months: S Ramesh

Q&A with Joint MD & Board Member, Kotak Investment Banking

S Ramesh

After a prolonged lull, the domestic initial public offering (IPO) market is coming back to life. S Ramesh, joint managing director & member of the board, Kotak Investment Banking says IPOs worth Rs 20,000 crore could hit the market over the next 12-15 months.

In an interview with Samie Modak, Ramesh says most domestic companies will be more inclined to list in the home market. Edited excerpts:

Despite strong traction in the secondary market, the IPO market hasn’t done well

Post the government change, the Indian secondary markets and the broader indices have been on a roll. Over the years, we have seen that the primary markets typically lag the secondary markets. 

But this time around, the lag has been longer. Investors remained focused on the secondary markets due to attractive returns. Additionally, corporates did not rush in with new capex plans or projects, which led to subdued equity raising. A few corporates that needed to deleverage, opted for qualified institutional placements (QIPs) in the beginning of the fiscal. 

This explains subdued primary markets in FY15. However, the prospects for primary markets look brighter. Based on filings with the regulator recently, my judgment is that IPOs worth approximately Rs 20,000 crore could tap the markets over the next 12-15 months. Many of these are medium-sized IPOs from a diverse set of sectors, including a number of them from the broader consumption theme.

Do you think the disinvestment target is doable?

We are very optimistic about disinvestments. The large monopoly or duopoly nature of many government companies coupled with a profitable track record, make them attractive to investors. We are also noticing that the government is undertaking its disinvestment programme methodically and with acumen. Two or three large offerings themselves will help achieve a substantial part of the target. 

What are the trends you pick up from recent IPOs?

Most institutional investors are focused on the liquidity of the stock post listing. Additionally, they have a preference for companies with profitable growth and from consumption-led themes. The track record of promoters is another important factor. For the first time in many years, we are witnessing domestic institutions play a more active role in investing in the primary markets.

Do you see insurance IPOs happening soon?

I do think with the insurance sector opening up, there is the possibility of two or three IPOs from the sector over the next 18 months. Given the track record of some of the players, IPOs from this sector will witness great interest from investors. The insurance market in India is under penetrated and there is ample scope for growth. 

What will it take to get investors interested in IPOs?

The momentum to invest in IPOs is slowly picking up. As investors make returns from a few issuances, they will come back with greater propensity to the primary markets. Issuances from quality companies and from promoters with a good track record will be an important trigger. 

Do you think more companies are now inclined to explore overseas listings?

Though the government, last year, allowed Indian companies to directly list overseas, very few offerings have actually taken place. The overseas listing route may be relevant for companies in new age sectors like e-commerce, where the growth potential is immense, but profitability may be some time away. 

However, the majority of such companies resorted to raising private capital, as opposed to listing. For other companies, the Indian capital markets is an attractive destination to list as most global institutions are present here and are comfortable with its architecture. Valuations on the Indian bourses are good and hence attractive to Indian issuers.

Have private equity (PE) investors camouflaged IPOs?

We are witnessing an ever-increasing trend of private equity investing. If you look at it from a company’s perspective, private equity is a good alternative to listing. Private equity investors use listing as an important medium to exit. The IPO markets were not active in the last 2-3 years. So PE investors, who were looking for an exit, exited by selling to another private equity investor or through a trade sale. With the prospects of the primary markets looking up, many of these investors are now considering exits through listing. 

Do you think stricter rules are discouraging new companies from listing?

The Indian primary market has evolved and matured over the years. Misuse by certain issuers has led to stricter rules. This is good for the markets in the long run as only quality companies that are willing to be compliant in letter and spirit would list on the bourses. Investor activism has also increased. Companies have to be prepared for greater scrutiny by investors post listing. 

What is the next big reform in the IPO market?

The Indian regulator has been very active with its IPO reform agenda. Cutting the listing timeline to less than a week, the introduction of e-IPO, widening and deepening the investor base are some examples of this. 

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Q&A with Joint MD & Board Member, Kotak Investment Banking

Q&A with Joint MD & Board Member, Kotak Investment Banking

After a prolonged lull, the domestic initial public offering (IPO) market is coming back to life. S Ramesh, joint managing director & member of the board, Kotak Investment Banking says