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The DLF IPO, which lists today on the domestic bourses is likely to set many precedents. The issue not only is the biggest ever in the Indian IPO market but also forms nearly one-sixth of the Rs 57,375 crore raised through the IPOs/ FPOs in the past 18 months.
The DLF story flies high on the back of boom in the domestic real estate sector. In a study conducted by ETIG on the money raised in the primary market since January '06, construction and real estate sector emerged as a front runner. The sector not only mopped up more than one out of every four rupees raised through IPOs/FPOs in the 18 months ended June'07 but also provided the best listing gains to the investors compared to the returns clocked by the other sectors.
The listing gains for the 16 construction and real estate IPOs on average stood at robust 71.5%, while overall gains for the 134 companies that launched initial public offers were 22.6%. The street it seems is offering premium to the growth prospects of the realty companies based on the amount of land they are holding. According to Mr Subramanian, head, investment banking at Enam Financial Consultants, this is based on expectations rather than present performance. He says, "Market rewards future potential which is eminent for the realty sector."
The manufacturing sector on the other hand despite having over 50% of all IPOs in this period gave the poorest return. The average return was only about 13%. Experts though are not surprised by this performance. Says Shahina Mukadam, Research Head, IDBI Capital Market Services, "Unlike realty where the present value of the land banks reflects in the valuations of the companies, manufacturing is more a cyclical business and observes slow and steady progress."
Besides these two, oil and gas which saw two mega issues, Reliance Petroleum (RPL) and Cairn India has returned close to 40% largely on the gains by the former. In IT IPOs it was 25%, slightly better than the average overall returns.
Interestingly after the DLF issue, four mega issues (DLF, ICIC Bank, RPL and Carin) would have accounted for 50% of all money raised through IPOs. Mr. Subramanian, attributes this to the increasing acceptance of bigger issues among the investors. "A slew of big IPOs is an indication that risk appetite of the investors is rising", he says.
Clearly, the action in the IPO market has shifted to the realty sector from the so called newer sectors. "Two years ago, representation of construction and real estate sector was negligible in the stock market even though it was fundamentally doing well backed by government spending and softer interest regime. This attracted investors to the IPOs in the sector," says Ms Mukadam,.
IT telecom and other services, which includes media and entertainment, saw a total of 36 issues. However in IT, a sector that was once the darling of the investors, not much action has been seen in the IPO space. The IT sector witnessed 11 IPOs collecting Rs 2,000 crore, not even 5% of the total IPO amount raised. Mr Subramanian says, "It is a cash rich sector. Hence, bigger companies don't frequent the primary markets." Banking and Finance riding on the wave of the mega offering from ICICI accounted for 25% of the total IPO sum.
While DLF has significantly added to the share of real estate in the overall IPO pie one has to wait and see if it will add just as significantly to the returns of realty IPOs.
ET Intelligence Group
Ranjit Shinde
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