Narendra Modi's landslide election win is set to trigger billions of dollars in share sales by Indian companies riding market optimism, but big-ticket IPOs may have to wait until the new leader proves he can deliver on promised reforms.
Indian stocks hit a record high on Friday as investors cheered results showing Modi's pro-business Bharatiya Janata Party won a clear majority and the mandate to pursue reforms without having to haggle with minor parties.
Several brokerages lifted their outlooks for the BSE Sensex and companies were queuing to ride the wave of political euphoria that began to build weeks earlier as opinion polls predicted a resounding Modi victory.
"That will spark renewed interest in deals and capital-raising," Viral Gathani, of CIMB Investment Banking in Hong Kong said, when asked about the impact of Modi's emphatic victory on India's moribund market for new share issues.
He said many companies that had put share issues on hold would now consider dusting off their plans.
On Monday, private sector lender HDFC Bank (HDBK.NS) said it would seek shareholder approval to raise up to 100 billion rupees ($1.69 billion) in fresh equity.
Smaller rival Yes Bank (YESB.NS), whose stock price has almost doubled since the end of February, is likely to raise about $400 million in new shares within a month to bolster its balance sheet, sources with direct knowledge of the matter said.
Bankers for two separate Indian infrastructure business trusts worth a combined $1 billion to be listed in Singapore decided, after exit polls last week, to kick off preliminary marketing as early as this week, sources said.
L&T Infrastructure Development Projects Ltd (IDPL), a unit of engineering conglomerate Larsen and Toubro (LART.NS), plans to raise about $600 million through a Singapore trust listing, while Infrastructure Leasing & Financial Services Ltd (IL&FS) is also planning an offering of around $400 million in Indian wind power assets, bankers said.
The bankers declined to be named as they were not authorised to speak to the media about deals and political issues.
MORIBUND MARKET
A sluggish economy and stalled bureaucratic decision-making for the past two years have battered Indian corporate sentiment and thwarted capital investment. The last large IPO was Bharti Infratel's (BHRI.NS) $750 million listing in late 2012.
For IPOs of $500 million or more to come to market in India, issuers and investors will need to see a quarter or more of stock market buoyancy as well as progress on economic reforms, bankers and fund managers told Reuters.
"IPO revival will take time as the market move and sentiment change has happened very fast. However, secondary sales, QIPs (qualified institutional placements) should start in a big way," said Sandip Sabharwal, chief investment officer at Sun Capital.
IPO issuance in India has almost ground to halt, with last year's total of $342.7 million the lowest since 2001, Thomson Reuters data showed. In 2010, the last significant year for IPOs in India, the total was $8.5 billion.
India ranked 11th in Asia excluding Japan in 2013 for IPO proceeds, lagging smaller economies such as the Philippines and Indonesia.
In 2014, new Indian listings have raised just $78 million, compared with $99 million for the same period last year.
Money raised in follow-on sales of new equity and secondary sales of existing shares has totalled $3.1 billion so far in 2014, compared with $9.2 billion for all of 2013, data showed.
A revival in equity issuance would bring relief to investment banks such as Bank of America Merrill Lynch (BAC.N), Barclays (BARC.L) and Morgan Stanley (MS.N) which have been hurt by weak fee income that in turn has led to banking job cuts.
REVIVING GROWTH
Overseas investors, usually the biggest buyers of large Indian share sales, have poured $6.5 billion into Indian stocks this year, which augurs well for new offerings.
Great Eastern Energy Corp (GEECq.L), a London-listed Indian coal bed methane gas producer, decided over the weekend to proceed with a $50 million India IPO in two to three weeks, a source with direct knowledge of the matter said. The company declined to comment.
Others looking to tap the market soon include microlender SKS Microfinance (SKSM.NS), which aims to raise up to $75 million in a share sale as early as this week, two sources with direct knowledge of the deal said.
Spokesmen for L&T IDPL and Yes Bank did not respond to emails seeking comment, while a spokesman for SKS said the company would not comment beyond its February statement announcing plans to raise capital through a share sale. IL&FS officials were not immediately available for comment.
"For companies which have been in a state of preparedness, the market rally and all this euphoria around Modi is a nice window of opportunity," said the equity capital markets head of a large U.S. bank in Mumbai.
"Others will now look to put their IPO or secondary offering plans on the fast track and that's what we are seeing happening on the ground. Six months back, companies were not willing to come to the table and now it's just the opposite."
