ASLEW of mid-sized companies are gearing up to tap the equity market in the near term, piggy-backing on the prevailing feel-good factor in the market. This rush to raise capital may also see some companies with ‘not so good a track record’, pass muster, say merchant bankers. It is time for investors once again to err on the side of caution, they said.
A large number of mid-sized companies are raising Rs 25-200 crore via initial public offerings. While many have received the regulatory approval, many more have filed their draft red herring prospectus (DRHP) with the market regulator.
“This is a symptom of a bull-market cycle. At such times there is a need to go back to basics. Investors should look at management quality, the sector in which the company is present, its track record, irrespective of who is the banker to the issue, before taking a decision,” said Brijesh Koshal, head-investment banking at Daiwa Capital Markets.
Equity market flows, post a tepid start early this year, gained traction with purchases by foreign institutional investors (FIIs) touching close to $3 billion dollars in March 2010 alone. Portfolio investors have been net buyers to the tune of $3.11 billion year-to-date.
Equity analysts said that the feel-good factor that prevailed in a week dominated by ‘macro’ news flow — inflation rising to 9.9%, S&P upgrading India’s outlook to stable and the Reserve Bank of India raising rates in an inter-policy move — signals higher flows.
According to Prime Database, the issues that have received regulatory approvals and are likely to enter the market soon include AMR Construction(Rs 175 crore), Ankita Knitwear (Rs 25 crore), Aravali Infrastructure (Rs 100 crore), Kabirdas Motors(Rs 62 crore), Mandhana Industries (Rs 135 crore), PCI (Rs 60 crore), Sea TV Network (Rs 50 crore) and Usher Eco Power (Rs 52 crore).
“Apart from the quality of the book, pricing and valuations should play an integral role while subscribing to an issue,” says Nimesh Shah, MD of Fortune Financial.
Senior investment bankers are of the view that the market response to some of the mid-sized issues that listed in the past couple of months, has infused an element of optimism in companies in the mid-cap space that have been wanting to raise cash.
In a strange disconnect, while larger issues and PSU issuances saw lukewarm subscriptions, the smaller, mid-sized issues were not only oversubscribed several times but also listed with gains. A grey market premium added to the buoyancy. Issues like ARSS Infrastructure, Infinite Computer Solutions, DB Corp, Jubilant Food Works were among those which were subscribed by more than 25 times.