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Nikhil Faleiro in Bombay

Despite the fact that market observers have struck a note of caution about the forthcoming initial public offerings, there is a buzz that genuine success of the issues will hasten major corporates' proposed visits to the capital market. Market players expect to see the return of the buoyant mood of 1992-93 when stock bazaars in India were on a boil.

Over the next few months, over 20 companies expect to raise around Rs 6 billion from investors. Financial institutions like Hong Kong and Shanghai Banking Corporation, JM Morgan Stanley expect the Sensex (the 30-share benchmark index of the Bombay Stock Exchange, India's premier bourse) to touch the 6000 mark by 2000.

Deepak Mohini, a Bombay stockmarket analyst, says, "The bull run in the last few months has triggered this response and once the IPOs hit the market, the market will get buoyant."

Not something to write home about, considering that in 1992-93, a minimum of four issues used to hit the market every day. That was the time when ordinary men became 'rich' overnight and obscure companies suddenly became famous nationwide.

There is no dearth of people who hope that lady luck will smile upon them during the forthcoming 'busy season'. During 1998-99, only four companies issued IPOs worth Rs 400 million. There was no issue in 1997-98! However, this fiscal is going to be better, at least in terms of the number of offerings.

Small wonder, brokers, underwriters, merchant bankers and registrars are anticipating glad tidings. Of late, unemployment has been a grim prospect for them, what with the Securities and Exchange Board of India making announcements of licences being cancelled.

Analysts say three sectors -- software, telecom and banking -- account for a major portion of the equity-issuing companies. Asit Mehta, managing director, Nucleus Securities, says, "If a particular sector is doing well, then why not take advantage and tap the market? This could have a cyclical effect.''

Financial experts point out that since 1994, markets have been down during the July-December period. This time, things are different. With the economy bottoming out, growth in volumes in most sectors is imminent, they add.

To substantiate their stance, they point to the following figures:

• Sales of cement grew by 22.6 per cent in the Q1 of the current fiscal.
• Diesel offtake rose by 8 per cent in April-May 1998 compared with -- 0.5 per cent growth over the same period in 1998-99.
• Heavy commercial vehicle sales were up 46 per cent in the first quarter of this fiscal.
• Motorcycles sales were up 27 per cent in the Q1 of the current fiscal.
• Indirect tax collections were up at 21 per cent in the Q1 of the current fiscal.
• Excise collections were up by 29.5 per cent over the same period, while customs grew by 12.1 per cent.
• The Index of Industrial Production showed a growth of 6.3 per cent in April-May 1999.

With the meteorological department predicting a good monsoon this year, after a bumper crop last year, the sentiment in the market is more than buoyant. Proof of this is in the fact that the foreign institutional investors have pumped in over Rs 3 billion in the last three months into the Indian economy.

K K Bharat, managing director, Credit Suisse First Boston, the investment bank, says, "The economic difficulties of the past are over. And with the fundamentals very strong, it's not surprising that companies are willing to enter the market and tap it for funds.''

In the current fiscal, between April and July, only nine public issues hit the market. According to analysts, three debt issues from ICICI (Rs 6.29 billion) and one from IDBI (Rs 7.50 billion) accounted for Rs 13.79 billion or 95 per cent of the period's total mobilisation of Rs 14.45 billion.

Additionally, the banking sector has mobilised Rs 3.5 billion, though equity financial institutions and banks have together raised Rs 14.14 billion. In other words, a whopping 98 per cent of the period's total amount. This is significantly up from their share of a meagre four per cent in 1994-95.

On the other hand, the software sector which has gone through four public issues, has raised a meagre Rs 290 million, and one non-banking finance company which has raised Rs 30 million. According to analysts, software issues are now set to dominate the coming months.

At least ten banks are gearing up to tap the market. These include Canara Bank, Oriental Bank of Commerce, Punjab National Bank, Union Bank of India, Indian Overseas Bank, Andhra Bank, Vijaya Bank, Centurion Bank and Nedungadi Bank. Ridham Desai, India-strategist at JM Morgan Stanley, says, "We are positive because there is a sustainability in the economic growth, cheaper valuations and demand-supply for equities are very favourable. The bull run today is far better than the bull run of 1994. This one will be sustained.''

Besides equity issues, IDBI and ICICI will continue to raise debt as in the last couple of years. A debt issue from the Noida Toll Bridge Company is also awaiting an entry. There could be a couple of public sector undertaking disinvestment offerings to the public, one from VSNL aggregating Rs 700 million, one each from the Gas Authority of India Limited and the Container Corporation of India.

Although the fate of the forthcoming issues will be eagerly watched, some analysts say they are of a high quality. Ever since the primary market sunk into oblivion because of the sub-standard issues of 1995, Indian companies have been starved of funding. Companies that went in for the odd domestic or foreign issue, had to live off debt, as reflected in their annual results. According to a study, debt servicing as a percentage of total cash flows has gone up from 21.3 per cent in 1995-96 to Rs 36.4 per cent in 1997-98.

While no large corporate has filed its application with SEBI, there have been stray announcements of companies reconsidering the equity option. Essar Steel is talking of a Rs 3.40 billion issue, Reliance and Tisco are the other large corporates that are considering the equity market. ICICI plans to raise Rs 20 billion and there are many more.

Richard Holdsworth, CEO, ITC Threadneedle Asset Management Fund, says, "FIIs are interested in India because there is a growing domestic market here. Indian corporates have realised it and are now willing to tap the market because of the growing demand.''

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