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Slew of new IPOs to hit Indian stock market

New equity offerings are likely to come from a wide spectrum such as aviation, banking, infrastructure, retail, and real estate.

india Updated: Apr 03, 2006 16:32 IST

A string of new initial public offerings (IPOs) are set to hit India's sizzling stock market in the current year as companies look for ways to mobilise resources to fund expansion plans, said a study report on monday.

New equity offerings are likely to come from a wide spectrum of industrial sectors such as aviation, banking, infrastructure, retail, and real estate, according to auditing and accountancy major Ernst and Young.

The report said with aggressive expansion plans, Indian companies are also showing a strong appetite to alternate source of funding like GDR (Global Depository Receipts) and ADR (American Depository Receipts).

The Reserve Bank of India has, however, tightened the rules for GDR and ADR issues recently, wherein companies not listed in India will not henceforth be allowed to raise foreign equity, including convertibles.

"This may result in a growing number of domestic offerings in the future and we see increasing interest in aviation, banking, infrastructure, retail, real estate and sugar," said Ram Agrawal, director of Ernst and Young.

Indian companies like Reliance Petroleum, Air Deccan and Plethico Pharmaceuticals are likely to float new equity offerings in the market soon to raise funds for aggressive expansion plans.

The report said while the amounts raised through IPOs in India fell from $2.9 billion in 2004 to $2.3 billion in 2005, the number of transactions surged from 21 to 53 during the period.

This placed India in the fourth position in Asia, following China, Japan and South Korea.

Solid domestic earnings and aggressive expansions, continuing low US interest rates and growing competitiveness of Indian companies are turning the country into one of the hottest markets for new equity offerings, said the report.

While the financial sector dominated the overall funds mobilised, IPO activity in India was fairly spread across all sectors in 2005 with firms from energy, airlines, healthcare, tech and media sectors accessing the capital market.

"For many large investors, a global strategy that does not include China, India, and Russia has become a contradiction in terms," said Gregory K Ericksen, global vice chair (strategic growth markets) at Ernst and Young.

"However, the landscape is continuing to widen and we now see a healthy pipeline of IPO candidates waiting in the wings in markets around the world," he added.

The report said a wide global spread of IPO activity, a mix of types of offering both privatisations and new ventures, and energetic growth in emerging markets bode well for the IPO supply in 2006.

Massive investments inflows in Asia's second fastest growing economy after neighbouring China on hopes of sustained higher economic growth and corporate earnings is helping the key index to scale new peaks almost on a regular basis.

India's stock market barometer 30-share Bombay Stock Exchange sensitive index or Sensex breached the 11,000-mark for the first time in the history of the capital market on March 21.

The historical level was reached in less than six weeks after shares went past the 10,000-barrier on Feb 6 The index rose over 40 per cent in 2005 and is already trading nearly 17 percent higher in the current year.