US Federal Reserve decision may affect IPOs

Jul 01, 2013

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Mumbai: With high bouts of volatility being experienced in the secondary market and global liquidity expected to tighten once the US Federal Reserve starts scaling back its quantitative easing programme, the IPO market is likely to remain inactive throughout the current calendar year.
According to market pundits no meaningful IPOs can be expected in 2013 as well as during the first half of 2014.
“For the IPO market to really take off, fresh money is required to come in. What is now moving the market is the trading money. For the IPO to come, the markets require far more stability,” said Jaganadham Thunuguntla, head of equity, SMC Global Securities adding that current market environment is not conducive for fund raising by unlisted companies.
According to market participants, there are currently about 100 companies, which have received the approval from the Securities and Exchange Board of India (SEBI) to launch their offers, but have deferred their plans due to volatile secondary market conditions. The total fund raising by these companies is estimated to be in the range of Rs 25,000 crore and Rs 30,000 crore.
Though the secondary market had shown some resilience during the past week, B. Madhuprasad, vice-chairman, Keynote Capital Services doubts whether that buoyancy could be sustained going forward, which would be a key factor for the revival of the primary market. “Savings and liquidity are there in the market. But it is being parked in short-term debt schemes of mutual funds.
So for another three-four months, it is unlikely that the primary market would see any kind of activity,” he said.
Thunuguntla added that the gradual withdrawal of the stimulus measures by the US would have deep consequences. “It would require the wh-ole global economy to radically realign with the new reality as it was the easy money from US that provided the much needed liquidity in the world financial system,” he added.
Prithvi Haldea, MD, Prime Database pointed out that the pipeline of IPO’s at the moment looks very weak with no new draft offers being filed with the regulator.

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