With the primary market for equity issuance reviving after a hiatus of almost a year-and-a-half, domestic banks are keenly eyeing listing gains from the initial public offers (IPOs) of Adani Power Ltd and NHPC Ltd.
Bank treasury officials are laying much store by quick gains from the equity markets as yields on government securities are gradually edging up (i.e. G-Sec prices are falling) on account of the huge budgeted government (Central and State) borrowing programme, pegged 34 per cent higher in FY 2010 at Rs 5.37 lakh crore over the previous year’s actual borrowing of Rs 4.02 lakh crore.
The primary equity issuance market has revived on the back of a 58 per cent surge (i.e. a gain of 5768 points) in the benchmark BSE Sensex in the first four months of the current financial year.
However, during the same period, G-Sec yields hardened. Yield on the benchmark 10-year G-Sec (the 6.05 per cent 2019 paper) inched up by about 25 basis points (i.e. its price fell by around Rs 1.40). “The IPO market has revived after a long time. This revival couldn’t have happened at a more opportune time, coming as it does in the backdrop of hardening Government Security yields. We are keen to invest in IPOs of good companies. We hope to make decent listing gains,” said a senior official with a public sector bank, which has a large network of branches in Gujarat.
Investment strategy
A treasury official with another State-owned bank said his bank’s investment strategy in IPOs of companies in the energy sector would be guided by how much power generation capacity a company currently has and the capacity addition that is envisaged in the future.
The official reasoned that if a company’s current power generation capacity is small but it has a few projects in the pipeline which would go on-stream in a couple of years, then there could be scope for making quick gains. This is, of course, subject to the current buoyancy continuing in the equity market and the scrip getting listed at a premium.. However, if a company has large current power generation capacity and also greenfield projects on hand, then one could bet on long-term capital appreciation.
“This IPO season we are hoping to make a fast buck. We are gung-ho at the prospect of making decent listing gains,” said a Union Bank of India official.
QIB route
Banks and Life Insurance Corporation of India are understood to have bid for the Adani Power IPO under the qualified institutional bidder (QIB) category in a big way. LIC is believed to have put in a bid for almost Rs 2,000 crore.
SBI & its associates banks and Bank of Baorda have reportedly put in bids amounting to Rs 1,800 crore and Rs 300 crore respectively. The company, whose public issue closed on July 31, is planning to raise anywhere between Rs 2,709 crore and 3,010 crore through the issue.
NHPC’s IPO, through which the company plans to raise anywhere between Rs 5,032 crore and Rs 6,039 crore, will open on August 7 and close on August 12.