What is driving the momentum in IPO market?

Initial public offers (IPO’s) could continue to see good investor appetite amidst heightened liquidity in the capital market, according to an IDBI capital top executive.

“The current momentum in the IPO market is being driven by ample liquidity from multiple sources. In addition to FII flows, domestic investors are flush with liquidity from gains in frontline stocks”, said Nalin Kumar, head investment banking, IDBI Capital.

“Foreign institutional investor and ETF money has followed blue chip stocks, allowing domestic investors to create liquidity to invest into next rung stocks”, said Kumar.

The rally in mid-cap stocks can also be attributed to this liquidity, in addition to the lower multiples in several specific cases according to Kumar.

The recent weeks have seen the launch of initial public offers of Gland Pharma and Burger King. The former's public offer of around Rs. 6000 crore was the largest such share sale by a pharmaceutical company in India. Burger King's initial public offer which is open for subscription has also drawn significant investor interest as per stock exchange data.

Kumar cautioned that with the gush of liquidity from global investors in November valuations are no longer cheap and the markets are starting to be priced closer to perfection.

“Post US elections there has been a risk-on trade in emerging markets and India is a beneficiary”, he said.

Kumar noted that stocks across segments were doing well with investors making gains in most public sector undertaking stocks as well.

He noted that pharmaceuticals and information technology stocks had held the market up for the better part of the year and will continue to be good long term bets; Recent sector rotation has moved liquidity to sectors such as banking and extremely cheap PSU stocks are also benefiting.

“The big trigger to watch out for will be year end profit booking and subsequently the union budget. The government needs to find a balancing act. The markets will take further cue from government actions at that time or prior, including disinvestment success”, he noted.