Markets may disappoint post record fundraising

Mumbai: Drought after a deluge: That seems to be nature’s way of evening out excesses.But will that be true of our equity markets that saw bumper IPOs in 2020? Historical data suggest so. Hence, investors should temper expectations of returns in 2021.India Inc has raised record 1.88 lakh crore through equities in 2020.Since 1995, whenever India Inc raised record funds, the Sensex returns next year were not that great. For instance, companies raised Rs 11,420 crore in 1995 but the Sensex return in 1996 was -1.3 per cent. The next record fundraising was in 2007 when Indian corporates raised more than Rs 66,000 crore, but the market fell 52 per cent in 2008. Foreign institutional investors pumped in over Rs 72,000 crore in 2007 but sold nearly Rs 54,500 crore worth of stocks in 2008.In 2010, the total amount raised from the primary market was a record Rs 72,000 crore and the Sensex declined 24 per cent in 2011. Similarly, in 2017 India Inc raised Rs 1.37 lakh crore and Sensex gave a return of just 6 per cent in 2018 as FPIs sold stocks worth Rs 35,800 crore. According to analysts, fundraising through the primary market in many cases will impact the secondary market liquidity and also the return ratios with dilution of equity.“Yes, in the past whenever there was a boom in the primary market, the secondary market underperformed in the following year as most of the liquidity was taken away by the new issuances,” said G Chokkalingam, CEO, Equinomics. “However, there is decent reason to believe that the current growth in primary market investment is not a warning of imminent disaster because of ample liquidity around the world. But investors should be careful.”

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