Market turbulence rattles small Indian IPOs as bigger deals loom

A lukewarm response to two small initial public offerings (IPOs)in India this week has raised concerns about the impact of market turmoil ahead of big-name debuts including Cafe Coffee Day and airline IndiGo. Indian shares hit their lowest level in about a year last week, hit by global turbulence sparked by steep market drops in China. Foreign investors - crucial in larger offerings - sold a record amount of shares in August, offloading even more than during the financial crisis.
Prabhat Dairy was forced to cut its $78 million IPO price band and extended the subscription period for investors by two days. Just over a quarter of its book was covered on Tuesday evening. Sadbhav Infrastructure, meanwhile, had received orders for only a fifth of its planned $74 million IPO in mid-afternoon trade on Wednesday. It was subscribed 1.34 times at the close.
By contrast, power infrastructure services firm Power Mech and clinical research firm Syngene, which listed in August, were oversubscribed more than 30 times over. Investment bankers said retail investors were pulling back, while institutions were being pickier. "It will be tricky and more selective in the coming few months. Small and mid companies may see cuts in their sizes," said one investment banker with a foreign lender. "Big IPOs demand may not get hit as much, but valuations certainly will."
Bankers and investors in India had previously hoped for a bumper year for IPOs, with 13 companies already having listed so far this year - the most since 2011. "Valuation expectations may need to be tempered," said a second senior Mumbai-based investment banker. "We have to be careful about what we take to market." Among the most anticipated offerings is the IPO of up to $181 million of Coffee Day Enterprises, which operates the Cafe Coffee Day chain. Interglobe Aviation , which runs the IndiGo airline, is seeking a $400 million listing. Analysts warn more uncertainty is in store given the US Federal Reserve is expected to raise interest rates as early as September, raising the prospect of continued outflows from emerging markets.
India's NSE index is down 14.5 percent since hitting a record high on March 4 and is down 6.8 percent for the year. "The last quarter of the year is expected to see some of the larger-sized IPOs hitting the markets," said Kaustubh Kulkarni, head of investment banking at J.P. Morgan India.