IPO gold rush: Why analysts are optimistic about 13 BFSI firms going public
One of the strongest drivers of the economy, India’s banking sector saw rapid digitisation after demonetisation in November 2016. Then again, in 2020, even as the coronavirus pandemic ravaged the economy, the subsequent lockdowns further accelerated the growth of the sector with increased digital adoption and financial inclusion.
Between 2007 to 2020, the Indian BFSI sector listed around 27 IPOs. And now, in 2021 alone, around 13 companies in the sector are expected to go public.
Some of the bigger and much-awaited IPOs slated for this year are LIC, Star Health Insurance, Reliance General Insurance, National Stock Exchange (NSE), Fino Payments Bank, and the PNB MetLife Insurance.
Other likely IPOs of 2021 include Aadhar Housing Finance, ESAF Small Finance Bank, AnandRathi Wealth Management, National Insurance Company, HDB Financial Services, and Arohan Financial Services.
The upcoming IPOs in the BFSI sector are anticipated to add to the much-needed capital access for the companies to work toward India’s financial inclusion dream. With the pandemic going on, the insurance sector is likely to get rerated.
Some of the IPOs like LIC, Star Health Insurance, and National Insurance Company, are expected to get better response compared to others in the pipeline. Listing of these insurance companies will enhance transparency and governance and will also help to attract huge foreign capital to the insurance industry. Also, lower penetration of insurance in India will be a good factor for the success of these IPOs.
“Huge liquidity in the market and lower interest rates both are likely going to play a huge role for the success of these IPOs,” said Ayush Gupta, Research Analyst, ACAS Investments, “I expect most of these IPOs to get a good response from Indian investors.”
“Also, listing these companies on stock exchanges will unlock the real value of them and would also make these companies much more efficient,” added Ayush.
Dipendu Nandi, an individual investor in listed and unlisted entities, says, “The International Monetary Fund projected an 11.5 percent growth rate for India’s economy in 2021 in its World Economic Outlook report for January 2021. If we go by this projection, then there is a huge opportunity for the BFSI sector. As an investor, I would always focus on a strong promoter pedigree and growth story. Upcoming IPOs all are big ones, hence I would be positive for all the IPOs.”
Assessing current market sentiment is critical
Abhinit Kulkarni, Co-founder of Tequity Investing, believes that there is a bullish sentiment around IPOs in the BFSI sector, owing to the strong recovery seen in 2020. Indian investors are increasingly interested in equity as an asset class.
This is evident from the record number of demat accounts opened during the lockdown. According to reports, 6.3 million demat accounts were opened between April and September as COVID-19 drove new entrants to stock markets.
The appetite for IPOs is on an upward trajectory. However, the success of an issue depends not just on the quality of the underlying company but also on market sentiment and liquidity.
Analystsspoke to unanimously agree that the time of launch is the most critical factor in the success of an IPO.
For instance, the SBI Card’s IPO listing took place at a discount amid gloomy market conditions due to the pandemic. However, for the upcoming LIC IPO, the government is considering disinvestment, thus turning tables in its favour for a successful listing, preferably at a premium.
“If COVID-19 starts spreading at a higher rate, the bull market may become cautious. In that case, IPOs may have to be postponed,” added Chandra Gupta Subudhi, another individual investor in public markets.
Analyst outlook on upcoming key IPOs
India's financial services landscape is a dynamic one, and the extent of under-penetration creates a huge runway for future growth opportunities.
In this scenario, diversified IPOs across small financers, insurance companies, and even exchanges bode well for the sector as a whole.
Over the years, technology has driven financial inclusion in rural areas. Small finance banks, which have a diversified customer base, have created a niche for themselves by targeting a specific customer segment. Further, under-penetration in these areas also provides good growth opportunities for these young companies.
IPOs from the insurance sector too are likely to be well-received from the secondary markets. As the demand rises for health and life insurance in India, companies like Star Health Insurance going public signals further growth. Also, retail investors have the propensity to invest in IPOs of companies that have a strong brand recall.
On the other hand, life insurance policies have been historically well received by millions of Indians. The LIC IPO is poised to not only see a good response but may also gain a substantial oversubscription. On the institutional side as well, analysts are likely to see good demand for insurance IPOs.
“LIC seems to be the hottest and one of the most awaited IPOs among all. The government is expected to sell 10 percent stake at a valuation of around Rs 10 lakh crores,” said Ayush.
The first payments bank to list on an Indian exchange, Fino Payments Bank is backed by marquee and institutional investors like Blackstone Private Equity, ICICI Bank, and more. One of its strategic investors is Bharat Petroleum Corporation Ltd, with a 28 percent stake.
Fino Payments Banks turned profitable at the operational level within three years. It closed FY 19-20 with positive EBITDA and posted first time operating profits in Q4.
Dipendu emphasised that FINO is a rural-focused entity. Its customer segments are mostly middle income to the lower-income group.
“From a growth perspective, rural financial services are the fastest-growing segment on account of its largely untapped potential driven by the very low penetration in the rural market. In order to make the ATMs viable at these centres, there is a need to deploy Micro ATMs where FINO is targeting,” he added.
Edited by Saheli Sen Gupta