Sovereign funds take a liking to Indian IPOs; invested in 30% of IPOs in past 18 months

In Parag Milk Foods IPO of May 2016, SWFs of Abu Dhabi and Norway cumulatively subscribed to 8% of the total book and nearly 18% of the total anchor book.

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ET Intelligence Group: Primary markets are emerging as a new route to raise exposure to Indian equities for sovereign wealth funds (SWFs). Prominent SWFs such as Abu Dhabi Investment Authority ( ADIA), Kuwait Investment Authority (KIA), Government Pension Fund Global ( GPFG) of Norway and Monetary Authority of Singapore (MAS) invested in about 30% of the initial public offerings (IPOs) in the past 18 months. Narayana Hrudayalaya, InterGlobe Aviation, Parag Milk, VRL Logistics and Alkem Labs were some of the prominent investment targets.

In Parag Milk Foods IPO of May 2016, SWFs of Abu Dhabi and Norway cumulatively subscribed to 8% of the total book and nearly 18% of the total anchor book.

In the past 18 months, Indian companies have raised Rs 19,782 crore from the primary market with the April-June 2016 quarter emerging as the best quarter for fund-raising in the past nine years. The average listing gain of companies where SWF invested is 23.47% against 7.44% where they have not invested in the past 18 months.

“The quality of companies that have raised money from IPO in the last one year is significantly different compared to previous bull markets regarding corporate governance and financial performance. As a result, the confidence of the long-term investors such as SWFs has changed.” Said Pranav Haldea, managing director at Prime Database.



V Jayasankar, senior executive director & head of equity capital markets at Kotak Institutional Equities, said several other SWFs have begun to participate after Singapore’s sovereign fund’s deals. SWFs have focussed on consumption themes, preferring them over industrial and commodity plays. The IPO route permits SWFs to buy stocks with high growth potential at reasonable valuation. In addition, IPOs shield these investors from the impact costs, which become prominent in the case of secondary market transactions in stocks with low trading volumes.
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Global SWFs are under redemption pressure due to fall in crude oil prices. Of the top ten global SWFs, seven are dependent on earnings from the crude oil. According to analysts’ estimate, global SWFs have sold $50-70 billion in global equities in 2015. However, Indian equities seem to have defied the redemption gravity thanks to lower reliance of the domestic economy on export and higher import of commodities including crude oil. SWF's asset under management in Indian equities increased by 33% to $32 billion between January 2015 and June 2016, while assets under management of foreign funds dropped 1.76% in the same period.
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