VR Logo

Pricing of QIPs Remains the Key

Bharti AXA’s Prateek Agrawal gives his views on the various scenarios that may play out

Qualified Institutional Placements (QIPs) have emerged as a viable method for corporates to raise money under the current market conditions. But they are increasingly under the scanner regarding their fund-raising and market moving potential. Prateek Agrawal, Head – Equity, Bharti AXA Investment Managers, explains how the scene may play out.

Are the number of QIPs being announced too large? Can the market absorb them?

Some estimates indicate that the amount which is being sought to be raised by various companies (including what has already been raised) could total up to $20 billion.

Though the financial markets have improved and money is there on the sidelines, risk appetite is yet to return fully. We believe that the best of companies may be able to raise monies from the market. However, pricing remains the key. The set of QIPs who have raised money from the market had done it at close-to-bottom valuations. At those valuations investors were interested. However, it remains to be seen if investor appetite remains at levels that is significantly higher than the levels at which bulk of the fund-raising happened in the recent past. Clearly, from what we understand, some of the QIPs have had to withdraw from the market.

What are the implications?

In case of successful QIPs, while the existing investor base gets diluted, the benefits clearly are significant for de-leveraging and strengthening of the balance sheet. The last round saw stocks reacting positively on completion of QIPs.

With success being tasted in the first round, other companies have tried to raise money at significantly higher valuations, but they have not succeeded. Now, either the market conditions would have to improve further or some of the companies would have to raise money at a lower valuation. Market needs to find out the level at which money is available for it to test higher levels.

Would a large number of QIPs impact market sentiment and performance of the secondary market?

We do not believe that the quantum of QIPs would dampen the market at this juncture and believe that pricing remains key. In the initial period of the market opening up, we believe that the best quality companies would be more successful than others. We believe that QIPs would be successful only if the market remains buoyant. A well-priced offering should be able to attract global monies and help the Indian economy in terms of funds available for funding growth. This may ultimately start the virtuous cycle for the Indian economy and help the market move higher.

What parameters of the QIP market are you observing closely?

The first is, are monies available at a particular valuation? The second is, does the stock price react positively post-completion of fund raising? In the event of a positive answer to both these questions, we would expect markets to try and find a higher level. If stock prices do not react positively after fund raising it would probably indicate that markets need to consolidate for some time at those levels. An unsuccessful outcome of fund raising by good a corporate would imply that markets need to correct.

While QIPs take away some of the money that could have been invested in the secondary market, it is important for the markets to pause at different levels to find out if the large institutional investors are ready to buy at a particular price and to that extent fresh offerings help the market.

However, if the supply of paper becomes large and cannot be absorbed, then the markets would react negatively.

Also read
Fund-starved India Inc Powers up
Snapshot of Bharti AXA Equity