Cash-rich and with few loan takers, banks and financial institutions have increased their investment in Initial Public Offerings (IPOs) through Qualified Institutional Buyers (QIBs), hitting a four-year high so far in 2021.
According to a mint analysis based on data from Prime Database, banks and financial institutions nearly doubled their investment in IPOs for â¹870 crore this year from â¹461 crore in 2019. And last year, even though the primary market stagnated for more than six months due to covid uncertainties, banks and financial institutions pumped â¹698 crore in IPOs.
In 2017, which saw record funds raised via IPOs, banks and financial institutions had parked a â¹4,548 crore via the QIB route.
Data has shown that so far in 2021 IPOs have increased â¹27,417 crore against â¹26,108 crores last year, â¹11,036 crores in 2019 and â¹30,615 crore in 2018, respectively.
The analysis excludes anchor investments and IPOs launched by government-run companies such as Garden Reach, MSTC, RVNL, IRCTC, Mazagon Dock, and Lithika Infrastructure.
Banks have invested in IPOs through their treasury books in recent years. Most banks take internal approval for â¹300-500 crore and end up investing â¹50-100 crore in IPOs. However, their primary goal is often to make SEO gains. The only exception was in 2019, when banks bailed out Sterling and Wilson’s IPO after struggling to get through.
âBefore, we used to hunt banks to invest in the IPO. Now they are chasing us. Since September 2020, banks have experienced a significant increase in cash investments by banks. This is partly due to excess liquidity and partly because some of the issues are performing well, âsaid Sachin Chandiwal, Managing Director of DAM Capital (formerly IDFC Securities)
Lenders leading these investments include IDBI Bank, ICICI Bank, SBI, Axis Bank, Bank of India and Bank of Baroda. Most lenders invest in companies with a healthy financial standing. âBanks have invested in IPOs of companies like Clean Science, Lakshmi Organics, Sona Comstar. But I doubt they invested in the Zomato IPO. We’ll have to wait for the details, âa banker said on condition of anonymity.
âInvesting in the IPO is not necessarily synonymous with listing gains. We mainly look at the economic model and the quality of management. Banks have invested in IPOs like GR Infra, MTAR Technologies, Happiest Minds, IndiaMart because of the quality of the IPO. In the case of GR Infra, there is no other good company in the infrastructure business than L&T. Therefore, the banks thought it was a good offer. Banks can have differing opinions when it comes to investing in IPOs of startups like Zomato, âsaid a second banker familiar with the matter.
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