IPO activity may boost credit for some sectors
IT, Pharma sectors show low corelation, says study
Mumbai: The significant rise in fund raising through the initial public offer (IPO) is likely to spur credit growth in respective sectors. While there is no direct relation between credit growth and fund raising through IPOs, a study conducted by SBI’s research department has revealed a positive correlation between credit off-take and IPOs in the past.
If we look at sector-wise IPOs and bank credit for various years, a positive relation between credit off-take and IPO is visible for some sectors with credit off-take picking-up after IPOs in those sectors. “The macro implications of such jump in IPO are significant. For example, sectoral analysis reveal that credit growth in sectors like power, mining & quarrying and metals are highly correlated with the amount raised through IPO in these sectors. Another interesting observation is that credit growth in these sectors has positive correlation with GDP growth,” said Soumya Kanti Ghosh, group chief economic adviser, SBI.
In the recent years, housing finance companies have raised significant amount from the primary market and credit to NBFCs has also increased around 11 per cent in FY17 despite overall weak credit growth momentum.
However sectors such as IT and and pharma showed low correlation between fund raising and credit offtake.
“This could be because such sectors are more determined by global factors rather than domestic and hence a possible pick up in global growth could push domestic credit growth in these sectors with a concomitant lag,” he added.
The current fiscal has witnessed a significant interest in IPO market with Rs 49,175 crore raised in just 7 months period.
Interestingly, this is more than the amount raised between FY12 to FY16 put together.
The current rise in fund raising through the IPO route is expected to last as long as the upswing in secondary market continues.
Additionally, the performance of the companies, which got listed in recent years, will also play a crucial factor in determining the success of future primary market issuances.