Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Six years ago, India's biggest share sale was in commodities. Now, as the IPO market heats up again, the key to investors' hearts lies in finance.

ICICI Prudential Life Insurance's float has attracted strong demand, drawing orders of 10.5 times the amount of stock available to raise as much as 60.6 billion rupees ($909 million). It's the nation's largest IPO since Coal India went public in 2010 and comes the same year as financial-services provider Equitas Holdings and Kolhapur, Maharashtra-based RBL Bank. In the wings are PNB Housing Finance and Hinduja Leyland Finance. Even the country's two main stock exchanges are getting in on the listing action.

ICICI Pru will also be the first IPO in India's insurance industry since parliament passed a law allowing foreign investors to take stakes as high as 49 percent, up from 26 percent previously. Soon, HDFC Standard Life, the second-biggest insurer after state-run Life Insurance Corp., will also be listed, after merging its operations with those of a smaller rival. 

Mega share sales have been few and far between in India over the past six years, and the ones that did populate the later years of last decade were primarily in energy, utilities and real estate. With commodities having such a rough trot, the power sector still plagued by hefty distribution losses, and builders looking to shed debt before they do anything else, it's no surprise those companies aren't rushing to raise funds anymore.

Instead, financial firms are in vogue. One reason is that non-bank financiers, especially those that make small-ticket loans to individuals for everything from bicycles to mobile phones, are doing a lot better than state-run lenders burdened with soured corporate debt. Micro-lender Equitas has a return on assets of 3 percent, compared with 0.4 percent for State Bank of India, the largest state-run lender.   

Just Not the Same
India's IPO market isn't what it once was
Source: Bloomberg

Sentiment is also being buoyed by a renewed faith in emerging markets as investors search all corners of the earth for yield. India's BSE Sensex has outperformed Asia's largest trading hub, Tokyo, in 2016, as well as the S&P 500, which earlier this week touched a record high.

Incredible India
Indian stocks have outperformed the S&P 500 and Tokyo, Asia's biggest market, this year
Source: Bloomberg

Finance-related IPOs are also getting a second look from investors because of their scarcity value. The insurance market is dominated by state-run Life Insurance Corp. If listed, LIC would be the largest publicly traded company in India. But the government can't afford to weaken its control over the firm, whose cash hoard helps to prevent state asset sales from flopping. That makes private-sector companies like HDFC Standard Life and ICICI Pru all that more enticing.      

There's also the draw of India's favorable demographics, which makes it almost certain household assets will grow, especially pension savings. Surpluses will need to be deployed in assets, giving a boost to equity and bond issuance and trading. Or at least that's the long-term investment thesis for NSE and BSE, the two exchanges that could soon go public.

India isn't cheap, though. At an average price-earnings multiple of 21.5 times, the BSE Sensex is more expensive than China's CSI 300 Index as well as the benchmarks for Hong Kong, Singapore, South Korea, Taiwan and Malaysia. Foreigners have bought $6.8 billion of Indian stocks so far this year, expecting 30 percent growth in Sensex earnings over the next 12 months. The last time corporate profit grew so strongly was in 2010.

Hope Springs Eternal
Analysts are the most bullish on earnings growth at Indian companies since 2010
Source: Bloomberg

Exports, however, are still in the doldrums; bad debt in India's banking system, and on corporate balance sheets, is far from resolved.

That may not matter in a world where investors are desperate for returns. Just this year, the nation's lenders have gone from being "in more trouble than Chinese banks" to market darlings, Citigroup said in a report Thursday. India's insurers and niche micro-lenders are an even easier sell.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net