Will markets be able to absorb IPO rush?

With the Sensex trading above 20,000, it is obvious that several corporates are contemplating raising money. In fact, many have already lined up big plans. According to estimates, there is a possibility of $24 billion being raised from major IPOs.

Top quality issues like Coal India are extremely important from the long term point of view. When there is liquidity, companies plan to raise money; when the liquidity is absorbed or withdrawn, companies defer their plans and wait for the next bout of liquidity.

For now, strong global liquidity has resulted in large fund flows into emerging economies like India. Liquidity is and would remain plentiful even after fund raising in near future. For retail and HNIs, liquidity need not necessarily come from selling of stocks. In fact, in most cases, it will come from money lying in banks, bonds and through leverage. While domestic funds may need to withdraw from secondary market, overall such issues will increase the base of retail participation in equities and bring in new foreign money as well.

To put things in perspective, we expect $30 billion of net FII inflows and $5bn of DII inflow in 2010-11, which may nearly match the lined-up paper supply (IPOs and QIPs) and therefore, not disrupt the secondary market materially.

Source : Rediff business