Avalanche of IPOs in China sinks Dalal Street

An avalanche of IPOs in China is pulling down Indian stocks. Money managers in Singapore, Hong Kong and London are withdrawing money from Dalal Street to bet on Chinese companies as the regulator there resumed approving IPOs since December 2014.

In a span of a week — between May 5 and May 12 — 25 Chinese companies would mobilise $377 billion, according to Bloomberg data. This is 11 times the amount Indian companies raised through IPOs in the past decade and even dwarfs India’s forex reserves.

The amount is almost three times the cumulative FII equity investments into India since 1992-93. Chinese IPOs are attractive since rules force companies to issue shares at a substantial discount to valuation of listed peers.

In the past one year, all IPOs have recorded more than 40% listing gains.

“We have heard from sell-side brokers that some of the selling in India is attributable to the fact that Chinese markets have outperformed India,” said Nilesh Shah, MD, Kotak Mutual Fund. Chances are Indian markets could remain choppy with the Chinese regulator planning to clear more IPO applications.