A growing number of private banks and financial services firms are taking advantage of a vibrant primary market in India to unlock value of their diversified subsidiaries.
HDFC's asset management unit, HDFC Asset Management Co. (AMC), is the latest such firm to announce a new share sale.
The HDFC AMC initial public offer (IPO) will offer up to 25.4 million equity shares through an offer for sale of 8.59 million shares by Housing Development Finance Corp. Ltd (HDFC), and up to 16.8 million shares by Standard Life Investments Ltd.
Similarly, ICICI Securities Ltd, the brokerage and investment banking arm of ICICI Bank Ltd, is launching its Rs4,017 crore IPO on Thursday.
"The financial services space has tremendous opportunity for growth. If the offering is coming in from an established house, the investor confidence is high, and it makes sense to tap the market when appetite is strong," said Debasis Panigrahi, executive director at Nomura's India investment banking unit.
ICICI Securities will be the third company from the ICICI group to go public.
In September 2017, ICICI Lombard General Insurance Co. Ltd raised Rs5,700 crore in the first public offering by an Indian general insurance firm.
In September 2016, ICICI Prudential Life Insurance Co. Ltd raised Rs6,000 crore in the first public offering by an Indian life insurance firm.
HDFC AMC is also the second asset management company to go public after Reliance Nippon Life Asset Management Co. Ltd, which raised Rs1,542 crore last October.
It follows the listing of HDFC Standard Life Insurance Co. Ltd, which raised Rs8,695 crore.
"From an investment banker's perspective, BFSI (banking, financial services and insurance) gives you the size advantage. The overall deal size is much larger and easy to market to tier-1 accounts and is very attractive to investors," added Panigrahi.
BFSI companies contribute 28.70% and 21.37%, respectively, of the market capitalization of Sensex and BSE500 companies.
"The appetite is good for quality issues even at comparatively expensive valuations. This trend of value unlocking in BFSI is here to stay," he added.
"The common theme is value unlocking from their subsidiaries as for many of these, the subsidiaries have done better than the parent, too," said Suresh Ganapathy, director of financial services research at Macquarie Capital Securities India Pvt. Ltd.
" For e.g., ICICI Prudential Life, ICICI Lombard, and ICICI Securities, have fared better than ICICI Bank. Clearly, there is a lot of value. Markets have been strong for the last couple of years. So, they are banking on the robust demand," said Ganapathy.
Ganapathy also pointed out that some banks such as ICICI Bank are also using funds from such listings to provide for provisioning for stressed assets.
Public sector banks, following the government push, have also been offloading non-core assets in a bid to shore up capital levels.
"I don't see any reason why public sector banks cannot do it. I guess they will try, too, in the buoyant market," said Amar Ambani, partner and head of research at IIFL Wealth Management.
"However, management of PSU banks are focusing on NPAs (non-performing assets) and ongoing frauds for few of them," said Ambani.