IPO activity to remain thin for next few months as equity jolts shock funding plans

The rising inflationary pressure, meltdown in expensive IPO counters, increasing inflation rate, FII selling and the war crisis have weighed heavily on the Indian IPO markets.

Interestingly, out of 50 companies, listed in the first half of 2022, only 24 of them are trading above their issue price. The remaining 26 players have disappointed investors in the ongoing calendar.

Companies including Life Insurance Corporation (), AGS Transact, Rainbow Children’s Medicare, Prudent Corporate, Delhivery and Ethos are trading up to 55 per cent lower than their issue prices.

Seeing this underperformance of the latest debutants and mayhem in the secondary markets, several companies have shunned IPO plans, with others taking more time to announce their issues.

Siddharth Oberoi, Founder, Prudent Equity, said that the sentiments have turned sour. “Most companies may find difficulty sailing their IPOs through unless their price is attractive. The majority of IPOs were issued at expensive valuations,” he added.

Adding more to it, Vijay Singhania, Chairman, TradeSmart, said that if equity markets do not revive, promoters would likely be skeptical to tap the markets for fear of finding investors to participate in their company’s issue.

Market participants said that the majority of the companies failed to deliver a listing pop or positive return due to higher inflation. Central banks may keep raising interest rates to tame the rising prices, which is negative for equities.

In 2021, about 64 companies went public. Even the capital markets regulator Sebi is taking about a quarter to approve DRHPs, and a number of companies are in the pipeline to launch their IPOs after receiving the nod from the watchdog.

The previous year was a dream run from the domestic markets, with companies mopping record levels of funds and companies delivering historic returns to investors.

Palka Arora Chopra, Senior Vice President, mastertrust, said that during the early part of the rate hike cycle, markets are very jittery. “2022 is a tough year, and one should protect capital and buying stocks at any price has to be avoided.”

She added the FIIs may look at developed markets and inflation is likely to persist in India on the back of elevated crude oil prices. “The market’s enthusiasm for new IPOs is even raising implicitly.”

The first half of the calendar had several headwinds hitting the market. Rising inflation, high oil prices, the Russia-Ukraine war, rising interest rates, and supply-side bottlenecks all hit the markets at the same time.

“The LIC IPO has shattered investor confidence further over the primary market,” said Singhania. “One of the top wealth destroyers, the company’s performance in the secondary market has also destroyed investor confidence.”

The sentiments for the domestic primary markets are also jittered because India is the world’s fastest-growing startup ecosystem and a majority of companies looking to raise funds are tech-based platforms.

The recent meltdown in counters like

, , PolicyBazaar, CarTrades and has turned the street cautious over the loss-making expensive companies. Investors, across all the categories, have lost interest in the primary markets.

With the market overall being in correction mode, the July-December period for IPO markets might see better sentiments returning as it is a cycle linked to the equity market, said Chopra of mastertrust.

Market experts suggest that a revival in secondary markets can resurrect the primary markets. “We might see some small issues testing the waters, but the big bank IPOs prefer to avoid tapping the markets,” TradeSmart’s Singhania said.

Companies including Go Airlines, MobiKwik, Ixigo, Penna Cements, PharmEasy, SAMHI Hotels, VLCC healthcare, Sterlite Power, Droom Technologies, Byju’s and Swiggy are lined up to hit the Dalal Street in the near future.

The second half of the ongoing calendar might be muted for the primary markets. Companies and merchant bankers will have to price in IPOs reasonably to ensure subscription.

“Investors will also be cautious and invest very selectively,” said Oberoi from Prudent. Once the new issues start to deliver positive returns, a slow revival may be possible. “One must avoid expensive IPOs to protect the capital for now.”