IPO Markets from record-breaking, to abating, to recovering

Yo-Yo behaviour of the IPO market

Year 2021 witnessed record-breaking IPOs globally, but the paradigm soon reversed in 2022 with just 1,333 IPOs raising $180 billion globally. IPO value in 2022 shrank by 61%. This is the first time India is seeing so many IPO approvals go abegging. Over 25 IPOs, which targeted to raise Rs60,000 crores, have put off IPO plan. Some of the lapsed IPOs in the past few months include Waaree Energies, Jesons Industries, Capital Small Finance Bank, Wellness Forever Medicare, Hexagon Nutrition, Maini Precision Products. On the other hand, companies like Joyalukkas India and SBFC Finance withdrew their IPO plans. 

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2021 – The Exponential Phase of the IPO Market in India

COVID-19 pandemic made the stock market jittery in 2020 due to a major disruption of economic activity. However, the year 2021 was a year of liquidity induced recovery and start-ups, digital plays and IPO markets were the biggest beneficiaries with over Rs1.31 trillion being raised in the year. It included some of the mega issues like Paytm, Zomato, Nykaa etc. This was supported by a surge in investor interest in equities (largely due to the TINA factor). As young India forayed into direct equities and equity mutual funds in droves, there was a surge in the number of demat accounts and trading accounts. The outcome was evident in record IPO collections in 2021.

2022 – Was the best of times and the worst of times

The global IPO activity was impacted heavily by increased market volatility and other unfavorable market conditions, along with lacklustre performances of several IPOs listed in 2021. Fed hawkishness, supply chain constraints, fears of an economic slowdown and rampant inflation; all weighted on the overall markets and the investor appetite for IPOs in 2022. The combination of higher bond yields and high inflation pushed a lot of investors towards the virtues of debt. But it was not entirely the worst of times.

On the positive side, select industries and regions did achieve modest success. Technology sector continued to dominate by volume, accounting for 23% of total deals, while energy sector led the way in proceeds, accounting for 22%. The average proceeds of listed mega IPOs globally (IPOs that raised over $1 billion) are 45% higher than those in 2021. This can be largely attributed to the strong valuations for mega energy IPOs. In addition, select markets like Mainland China, Middle East and some ASEAN countries have performed well this year in terms of capital market buoyancy.

IPOs 2023 – Will it be manna from heaven or a Pandora’s Box

IPO activity is expected to be tepid in the first quarter of 2023, but there is hope that the momentum of global IPO activity would be regained in the second half of 2023. That should be the right time and trigger for India too. The key driver of this momentum boost is the public listing of various energy companies, that became listed in order to receive lending from people amid times when they had to use their own cash reserves to run their companies. 

What is most important is for the positive attitude towards the IPO market to rekindle; the easing of geopolitical tensions, lower inflation, pausing of hawkish interest rates (already done in India) etc. This will also be a case of quasi-natural selection, wherein those companies that can demonstrate resilience, profitability and liquidity will come out trumps. And, of course, the companies that leave something on the table for the IPO investors!

Content source: Financial Express