After a record 2021, last year turned out to be sort of muted for initial public offerings. As major central banks around the globe tightened liquidity and raised interest rates to tame high inflation, and Ukraine was invaded by Russia, volatility prevailed in the equity markets. That had an impact on the primary market too, with fewer companies choosing to go public in the turbulent times.
According to data from Prime Database, 40 companies went public in 2022, cumulatively raising Rs 59,412.36 crore, which was almost 50 per cent lower than the Rs 1.19 lakh crore raised by 63 companies in 2021.
Notably, of the Rs 59,412.36 crore that was raised last year, almost 35 per cent was accounted for by Life Insurance Corporation of India. The government raised Rs 20,560 crore selling a 3.5 per cent stake in the country’s largest insurance company. The LIC IPO was the largest to hit the capital markets in India, following the issue of fintech Paytm, which had raised Rs 18,300 crore in 2021.
“While in calendar year 2021, the dominant industries remained e-commerce, auto, chemicals, insurance and finance (investment), in 2022, industries such as edible oil, hospital and healthcare services, and insurance have dominated the IPO space. These three alone contributed to 56 per cent of the total issuances in 2022,” pointed Sonal Badhan, economist at Bank of Baroda.
The best month last year was May, when eight companies raised Rs 29,510.75 crore. Things also looked to have picked up towards the end of the year; 10 companies raised a total of Rs 10,560.76 crore in November and seven companies raised Rs 4,266.54 crore in December. On the other hand, there was just one issue in February and no issues in June and July.
“In 2021, fund raising was driven by excess liquidity and strong participation by retail investors. The drop in fund raising in last year was due to increasing volatility from rising geopolitical tensions, inflationary environment, aggressive interest rate hikes by central banks, weakness in rupee and fears of global recession,” noted Mohit Nigam, fund manager and head of PMS at Hem Securities.
Regulations require a company to launch its IPO within a year of receiving the final observations from the Securities and Exchange Board of India. Amid volatile markets last year, approvals of over two dozen companies lapsed, with some of them choosing to wait for better times, while others looking for alternative routes to raise money.
Low cost airline Go First, VLCC Healthcare, Sterlite Power Transmission, Keventer Agro, One Mobikwik Systems, ESAF Small Finance Bank, were some of the companies whose approvals lapsed.
There are at least 51 companies that have received final observation from the market regulator to go public and their draft red herring prospectus is still valid, according to data from Axis Capital. More than Rs 50,000 crore is likely to be raised via these issues.
Some of these names include Allied Blenders and Distillers, Snapdeal, Yatra Online, Utkarsha Small Finance Bank, Biba Fashion, Navi Technologies, Vikram Solar, Senco Gold, Aadhar Housing Finance and FabIndia among others.
Additionally, there are around 30 companies that have already filed their offer documents with SEBI, but are awaiting the approval from the regulator. Some of these companies include Honasa Consumer (parent of personal care products maker Mamaearth), Indiafirst Life Insurance, Mankind Pharma, Fincare Small Finance Bank, Ebix Cash, Lava International and Joyalukkas India among others, the Axis Capital data shows.
So, will 2023 be a stronger year for IPOs than 2022? The answer to that could well depend on how the general mood of the capital market pans out.
Most market experts are expecting another muted year for stock market; benchmark indices like the BSE Sensex and Nifty 50 are likely to deliver single-digit returns at best, as the geopolitical uncertainty continues and interest rates are expected to remain higher for longer.
The expectation is that the RBI will hike its repo rate in February and then pause. Other major central banks like the US Federal Reserve is also expected to raise rates further, although at a lower quantum.
Amid these issues, volatility is likely to prevail in the stock markets, particularly in the first half of the year. A recession is expected in major economies like the USA. While, India’s GDP is also expected to slow, it is still likely to remain the fastest growing major economy this year.
“We believe traction in IPOs would pick up in 2023 driven by domestic demand,” said Nigam of Hem Securities. However, he says, investors should be cautious and understand the business before investing and not just look at listing gains.
