After a record breaking 2021, the initial public offering (IPO) market is expected to witness further action in 2022 with more companies lining up to raise funds. Issuers are planning to mop up $26 billion (around Rs 1,95,000 crore) through IPOs in the new year, investment bankers said.
The IPO market momentum is set to accelerate further when Life Insurance Corporation (LIC) files prospectus for its mega IPO in 2022. The new issue market will be dominated by resilient sectors such as new age tech, financial institutions, healthcare, consumer, real estate and specialty chemicals.
“With IPO pipeline in place of $15 billion (Rs 1,12,500 crore) filed with the Sebi and awaiting launch and $11 billion (Rs 82,500 crore) likely to be filed in the near term, we can expect good share of IPO activity across mid-caps and large-caps with several high-quality companies looking to list,” said V Jayasankar, wholetime director, Kotak Mahindra Capital Company. Fundraising activity will continue to remain buoyant from companies, which listed in CY20 and CY21 that may come back to raise funds, looking for growth capital, deleveraging to support growth and specific events such as acquisitions, as the world returns to complete normalcy. “Overall, 2022 would be good for the Indian capital fund raising market,” Jayasankar said.
Apart from LIC, Ola, Byju’s, OYO, Emcure Pharma, Medanta and Delhivery are expected to take the IPO route. While investment bankers expect 2022 to be another good year, they nevertheless advise investors to be cautious and not assume all IPOs to hit the bull’s eye. Pricing of the issue, use of IPO proceeds, stock market stability, liquidity in the market and an accommodative monetary policy will be crucial factors for both the investors and the issuers. Over-priced IPOs will be punished by the investors, said an investment expert.
Worried over misuse of proceeds, market regulator Sebi recently decided to put a cap on IPO proceeds earmarked for making future acquisition of unspecified targets and will bring under monitoring the funds reserved for general corporate purposes.
Data compiled by CareEdge for the year 2021 indicates that there have been 121 issues of Rs 1,18,736 crore, of which complete data is available for 94 issuances for Rs 1,17,667 crore. The balance 27 companies had total issue of Rs 1,069 crore. This amount is the highest in any calendar year so far, the previous best being Rs 67,147 crore in 2017. In 2020, it was Rs 26,612 crore. In fact, besides 2017 there were never issuances of above Rs 50,000 crore with the next highest being in 2010 with Rs 37,534 crore, said Madan Sabnavis, chief economist, Care Ratings.
It also indicates the increasing confidence of investors — institutions, HNIs and retail alike — in the growth story of India. While the IPOs in technology and digital industries were the largest and most talked about, there was an extremely healthy sector spread that included healthcare, speciality chemicals, manufacturing, agrochemicals, consumer, financial services and infrastructure among others, said Mohit Ralhan, managing partner & chief investment officer, TIW Private Equity.
However, as many as 47 issues — 50 per cent of the total number of IPOs — are now going at a discount while the balance is above the listing price. In other words, they are quoting below the issue prices. Therefore, the possibility of stock prices going down has been 50 per cent this year, which should make investors cautious in terms of expectations, Sabnavis said.
“A lot has been written on the negative returns generated by Paytm’s IPO, but it just reminds the fact that investors need to always keep their guards on. The large size of Paytm’s IPO coupled with a complex business model and high valuation metrics dampened the performance post listing,” Ralhan said. In spite of this, the IPO story of India races ahead and the IPOs which were launched after Paytm, such as Go Fashion and Tega Industries proved to be extremely successful.
India is home to 79 unicorns and 2021 alone gave birth to 42 unicorns. The country is also the third-largest start-up hub in the world and has developed a strong ecosystem of entrepreneurs and venture capital investors, supported by favourable government policies, which will continue to feed into India’s accelerating IPO boom, he said.
The IPO boom has come as a bonanza for investment bankers with their fee going through the roof. Indian investment banking fee pool for the first time crossed $1 billion (Rs 7,500 crore), a 20-25 per cent growth over 2020.