The initial public offering (IPO) market has seen a quiet start to this year due to heightening volatility with a downward bias in the secondary market that impacted investor appetite.
According to Prime Database, in December and January six IPO-bound companies have either let their Sebi approval expire or have withdrawn documents. These include Rs 6,000 crore IPO of Inox Clean Energy and Rs 1,700 crore IPO of Infifresh Foods.
In December, India’s benchmark indices as well as BSE midcap snapped a three-month gaining streak and fell while the small cap index logged a second consecutive month of fall. In January so far, the Sensex has fallen another 4% and BSE small cap 8%.
Need for Stability
Pranav Haldea, MD, PRIME Database Group, said “The primary market needs a stable or buoyant secondary market and coincidentally due to various issues the latter has been under pressure in the first quarter of last five-six years.”
He agreed that December launch plans of some companies were deferred to January and the current pipeline may seek some stability in the secondary market to emerge, as an IPO is a once in a lifetime event from an issuer’s perspective.
Yatin Singh, CEO, Investment Banking at Emkay Global Financial Services added that the slowdown has already started to happen particularly in smaller issues while the larger companies had to take price haircuts.
He added that if secondary markets don’t revive the situation could worsen as investors would want to average out cost of their existing holdings rather than looking at new avenues.
Foreign Capital Exit
Singh explained that while December-end correction is usually expected as foreign asset managers book profits but that follows a recovery, which did not happen this year in the midst of severe uncertainty. “FIIs are exiting in bulk and retail investors are also finding value in gold and silver, there are only DIIs as buyers,” he said.
“Some companies may decide to hold or float a lower sized issue than what they had planned as valuation will be under more scrutiny,” Haldea said but noted that good quality issuances will continue to attract institution-led demand.
It’s not that the pipeline has completely dried up still. So far in January, Bharat Coking Coal saw a stellar listing and ended with more than 77% gains on debut day while Amagi Media Labs listed on Wednesday closed 3.5% lower than its IPO price and the issue of Shadow Fax tech was subscribed 0.35 times on the second day.
Prime’s data shows that 114 companies still have a valid Sebi approval for raising around Rs 1.43 lakh crore in total and another 97 companies including big issues of companies like PhonePe and Zepto are awaiting the approval to raise Rs 1.48 lakh crore.