Festival season may bring cheer to IPO market, say investment bankers

Rs 9,000 crore worth of issues lined up over the next six weeks

Around 10 firms are looking to raise nearly Rs 9,000 crore via initial public offerings (IPOs) over the next 4-6 weeks, said investment bankers. Among the companies ready to hit the primary market are Five-Star Business Finance, Pristine Logistics, Landmark Cars, Senco Gold, DCX Systems, Kaynes Technology, and Uniparts India.

While many of these issues are certain to get launched, a few firms may hold back their offerings if market conditions turn unfavourable, i-bankers said.

After a record 2021, the IPO market has turned moribund in recent months amid heightened volatility, triggered by mounting odds of a recession, especially in the US and Europe. The adverse market conditions led to the September 2022 quarter being the worst since the pandemic-hit July 2020 quarter. Last quarter, only four issues managed to raise a cumulative Rs 2,965 crore.

“The market volatility restricted investors last quarter from investing in IPOs. This, coupled with the interest rate hikes internationally, led to FPI outflows,” said Rajendra Naik, managing director, Centrum Capital.

The rising inflation has forced major central banks, including the US Federal Reserve (Fed), to adopt an aggressive monetary stance. Fed officials raised interest rates by 75 basis points in September, for the third straight meeting, bringing the target for the benchmark federal funds rate to the 3-3.25 per cent range. 

The aggressive monetary stance by the Fed has led to a hardening of bond yields and a surge in the dollar.

The uncertain global environment triggered the exodus of foreign capital from the domestic market. Foreign portfolio investors (FPI) have dumped Indian equities worth Rs 1.6 trillion in 2022. In September, they sold shares worth Rs 13,000 crore. Still, they have been net buyers in October to the tune of Rs 1,691 core. Foreign investor participation plays a crucial role in keeping the IPO market robust.

Bankers said despite volatility, there is enough liquidity in the market to absorb well-priced IPOs. Recent offerings by Harsha Engineers and Electronics Mart were subscribed more than 70 times. “There is a shift towards smaller IPOs (Rs 750-2,000 crore). Larger IPOs look challenging due to the volatility,” said Dharmesh Mehta, managing director & CEO, DAM Capital.

The majority of issues planned over the next few weeks are less than Rs 1,000 crore. Bankers said companies entering the market are pricing the issues well.

“The quality of IPOs coming are good, and companies have realigned their valuation expectations based on the market situation. We will see a lot of issues in the next three-four months pre- and post-Diwali,” said Naik.

Either valuation or reduction in the IPO size or both may be required to see certain issues sail through, depending on market volatility. Issuers have become more realistic, he added.

In 2021, 63 companies raised a record Rs 1.18 trillion through IPOs. During the first nine months of 2022, only 19 companies raised a cumulative Rs 22,267 crore, if one excludes the Rs 21,000-crore IPO of LIC.