IPO pipeline in India seen active in 2023 on smaller deals, shows data

Only 2 companies raised more than $500 mn via public offers in 2022

India is expected to see a steady flow of small-to-mid-sized deals next year as investors grow wary about large listings after the disastrous performance of some major technology initial public offerings.

Several of the country’s major startups shed billions of dollars in value since their listing as concerns over high valuations and rising interest rates globally dented demand for technology stocks. The selloff worsened as early investors pared stakes after the end of lock-up periods.

Investors will likely be more selective heading into 2023 as recession risks dim the prospects for growth stocks. Traders may instead turn their attention to smaller deals in other sectors.

India’s markets regulator currently has about two dozen IPO applications including SoftBank Group-backed Oyo Hotels and Tata Play Ltd.
 

The overall fundraising via IPOs next year “will be a little lower because it will be a choppy market but I think the primary market activity will continue reasonably well,” said Bank of America Corp’s Mumbai-based analyst Amish Shah. “There will be appetite for IPOs.”

Smaller listings have also dominated much of the market in India this year. Although proceeds raised from new share sales in the South Asian country dropped 59% from a record last year to about $6.9 billion, the number of companies that went public increased by about 10%, indicating the prevalence of smaller deals.

Only two companies raised more than $500 million through IPOs in India this year: Life Insurance Corp. of India ($2.7 billion), the country’s largest on record, and Delhivery Ltd. ($684 million). Last year, 11 newcomers amassed more than that with their listings. 

Some of the recent large IPOs have also come under scrutiny for their corporate governance practices. Paytm’s proposal to return capital to shareholders via stock buyback and Nykaa’s bonus share allotment that coincided with the expiry of its IPO lockup spurred debate over the companies’ decisions.

While large-sized offerings struggled, the S&P BSE SME IPO Index, a gauge that tracks the performance of tiny IPOs, has risen more than 40% this year. In comparison, the index of IPOs listed on main exchanges declined 25%, heading for its worst yearly performance since 2011.

“I am anticipating the broader markets to hold well despite talk about recession, which means pipeline for IPOs will also remain robust,” said Vikas Gupta, a strategist at OmniScience Capital. “But it’s not going to be easy for overvalued or loss-making companies to raise funds. I think there is little scope for such companies to take primary market route.”