Paytm debacle fails to halt IPO juggernaut; strong pipeline seen for 2022

14 companies have hit the market after Paytm debacle

Paytm’s dismal initial public offering (IPO) and its subsequent listing debacle has failed to slam the brakes on fresh issuances hitting the market this year.

The IPO of One97 Communications — the parent company of Paytm — hit the market on November 8 and garnered an overall subscription of 1.89x the shares on offer. The qualified institutional buyer portion was subscribed 2.79x, while the retail portion was subscribed 1.66x. The portion reserved for wealthy investors did not get fully subscribed.

The company subsequently listed on the bourses, but tanked 27 per cent from its issue price of Rs 2,150 on Day One. This led market mavens to come out with dire predictions that the IPO market was headed for a slump. Things have turned otherwise.

Fourteen companies have hit the market with an IPO after the Paytm offering. Ten of the 14 have seen oversubscription of over 5x, with eight getting oversubscribed in double digits. Of the 11 companies that subsequently listed on the bourses, six have seen double-digit gains on Day One, while three ended in red. This is a decent performance, considering the volatility the market has witnessed in the past few weeks. 

The benchmark BSE Sensex has tanked 4.8 per cent since November 10 — the last day of Paytm’s IPO.  In 2021, 63 companies raised Rs 1.19 trillion through IPOs so far. The IPOs from new-age loss-making technology start-ups, strong retail participation, and huge listing gains were the key drivers fuelling the IPO boom this year.  

The average number of applications from retail investors was 1.43 million, in comparison to 1.28 million in 2020 and 400,000 in 2019. Twenty-five of the 63 IPOs that hit the market had a prior private equity/venture capital investment and fresh capital raised via IPOs in 2021 was as high as Rs 43,324 crore, which was greater than the last eight years combined. 

The IPOs in 2022 look promising, with as many as 35 companies holding the Securities and Exchange Board of India’s approval to raise roughly Rs 50,000 crore. Another 33 companies are awaiting the markets regulator’s nod to raise around Rs 60,000 crore next year. The mega IPO of Life Insurance Corporation of India — which is expected to raise Rs 1 trillion — is likely to be launched next year.

“Valuations are a concern, especially for new-age companies, and there could be some rethink by these companies. Grey-market premiums also indicate some kind of correction,” said Pranav Haldea, managing director, PRIME Database.

According to Haldea, inflationary concerns resulting in rate hikes can be expected. These will reduce the amount of liquidity available, which, along with how the Omicron variant plays out, will have a bearing on the secondary market and consequently the primary market.

Relatively higher valuations and market liquidity are keeping the IPO window open, revealed a global IPO report by EY. It said the IPO candidates should expect higher market volatility, which could affect their listing plans. 

“In India, there is a strong pipeline for IPOs in 2022. More than 15 companies filed their draft red-herring prospectuses in the main markets in the fourth quarter of 2021, with plans to complete their IPOs in the first quarter of 2022. Strong domestic and global demand are expected to continue to contribute to positive IPO activity. However, there could be headwinds, resulting from the lingering pandemic in Europe, together with the impact from higher inflation and interest rates in the near to medium term,” observed the consulting firm.