 "Rs 1.1 trillion worth of IPOs waiting in the wings for market revival")
India's initial public offering (IPO) pipeline, valued at least over Rs 1.1 trillion, may fall short of expectations, with many companies likely to delay or let their approvals lapse due to weak secondary market sentiment, according to analysts.
After a year of multiple records, activity in India’s primary market tapered off at the beginning of the first two months as sentiment in the secondary market turned bearish. The number of mainboard debuts saw a decline, along with the number of companies that filed their draft papers.
The total value of draft filings dropped by over 50 per cent in February compared to the previous month, as the number of companies filing fell to 16 from 29. In January and February, only nine mainboard IPOs were launched, down from 16 in the same period last year. Meanwhile, IPO activity in the SME segment remained strong.
As of February, 69 potential public issues worth Rs 1.15 trillion are pending the approval of the market regulator, the Securities and Exchange Board of India (Sebi), according to the data from Prime Database. It is to be noted that about half of the companies' estimated issue sizes are yet to be reported.
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The optimism might prove to be short-lived until market sentiment improves, experts said. The current pipeline buildup is based on what we saw last year. However, market conditions have changed now, according to Pranav Haldea, managing director, Prime Database Group. “The frenzy in subscription and listing gains last year encouraged many companies to file offer documents.”
Just because a company has filed does not mean the issue will necessarily hit the market, Haldea said. “While suitable market conditions can result in a lot of filings, several filings need not necessarily result in actual transactions.” If conditions are not optimal, many companies will let their approvals lapse rather than launch in a bearish market. Bearish Sentiment Weighs On Primary Market
Source: Prime database
| Month | Offer Documents Filed | Estimated Issue Amount Rs (Crore) |
|---|---|---|
| January-2024 | 14 | 8,957 |
| February-2024 | 9 | 7,462 |
| March-2024 | 7 | 3,894 |
| April-2024 | 12 | 22,749 |
| May-2024 | 3 | 7,694 |
| June-2024 | 7 | 39,678 |
| July-2024 | 16 | 33,132 |
| August-2024 | 18 | 28,631 |
| September-2024 | 20 | 34,500 |
| October-2024 | 24 | 18,296 |
| November-2024 | 9 | 21,800 |
| December-2024 | 18 | 24,345 |
| January-2025 | 29 | 22,667 |
| February-2025 | 16 | 9,695 |
Given the ongoing volatility, persistent foreign exodus in secondary markets, and investor concerns over valuations, some companies may choose to delay their IPOs until market conditions improve, according to Prashant Rao, Director & Head - ECM, Investment Banking, Anand Rathi Advisors. "However, companies with aggressive growth plans may still proceed with their IPOs but will need to be mindful of the valuations they seek in the current scenario."
Currently, 45 companies have received Sebi's final observations and are awaiting the right market conditions to launch their IPOs, Rao said. Rather than just the sectors they operate in, investor interest will be driven by companies with a strong track record, robust operating cash flows, high-quality management, and compelling growth prospects at reasonable valuations, he added.
The primary market follows the secondary market. Once sentiment improves, there is always a lag of a couple of months, but activity picks up, Haldea said. Even when the market decline began in October, several issues still went ahead as they were at advanced stages. Also, the sentiment was not as bearish as it is now, he explained.
Despite the sour sentiment, the total pipeline of upcoming offerings remains strong with the likes of LG Electronics India Ltd.’s Rs 13,000 crore and HDB Financial Services Ltd.’s Rs 12,500 crore issue.
The temporary slowdown in India’s primary market follows a $1.3 billion rout in secondary stocks as foreign investors continue to sell off local equities. Indian benchmark Nifty 50 and Sensex have fallen by 14.7 per cent and 13.8 per cent, respectively, from the recent peak.
Meanwhile, the issues of Tata Capital Ltd., Ather Energy Ltd. and ICICI Prudential Asset Management Co. will be keenly watched out for going ahead. Tata Group is seeking a valuation of as much as $11 billion for its financial services unit in what could be India’s biggest initial public offering this year, reports suggest.