Recent IPO successes could lead to recovery in the primary market: E&Y

• Tightening of liquidity, uncertainty caused by global headwinds and sharp correction in recently listed companies dampened the sentiment for IPOs, the E&Y report says.
• Experts say that while volatility continues to impact investor sentiment, recent strong debuts made by several IPOs will lead to a recovery.
• PE-backed IPOs continue to remain elusive in 2022, the report says.

More than 15 Indian companies are set to raise funds via IPOs in the upcoming quarters, as per draft red herring prospectus (DRHPs) filed with market regulator SEBI in Q3 of 2022 (July-September), says an Ernst & Young report.

The end of Q3 has seen an uptick in IPOs, after a slowdown post Q2, the EY IPO Trends Report said. Technology, banking, capital markets, media and entertainment were the most active sectors in the IPO market in Q3.

The companies that have filed DRHPs in Q3 are yet to hit the market, due to uncertain market conditions. “The IPO market has witnessed a bearish phase recently. The backlog of companies that have received SEBI approval and are yet to float an IPO is set to give market direction in the upcoming quarters,” said Adarsh Ranka, financial accounting advisory services leader, partner with an Indian member firm of EY Global.

However, in the last few months, many IPOs have made strong market debuts and that could encourage more companies to raise funds from the public.

“While volatility in the overall global markets and other macro factors will continue to affect investor sentiments, the pipeline of IPOs and momentum created by successful IPOs towards the end of Q3 2022 could lead to a recovery in the market,” said Ranka.

So far in 2022, 31 companies have listed on the BSE main board while 49 companies have debuted on the BSE SME segment, as per data on the stock exchange. On the BSE main board, only 8 out of 31 companies made weak debuts; and only 11 of 49 stocks from the SME segment, slipped into the red on listing.

‘PE-backed IPOs continue to remain elusive’
In spite of good debuts especially towards the latter part of this year, the number of IPOs has gone down significantly. In the third quarter last year, 19 companies raised $5.1 billion while only four IPOs were launched in Q3 this year, raising $334 million.

That’s a 93% and 79% decline in proceeds raised and in the number of deals, respectively. The SME segment raised $68.8 million via 33 IPOs during Q3 2022.

According to EY, tightening of liquidity, uncertainty caused by global headwinds and sharp correction in some recently listed companies has dampened the sentiment for IPOs.

Stocks like Zomato, PayTM, Nykaa, Delhivery that have listed last year, have sharply corrected making investors wary. Moreso, the stock of LIC, which was India’s largest IPO, too corrected since listing in May this year.

Moreso, private equity and venture capital investors have turned cautious that’s making other investors jittery too.

“Investors are adopting a cautious approach, both with private equity and large funds reducing their investment spends. In recent times it has been observed that many companies are also trimming down their IPO size,” said Ranka.

PE/VC investment in July 2022 was also the lowest over the year both in terms of value and volume. At $3 billion, PE/VC investments in July 2022 were 69% lower than $9.7 billion in July 2021.

“PE-backed IPOs, which were one of the defining features of PE/VC exits last year, continue to remain elusive in 2022,” said the report.

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