The IPO excitement may be softer in 2022 but that can be a good thing for investors

The IPO excitement may be softer in 2022 but that can be a good thing for investors
  • As the year of most IPOs in India comes to an end, another one kicks off.
  • The excitement for IPOs, particularly from retail investors, is likely to be a lot sober in 2022, says Ajay Saraf, head of investment banking and institutional equities at ICICI Securities.
  • That would mean companies would be less confident in demanding high valuations, leaving more profit on the table for small investors in good companies.
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The bull run in Indian equities that continued from mid-2020 up until late 2021 had drawn in hordes of companies, including the likes of Zomato, Nykaa and Paytm, who wanted to make the best of the brimming optimism and get the best price for their shares. Millions of retail investors wanted a part of the boom in Asia’s best performing stock market, and a lot of IPOs benefited from the frenzy.

That kind of unbridled enthusiasm is unlikely in 2022, according to Ajay Saraf, head of investment banking and institutional equities at ICICI Securities in an interview to Business Insider.

Saraf is not alone. Srinivas Rao Ravuri, chief investment officer at PGIM India Mutual Fund also reportedly believes that 2022 would be a challenging year for investors and companies planning IPOs.

But that’s not entirely a bad thing. If the cautious mood makes good companies, who need to raise money, tone down the pricing it may leave more profit on the table for small investors.

There were 63 initial public offerings (IPO) in 2021 and they raised a cumulative ₹1.18 lakh crore from investors [hyperlink]. And, some of them doubled, or more, the IPO investors’ money on listing itself.
Top performing IPOs of 2020% of listing gains
Macrotech Developers159%
Laxmi Organics152%
Easy Trip Planners151%
Barbeque Nation Hospitality125%
MTAR Technologies110%
Sona BLW Precision Forgings102%


But, 2022 is likely to be different. “My sense is 2022 could be more volatile… and the issue would be stuff like hike in global interest rates, tapering, central bank prioritising inflation over growth and increasing interest rate earlier than expected, which might make the market volatile and IPOs may not be as smooth and great as 2021,” said Saraf.

Here’s an explainer on why the rising inflation, and the expected hike in interest rates, in the US may affect markets in India.

If the market mood is uncertain, then the companies planning IPOs are likely to be less confident in seeking high valuations. Startups like Mobikwik are already waiting patiently before they launch the IPO to get the best price. Founder Upasana Taku told Business Insider that she is waiting for the market conditions to improve even though she has the SEBI approval to launch the IPO.

Legendary investor Warren Buffet has said in the past that he has never invested in an IPO. “The idea of saying the best place in the world where I can put money is something where all the selling, and their commissions are higher, the animal spirits are rising, that’s going to be better than a thousand other things I can where there is no similar selling enthusiasm, and the desire to get the deal done and earn some commissions. That’s the best thing to buy in a single day?,” Buffett asked in an interview in May 2019.

In 2022, the animal spirits will be lower i.e. the emotional trigger for investments will be contained and therefore the valuations may be cheaper. “Valuation will become a bit more in favour of investors and that is the trend which we will see (next year),” said Saraf.

If the IPOs are priced cheaper, it is likely that the headroom for profit is higher for investors, particularly for those who invest for the longer term.

While this is general wisdom, it may so happen that the excitement may be lesser for some companies and higher for others. “Consumer tech and BFSI will lead the overall IPOs in terms of sector concentration in 2022,” said Saraf.

Here’s a list of IPOs expected to open in 2022
Companies Description
AGS TransactPayment solution providers
Adani WilmarFast moving consumer goods
Prudent Corporate AdvisoryRetail wealth management firm
Emcure Pharmaceuticals Manufacture of pharma products in areas -- gynaecology, cardiology, blood- related, oncology, respiratory, CNS & HIV
Shri Bajrang Power & Ispat Integrated steel manufacturer
Sahajanand Medical Technologies Medical devices company
Does lesser excitement for IPOs mean that loss-making startups have no hope in 2022?

Saraf doesn’t think so. “I think Indian investors, given how the year 2021 was, they are willing to put money into companies who are still not breaking even or whose profitability may be few years away...and this trend will continue,” said Saraf.

SEE ALSO: LIC, AGS Transact, Adani Wilmar and other IPOs coming up in early 2022
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