Indian IPO market picks up pace; new launches up 350% in fourth quarter of 2022: EY

The fourth quarter (Q4) of 2022 (CY) saw the highest number of initial public offer (IPO) deals compared to the other three quarters of the year, according to a report released by EY on the Q4 IPO trends.

As per the report, more than 10 companies filed their Draft Red Herring Prospectus (DRHPs) in Q4 of 2022, signaling a potentially brighter 2023.

While, 18 IPOs were launched in Q4 CY22 compared to only four in the previous quarter, a rise of 350%, in the Indian stock exchanges (main markets).

There were 34 IPOs in the Small and Medium Enterprises segment in Q4 2022 as compared to 33 IPOs in the previous quarter.

Also Read: How to find a good IPO to invest in?

In terms of the total number of IPOs in 2022, the Indian stock exchanges (Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), including Small and Medium Enterprises) ranked third globally. 

Consumer products and retail, diversified industrial products, and technology were the most active sectors, according to the study, with 11, 9, and 8 IPOs launched, respectively.

“IPO activity in the fourth quarter increased by 4x as compared to the previous quarter, demonstrating the growing prominence that our country is gaining as a global investment hub. While IPO issue proceeds by the companies are relatively small, the recent IPO activity is likely to welcome a brighter outlook for Indian capital markets this year,” said Adarsh Ranka, Financial Accounting Advisory Services Leader, Partner with an Indian member firm of EY Global.

In terms of the issue size, Global Health Limited was the largest IPO listing (US$ 0.27 b) in Q4 2022.

As compared to Q4 CY21, the IPO market (main market) saw a drop of 25% from 24 launches to 18 launches in Q4 CY22 though it was up 350% QoQ.

With regards to the SME market, the IPOs launched in Q4 CY2022 were up 48% from 23 to 34 on a YoY basis.

“We saw several IPOs concluding with good post-listing performance. Unlike earlier when capital markets significantly relied on foreign institutional investors, this robust growth pattern will continue because these companies are supported by domestic retail and institutional capital. The investments in domestic mutual funds and vehicles like Alternate Investment Funds are also compelling. A few more quarters like this will hopefully bring back some buoyancy to the market,” said Prashant Singhal, Partner and Emerging Markets Technology, Media & Entertainment and Telecommunications (TMT) Sector Leader, EY.

According to the report, the Securities and Exchange Board of India (SEBI) has made some significant regulatory changes in the last quarter. These include requiring a committee of Independent Directors to recommend that the price band is justified based on quantitative factors, disclosing all key performance indicators with a three-year look back period and benchmarking with peers, and tracking information on the pricing of shares from private equity/investors, among other things. ​​

The report also noted that India has also witnessed its first confidential filing. Tata Play, a direct-to-home platform, became the first company to submit confidential papers to SEBI for an IPO. 

SEBI in November introduced the concept of confidential filing or pre-filing of DRHP for businesses planning to go public.

Similar to the US markets, under the guidelines for confidential IPOs, a company needs to issue a press release on plans to launch IPO, however, all information remains confidential until launch. With this new amendment, the number of IPOs are likely to increase.

“While there has been volatility in the macro-economic environment, inflation is coming under control, India has witnessed more activity than the previous quarters and has been resilient compared to the global economy. It is not possible to time the markets but adopting a holistic and comprehensive approach would hold companies in a good state to be ready to tap the markets as the IPO window opens,” added the EY release.