IPO mood appears upbeat in 2023 after 50% decline in fund-raising from 2022

The IPO frenzy witnessed in 2021 halted as the year 2022 began. The sentiment revived in the second half of the year with 40 IPOs making their way in the primary market in the entire calendar year.

At 59,412 crore, the funds raised, however, were half of what 63 IPOs raised in 2021 at ₹1.18 lakh crore, data from Prime Database shows. As we enter 2023, the IPO pipeline looks strong, but investor interest will depend on the market sentiment and how efficiently the companies value their IPOs, say experts.

2021 versus 2022

Year 2021 marked the entry of new-age start-ups in the stock market such as Zomato, Nykaa, Paytm, Policybazaar and Delhivery, among others. However, their stock performance is nothing to write home about. In a positive development, corporates didn’t go overboard on valuing their IPOs in 2022. That said, the IPOs this year performed much better than the ones listed in 2021.

Among 36 IPOs which have already listed in the secondary market in CY22, 19 have returned anywhere between 11% and 128% as on Wednesday. The best performers include Adani Wilmar Ltd (128%), Hariom Pipe Industries Ltd (116%), Venus Pipes & Tubes Ltd (114%), Veranda Learning Solutions Ltd (76%) and Vedant Fashions Ltd (50%).

“This year new-age companies did not hit the IPO market. I believe this is because physical events have started happening, and the era where you could push issues without discussing it in roadshows has ended,” says Arun Kejriwal, director, KRIS, an investment advisory firm.

Among other positives, fresh issues were higher than offer for sale (OFS). “It means the funds raised went to the companies for business expansion rather than IPOs becoming an exit avenue for PE/VC investors,” adds Kejriwal.

Meanwhile, activity in the SME IPO market was much stronger than that in mainboard. As many as 112 SME IPOs raised ₹1,950 crore compared to 54 SME IPOs raising 759 crore in 2021.

“SMEs were relatively insulated against most externalities or incremental regulatory risks. Issue sizes were smaller and hence much easier to generate demand. Based on 2021 experience, the issues were priced better as well. SMEs went ahead with their listing agenda and, in line with expectations, performed fairly well during the year,” says Subramanya S V, Co-founder & CEO, Fisdom, a wealth-tech platform.

2023 Outlook

Data shows a lot of companies are planning to launch their IPOs in 2023, including the new-age firms. Oravel Stays (OYO), Mamaearth, Byjy’s, Swiggy and GoAir are some of key IPOs expected in 2023.

“The IPO pipeline for 2023 looks strong with several consumer-tech and new-age companies attempting to get their listing plans on track. While 2021 was an exuberant year for IPOs and 2022 relatively tepid, we expect the coming year to be right at the middle in terms of number and size of IPOs that will be launched,” says Subramanya.

Data available with Sebi shows more than 50 IPOs have already received the market regulator’s nod to launch IPOs such as FabIndia, Aadhar Housing Finance, Bharat FIH, Navi Technologies and CMR Green Technologies, among others.

However, whether the IPOs will hit the primary market or not will depend on how the stock market performs. One needs to watch out for events such as global central banks’ move on interest rates, global recession and resurgence of Covid-19, among others.

Kejriwal has a different take on it. “Irrespective of how the secondary market performs, the crux lies in valuations. If a new-age company is coming up with its IPO, it needs to showcase numbers. Promoters need to price their issues fairly. There has to be a growth story backed by fundamentals,” he says.

Year 2023 will have a huge number of companies filing draft red herring prospectus and some of them receiving Sebi approvals. One has to wait and watch exactly how many of them will go for the final launch.

Aprajita Sharma is a freelance journalist and a certified financial planner. She can be reached at @apri_sharma on Twitter and LinkedIn.