Not a favourable time for IPOs? Collections decline 70% in FY23 amid market correction

The current financial year (FY23) has not been good for the initial public offering (IPO) market. The IPO frenzy witnessed in the financial year 2021-22 (FY22) massively declined in FY23. The number of firms filing for IPOs more than halved in FY23 to 66 so far as against 144 in FY22 on the back of correction in the secondary market amid macro concerns.

Four months of FY23 witnessed no IPOs. So far in FY23, IPOs have managed to raise ₹68,580 crore, down nearly 70 percent from ₹2.64 lakh crore raised in the previous financial year.

The second half of the year witnessed a higher number of IPO launches, around 40 as against 15 in the first half of the year. The 2 mega IPOs in the first half - LIC and Delhivery, did not perform well and continued trading at a discount, whereas the remaining 13 IPOs raised less than even ₹10,000 crore in the first half of FY23 (H1FY23). Including these two, the total IPO collections in the first half of FY23 stood at ₹36,218 crore across 15 IPOs. This is sharply lower compared to the ₹51,970 crore raised in the first half of FY22.

However, the total collection in the second half of FY23 stands at around ₹32,000 crore, which is even lower despite the higher number of IPOs.

Market experts believe investors remain cautious regarding investing in IPOs in FY23 after a blockbuster FY22 amid a fall in valuations, correction in benchmarks and weaker-than-expected performance by the mega IPOs like LIC and Delhivery.

Multiple factors, such as interest rate hikes by major central banks to curb inflation, recession fears, and a weak GDP outlook have kept investors on the sidelines.

Recently, Hindenburg Research’s report on Adani Group and the liquidity crisis in major US banks have further rattled the markets, dampening the outlook for the primary markets.

Also, the aggressive selling by foreign portfolio investors (FPI) has turned the sentiment negative. FPIs sold shares worth ₹30,693 crore so far in FY23.

"Since we expect volatility to continue in the near term, we expect primary market activity to remain lackluster during this time, but once we start seeing the market stabilizing, most likely in the second half of this year, primary market activity should pick up," noted Nishit Master, Portfolio Manager, Axis Securities PMS.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, also believes that with the Nifty down by around 10 percent from the peak and underperforming other markets in 2023, the sentiments has turned negative. 

"This is not a favourable time for IPOs and NFOs. Attractively priced IPOs will attract investors but it would be a tough time for NFOs. Investors should remain invested and a good strategy would be to continue investing through SIPs in existing funds," Vijaykumar suggested.

It is also important to note that in FY23, new-age internet firms did not file for any IPOs. While some delayed filings to avoid the current market volatility, others cancelled their IPOs and are looking for other ways to raise capital on the back of weak performance by listed internet firms like Zomato, Nykaa, Paytm, etc.

Go First, One Mobikwik Systems, ESAF Small Finance Bank, VLCC Healthcare, Sterlite Power Transmission, and Keventer Agro are some of the companies that let their DRHP lapse.

“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.

However, FY24 is looking a lot better than FY23 in terms of IPO launches. A number of firms including new-age companies are planning for an IPO including Oravel Stays (OYO), Mamaearth, Byju’s, as well as Swiggy.

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