After a weak 2022, the pace of initial public offerings (IPOs) has picked up dramatically since June, starting the second half of 2023. Markets are at all-time highs with almost all sectors as well as broader markets also hitting new peaks. Further, demat account additions have also surged to record levels, and foreign investors' inflows have been on the rise. All-in-all, multiple factors are contributing to the recent buzz in the IPO market.
Only 6 mainland IPOs were launched in the first half of the current calendar year, however, just in the month of June, 5 more were launched, one is launched in July so far, and at least 2 more are expected this month.
The weakness in IPO launches in the first half of the current calendar year can be attributed to the uncertain market sentiment after the allegations on the Adani Group by Hindenburg Research. Also, rate hike concerns, US recession fears, sticky inflation and foreign investor outflows kept the companies on the sidelines.
Meanwhile, in 2022, 40 firms launched their IPOs but raised only half the amount of money (around ₹60 lakh crore) raised in 2021 ( ₹1.18 lakh crore).
But amid all-time highs and expensive market valuations, is this the right time to buy shares in the new IPOs? Let's see what experts have to say:
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said that the enthusiasm in the IPO market now is the direct consequence of the rally in the secondary market. The impressive 2,500-point rally in the Nifty from the lows of March and the good listing performance of some recent IPOs have again triggered retail investor enthusiasm, he noted.
However, he cautioned that retail investors should exercise restraint in applying for IPOs. There will be a tendency to launch new IPOs at lofty valuations. Retail investors should apply only if the valuations are justified and OFS should also be approached with great caution, he suggested.
Vinit Bolinjkar, Head of Research - Ventura Securities, also explained that the IPO market is buzzing after a weak FY23 for a few reasons. First, the stock market has been on a tear in recent months, and investors are looking for new ways to get in on the action. Second, there are a number of high-profile IPOs scheduled to take place in the coming months, which is likely to generate excitement among investors. Third, the overall economic outlook is improving, which is making investors more confident about the future.
However, he warned that if you are considering investing in a new IPO, it is important to do your research and understand the risks involved. You should also make sure that you have a long-term investment horizon, as IPOs can be volatile in the short term, he stated.
Amar Ranu, Sr. VP & Head - Investment Products and Insights, Anand Rathi Shares and Stock Brokers, also pointed out that the IPO market becomes appealing when the market remains at peak or there is bullishness in the market so that the promoters get the right valuation and there is high probability of issue getting through. The current euphoric equity levels have made the IPO market attractive again and this has led to flurries of IPOs in the last few weeks and many more are in the pipeline.
"In equity, there is no right or wrong time – timing is a futile exercise. What an investor needs to keep in mind is the right valuation and sector entering into. Additionally, one should read the Red Hearing Prospectus, understand the utilization of proceeds, the company’s moat and future growth, promoter strength and corporate governance, valuation, etc. IPOs give a path to participate in niche sectors or companies; however, one should be mindful of timing, valuation, and euphoria," he recommended.
Meanwhile, Nirav Karkera, Head of Research at Fisdom, said, "The overall economy is entering an expansionary cycle and upbeat sentiments are percolating into equity capital markets as well. Amid buoyant economic and market environment, the IPO pipeline is growing stronger with more companies viewing current times as opportune to list on the bourses."
From an investor standpoint, it is important to recognise that investment decisions must be made on the basis of the company’s fundamental strengths and not simply on account of broad-based exuberance. The decision to invest in a new IPO or not is a subject matter of the offer’s fundamentals, he advised.
Shrey Jain, CEO and Founder of SAS Online, also stated that the Indian primary market has rebounded strongly following a volatile year in the domestic equity market and this resurgence can be attributed to various factors, including improved market sentiment, the presence of fundamentally strong companies, ample liquidity, attractive valuations, and increased participation from retail investors.
Furthermore, the buzz surrounding IPOs is fueled by a robust pipeline of upcoming offerings in the second half of 2023, he added. In a bid to further stimulate investor participation, SEBI has recently proposed reducing the IPO listing timeline from 6 days to 3 days, as outlined in a consultation paper, he further noted.
The strength of the market serves as a testament to the immense growth potential of the Indian economy. It is anticipated that the momentum surrounding IPOs will continue to rise in the future, he predicted.