The financial year 2021-22 was a spectacular year for the primary markets with over 50 firms raising record funds in a financial year and the momentum is expected to continue in FY23 as well.
As per a report by Prime Database, 54 companies are planning to raise a massive ₹1.4 lakh crore via initial public offerings (IPOs) in FY23, including the much-awaited LIC IPO. In FY22, 53 companies raised ₹1.15 lakh crore through IPOs.
Before this, the highest fundraising through IPOs was seen in FY18, when 45 firms raised ₹81,553 crore.
The report added that these 54 companies already have received the approval of market regulator Securities and Exchange Board of India’s (Sebi’s) approval for the IPO. Another 43 companies looking to raise about 81,000 crore rupees are still awaiting the Sebi nod, it further informed.
However, should investors invest heavily in the upcoming IPOs after the massive correction in recent companies which launched their IPOs like Paytm, Zomato, and Nykaa?
Yesha Shah, Head of Equity Research, Samco Securities said that as bull markets bloom, euphoria takes over the primary markets, making it an optimal opportunity for promoters and PE/VC investors to demand extravagant valuations for their companies. Irrationality reigns as a result of the greed for quick money, and all investors rush in to grab a piece of the pie regardless of the price, she added.
"What investors fail to grasp is that when the circumstances reverse, these companies underperform considerably. Although the BSE IPO index beat the Sensex in FY22, it has underperformed by 17 percent over the last six months. In fact, currently, over 60 percent of the IPOs are trading below the listing price and around 40 percent are trading even below their issue price thereby depleting the wealth of investors, particularly retail investors," cautioned Shah.
Recognizing the pain of retail investors, SEBI has proposed to tighten some regulations associated with anchor investor lock-in, offer for sale criteria, and pricing of new loss-making entities.
If there is one takeaway that retail investors should keep in mind from FY22, it should be to resist such hysteria. Instead of falling prey to FOMO (fear of missing out), they should analyze each IPO on its own strengths, keeping in mind that overpriced ones will most likely be available at a lower price once the frenzy wears off, she advised.
He also said that one of the key lessons for investors this year should be is to invest at the right valuation. We saw many unicorns come up with IPO during FY22, however, companies, where valuations were expensive, witnessed substantial correction from their respective highs, he added.
The largest IPO in 2021-22, which was also the largest Indian IPO ever, was of One 97 Communications (PayTM) for 18,300 crore rupees.
Some of the other prominent ones included Zomato, Star Health, PB Fintech, Sona BLW and FSN E-Commerce, the parent company of Nykaa.
Paytm has been constantly trading below its IPO price. It is down 73 percent from its issue price of 2,150 and 71 percent from it 52-week high of ₹1,961, hit on November 11, 2021.
Now the investors are awaiting the LIC IPO, which may be delayed due to the ongoing Russia-Ukraine war. It will sell 5 percent equity to raise around ₹70,000 crore of the firm via the IPO. LIC is one of the largest corporations in India, so its IPO launch would be the largest public offering ever in the history of the Indian financial markets.
The government will sell 31.6 crore shares or 5 percent equity in life insurance through an offer for sale (OFS) in the IPO. No fresh shares will be issued for the public offer. Currently, the government owns a 100 percent stake in the firm, where the total number of shares is around 632 crore.