After a dry spell of two months, the domestic primary market is set to see new initial public offerings (IPOs) in March. The first IPO of the year, Divgi Torqtransfer Systems, opened for subscription on March 1.
Another public issue of the month, the Global Surfaces IPO, will open on March 13 for subscription.
An Economic Times (ET) report, quoting bankers, suggested that some nine companies may hit the primary market in the next four-six weeks to raise more than ₹17,000 crore.
"Companies planning to enter the primary market in the next 4-6 weeks, according to bankers, include Avalon Technologies, Capillary Technologies, Cogent Systems, Divgi Torqtransfer Systems, Mankind Pharma, Nexus Malls REIT, Signature Global, TVS Logistics, and Utkarsh Small Finance Bank," the ET report said.
MintGenie could not independently verify this.
However, as reports suggest, companies are eyeing the IPO route now after a hiatus of two months due to high volatility in the market.
Not much has changed for the markets in the last two months. The concerns over sticky inflation, rate hikes, slowing global growth, geopolitical tensions and sustained outflow of foreign funds persist.
Manish Khanna, Co founder at Unlisted Assets, underscored that global issues related to inflation, supply chain and long-standing war between Russia and Ukraine are leading to a fall in the number of mainboard IPOs. The settlement or normalisation of these global issues will lead to buoyancy in the capital market.
Apart from all this, the Adani Group saga has also deteriorated market sentiment significantly.
"India has experienced one of the largest-ever wealth wipe-outs after the reporting of the irregularities in the Adani Enterprises by the Hindenburg report. Blockage of retail investor funds in Adani Enterprises and erosion of their overall wealth has further impacted the upcoming IPO market," said Khanna.
"Though the number of demat accounts has increased from 8.4 crore last year to 11 crore, fuelling the retail participation in the capital market, events like Adani selloff may have an impact on investor sentiments in the short run and affect the participation of retail investors in upcoming IPOs," added Khanna.
The BSE IPO index has been negative for the past one year and it is unlikely that it will improve soon.
While market concerns persist, some companies have enough courage to enter the public market.
Why so?
Quality matters
One reason could be that the IPOs of fundamentally sound companies may do well even in a bearish market.
"History amply proves one fact - even a bear market is a good time for IPOs provided the company's business model and valuation are attractive. Therefore, it is a good time even now for any thematic business model to approach the market with an IPO," said G.Chokkalingam, Founder & Head of Research, Equinomics Research & Advisory.
Chokkalingam, however, added that the companies that bank on hype rather than sound profitable business models (like e-commerce companies) and lack adequate bottom lines to meet expected valuations on the debut, should avoid going for IPOs at this juncture.
Gaurav Sood, Managing Director and Head of Equity Capital Markets at Avendus Capital, has similar views.
"Selective mid-sized IPOs of quality companies available at reasonable valuations will have investor appetite, despite the ongoing volatility," said Sood.
"Companies eyeing launch, in consultation with their bankers, should assess readiness, seriously considering the roadshow feedback and immediate market sentiment," Sood said.
Will there be a plethora of IPOs?
It is unlikely that we will see a strong influx of IPOs in the short to medium term because there is still much uncertainty as to which way the market will move in the short term.
Chokkalingam agrees that there will not be many IPOs at this juncture because the mood of the market is sombre and many IPOs tend to be pricey.
"On average, roughly two-third of stocks other than broad index stocks have lost anywhere from 10 percent to 25 percent of their market caps in the last six months. Of late, a majority of promoters' expectations from the markets through IPOs have gone up substantially and there have been only a small proportion of companies that had a valuation comfort while debuting in the markets. Hence, it is most likely that many companies, except those with strong business models, sound balance sheets and reasonable expectations on pricing, would delay their debuts into the markets," said Chokkalingam.
Many companies would like to wait for some more time and assess the performance of other IPOs launched during these uncertain times to gauge their prospects.
"We feel that three-four early movers will take the initiative and launch their issues in the same window. Basis their reception, performance and market conditions, multiple other companies might firm up their IPO launch decision, which can go both ways," said Sood.
Sood expects a few companies in sectors like industrials, real estate, and pharma to launch their issues in the coming weeks.
Should retail investors bet on IPOs at this juncture?
This is not a correct question. The correct question is which one to choose and which one to leave.
Chokkalingam says retail investors should certainly bet on IPOs but they should carefully look at the key parameters, such as the quality of the company's management, the viability of business models, past track record of financial performance, the strength of the balance sheet and valuations at IPO prices.
"These criteria if adopted, IPOs would be mostly a profitable proposition for the investors. To be conservative, avoid loss-making companies through IPOs. One may pay the premium and buy them after they successfully turn around their businesses post listings," said Chokkalingam.
When there is so much uncertainty in the market, it is always better to seek advice from financial advisors. Investing in any form or any asset class should be in accordance with the investor's risk appetite and investment goal.
"Retail investors should do their own research on the companies before applying to any IPOs. Given the market volatility, investors should take a decision only after considering their risk appetite and their financial advisor’s recommendations," said Sood.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.
