Weak market sentiments cast gloom on ₹2.45 lakh crore primary issuances
The subdued secondary market sentiments and possible economic slowdown have cast a gloom on ₹2.45 lakh crore IPOs that have been waiting in the wings after getting Sebi approval to hit the market to raise growth capital.
The IPO markets have been in doldrums for last few months with just one public offer hitting the market last month. Bagmane REIT was the only issue that raised ₹3,405 crore in May, while the IPO of OnEMI Technology Solutions opened for subscription in April-end and closed on May 5 to mop-up ₹926 crore.
Interestingly, of the 20 IPOs that had hit the market so far this year, only 3 are trading below their issue price.
Among the large issues that are waiting for market sentiments to improve include Avaada Electro (₹9,000 crore), SAEL Industries (₹4,575 crore), Hero Fincorp (₹3,600 crore) and Continuum Green Energy (₹3,650 core). In all, there are 163 companies waiting to raise ₹2.45 lakh crore, according to data sourced from PRIME Database.
Given the stress in the primary markets, Sebi in April extended validity of IPO expiring in the first six months of this fiscal to September-end. The extension will allow affected companies to launch their public issues without seeking the regulatory approval again.
Vinod Nair, Head of Research, Geojit Investments said the IPO market is unlikely to recover in the near term, as overall equity sentiment remains subdued.
“Risks of potential downgrades in corporate earnings and economic growth continue to persist over the coming quarters. Additionally, elevated bond yields and ongoing inflationary pressure are weighing on equity valuations,” he said.
Given these conditions, promoters and private investors are unlikely to offer shares at discounted prices, he added.
“At the same time, the steady correction in market conditions this year has dampened domestic investors’ appetite for new offerings. A meaningful revival is required in geopolitical risks, trade dynamics, and commodity prices to bring a change in IPO market,” said Nair.
Rajesh Singla, CEO & Fund Manager, Alpha AMC, said, “A meaningful revival in the primary markets is possible over the next six to eight months if secondary markets continue to stabilize.”
Moreover, a significant portion of large IPO book-building depends on foreign institutional participation, but the sustained FPI outflows of the past several months have made pricing and execution of large deals genuinely difficult, he added.
“Large companies such as Reliance Jio, NSE and Manipal Health are expected to file their papers for IPO in the near term. Just one or two marquee listings going well can reset the mood of an entire primary market cycle,” he added.
Ratiraj Tibrewal, CEO, Choice Capital said the revival of IPO activity will be gradual, depending significantly on developments in the global environment.
Geopolitical tensions in the West Asia, trade disputes among major economies, volatility in energy prices, and other factors, continue to influence global capital flows, he said.
The next IPO cycle may not be as exciting as the previous one, but it is likely to be deeper, more institutional and more sustainable, he added.