India’s GDP growth during the hit COVID-19 year 2020 shrank dramatically as a nationwide lockdown brought economic activity to a standstill. During the lockdown period, stocks collapsed and Indian stock markets (markets) were hit hard, mainly because of the uncertainty about the spread of the virus. Of course, the equity fund raised mainly through Initial Public Offering (IPO) was very lukewarm at the time.
Even more surprising than the drastic drop in February to April 2020 was the way the market recovered since the last few months of 2020 and beyond 2021. The government pumped money (see various monetary and fiscal measures) into the economy to overcome the impact to recover from the pandemic and some of the money found its way into the financial markets and ensured high liquidity. Furthermore, global liquidity resulted in additional money that was also invested in the markets. Also, as with any market when it rises a lot of retail money is invested which further raises the indices and that is how the Sensex and Nifty rolled up and have the 60k (in September ’21) and 18K (in October ’21) exceeded. respectively. The upward trend in the market with liquidity everywhere has resulted in a slew of stock increases. The high market indices offered the opportunity to raise funds through an IPO at attractive valuations.
The Reserve Bank of India had mentioned in its Indian Economy Report that 2021 could be India’s year of IPOs and that prediction came true. In 2021, more than INR 1.30 Lac crores was raised through 72 odd IPOs (excluding SME IPOs amounting to approximately INR 700 crores), which is the highest amount companies have raised through IPO proceeds in two decades. In numbers, 17 IPOs were launched in Q12021 (including Indian Railways, Brookfield India REIT, Kalyan Jewellers, Nazara technologies etc), 7 in Q22021 (including POWERGRID InvIT, GR Infraprojects etc), ~27 in Q32021 (Zomato, Glenmark, CarTrade, Paras Defense & Space Technologies) and ~21 in Q42021 (including FSN E-Commerce, Fino Payments, One 97 Communications, aka Paytm).
Some IPOs such as Zomato, Nykaa etc gave retail shareholders the opportunity to invest in the new age tech/digital unicorns previously only available with PE/VC funds. Also, of all IPOs to date, more than 70% of IPO companies have shown an increase in share price versus issue price, which is certainly good for investors.
While 2021 was a groundbreaking year for IPOs, we look forward to 2022 with cautious optimism. India’s equity markets have been very choppy and have fluctuated significantly in recent weeks. The Bank of England was the first major central bank to raise interest rates since the start of the pandemic and the US Fed appears to be taking an aggressive stance. This will undoubtedly have adverse effects on the markets. Furthermore, like wave 2 of the pandemic, which has not affected the markets as such, we hope that Omicron has an equally lukewarm effect.
We also hope that any adverse effects of interest rate hikes will be offset by an increase in corporate earnings. While markets may remain shaky for a while, an interesting series of IPOs are already planned. The estimates and reports state that there are 38 odd IPOs in the pipeline for the year 2022 to make their market debut. The IPO by the state-owned Life Insurance Company is expected to be the largest with a valuation of INR 10 lac crores. Furthermore, taxi aggregator Ola, online education Byju’s (if US SPAC is canceled for whatever reason), logistics company Delhivery, OYO rooms etc. are also investigating IPOs in 2022. Apart from the above, several other big names are also expected to attend the IPO climb the ladder. Assuming no major adverse events, we believe the year 2022 will also be equally attractive for IPOs, especially for good companies that price their IPOs well.
(By Samir Sheth, Partner & Head at Deal Advisory Services; and Poonam Shah, Consultant at M&A Tax and Regulatory, Deal Advisory Services, BDO India)
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