Mumbai Market experts say the current dry spell in India’s primary market may continue for the next two quarters, though there has been a marginal improvement in activity.
According to investment bankers, the backlog in public listings may persist till the March quarter as investors and companies have become cautious especially after the weak mega initial public offering (IPO) of LIC and Paytm. Many newly listed shares are trading below their issue price.
Market research firm Prime Database said IPO worth 1.6 trillion are in the pipeline. These issues involve companies with more than 70 IPOs. 1.05 trillion that have received approval from the Securities and Exchange Board of India, and 43 firms whose IPOs are worth 58,977 crore is yet to get regulatory approval.
“The backlog in IPOs is historic. We haven’t seen such a huge backlog; One investment banker said, “It may not clear up so quickly. Last year, the markets were quite upbeat; so a lot of issuers were speeding up their plans for listing and they went ahead and filed their documents. The market conditions were not favorable at the beginning of the year, due to which the backlog continued to grow.
Companies picked up in 2021 1.12 trillion through IPOs. However, this year, volatility in the global market due to geopolitical tensions and high inflation in several countries has weighed on investor sentiment.
Prolonged delay in listing means most companies will have exhausted IPO papers, which will force them to re-fill their draft red herring prospectus (DRHP).
“The wounds of the excesses of some mega IPOs are still very raw. SEBI has also become extra cautious about disclosures and pricing. Even worse, the secondary market has been very volatile. Many companies are not getting the valuation they think they deserve and are therefore waiting for better times. I have seen this cycle many times, and it will change again,” said Pranav Haldia, Managing Director, Prime Database Group.
Some of the major IPOs that are in the pipeline include TBO Tech Ltd, Fab India, Aadhar Housing Finance, Go Airlines, Gemini Edibles & Fats India, Five Star Business Finance, TVS Supply Chain, Penna Cement and KFIN Technologies.
Analysts said in the last three to four months many companies have not shown interest in holding pre-IPO roadshows, further weakening investor sentiment. “There are not even ten companies that have shown their readiness to launch their respective IPOs,” said an analyst on the condition of anonymity.
Another major factor contributing to the weak IPO market is the restrictions on IPO financing.
Last October, the Reserve Bank of India had directed NBFCs to limit IPO lending 1 crore per borrower with effect from April 1, 2022. Until then, some high-net-worth individuals have made . borrowed more than 100 crores from NBFCs for investment in IPOs.
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