War, FPI exit play spoilsport; push IPOs worth Rs 77K crore to back burner
The mega plans of over 50 companies to raise more than Rs 77,000 crore through initial public offerings (IPOs) seem to have been put on the back burner for now following the market volatility and exit of foreign portfolio investors in the wake of the Russian war on Ukraine. This is besides the LIC IPO through which the government plans to raise around Rs 60,000 crore. While the issue received Sebi approval last week, it is set to get delayed, given the current market situation.
Many of these issuers had planned their IPOs after the boom in 2021 saw a host of companies, including new-age companies, to firm up plans for IPOs in 2022. But their plans hit a roadblock with the benchmark Sensex falling over 8,300 points, or 13.5 per cent, between January 14 and March 7 amid the huge sell-off by FPIs as concerns over rising interest rates in the US, the Russian invasion of Ukraine and the rise in crude oil prices accentuated the already parlous situation, leading to further panic in the market.
Even as the Sensex staged a recovery of 9.5 per cent over the 8 trading sessions since March 7, in line with correction in crude price and progress on talks between Russia and Ukraine, market participants feel that as markets are expected to remain volatile, it may take some time before the issuers and merchant bankers have the confidence to roll out their IPOs.
Investment bankers say the sustained sell-off by FPIs has put a spanner in the works of issuers. FPIs were major subscribers of shares offered through the IPO route in 2021 as they bought shares worth Rs 80,314 crore in IPOs. This is at a time when FPIs had sold Rs 54,563 crore from the secondary markets. “FPIs were a major factor in the success of IPOs in 2021. They are missing in 2022,” said an investment banking source. Between January and March 2022, FPIs have sold equity holdings worth Rs 110,974 crore from Indian markets.
Market participants say that the primary market activity will only pick up once the secondary market stabilises and starts witnessing investor enthusiasm. While a large number of issuers bunched up their issues to capitalise on the investor enthusiasm in 2021 and capitalise on the premium that investors were willing to pay, investor focus has now shifted towards listed blue-chip companies.
Besides, market participants feel that investors are likely to take a very guarded call on new-age technology companies that come for listing this year. This caution is on account of the sharp correction in the share prices of some of these companies that got listed in 2021.
While Paytm is trading at 72 per cent below its issue price, CarTrade Tech is trading at 64 per cent below its issue price. If FSN Ecommerce Ventures has seen a sharp decline in its share price from an all time high of Rs 2,574 to Rs 1,552 now — a premium of 38 per cent over its issue price of
Rs 1,125, Zomato too is trading just above its issue price of Rs 75 and closed at Rs 80.7 on Thursday.
“The current situation in the market and high volatility is likely to continue due to geopolitical tensions and fear of stagflation on account on higher crude and other commodities prices,” said Ravi Singh, vice president and head of research, Share India.
As the response in primary market depends on the activities in the secondary market, the extraordinary volatility in the primary market since last few months has forced the companies to hit a pause button on their IPOs, he said.
“About 50 companies were set to raise Rs 77,000 crore from the market. The rising crude prices have caused inflationary concerns for companies, whose effect is seen on the stock prices. The IPO of LIC was expected to be launched by March-end but now it will be done in the next fiscal,” said Manoj Dalmia, founder and director, Proficient Equities Pvt Ltd. IPOs of Go Airlines, API Holdings, Delhivery, Emcure Pharma and Swiggy are among the companies that have planned IPOs. “However, the market is currently facing sell-off by FPIs, whose support is needed to create liquidity when such big-ticket size IPOs are involved,” he said.
The much-talked about public issue of LIC is expected to get deferred now in line with the weakness in equity markets over geopolitical concerns. Experts say that even if a company comes out with a public issue, it may not witness the enthusiasm received by many issues over the last one year and the returns too may be limited.
The validity period of Sebi’s observation letter is 12 months only — the company has to open its issue within the period of 12 months starting from the date of issuing the observation letter. This means if issuers who received the Sebi nod will have to submit a fresh prospectus if they are unable to launch the IPOs within 12 months.
In order to make the most of the rising market in 2021, as many as 50 companies managed to raise in excess of Rs 1.1 lakh crore from the equity markets — the highest mobilisation in a year. In line with interest from all categories of investors, retail investors too queued up in big numbers and, in many cases, returned dejected and empty handed, as issues got mobbed and some of them even received subscription of over 100 times. Many new-age companies, which raised money through IPOs last year, are now quoting below their issue prices.