India’s GDP growth during the COVID-19 hit year of 2020 contracted drastically as a nationwide lockdown brought economic activity to a standstill. During the lockdown period, stocks plunged, and the Indian stock markets (markets) took a heavy beating primarily due to the uncertainty of the spread of the virus. Naturally, the equity fund raised especially through Initial Public Offering (IPO) was very tepid then.
Even more surprising than the drastic fall during February to April 2020 was the way the market rebounded since the last few months of 2020 and then 2021. The government pumped in money (vide various monetary & fiscal measures) in the economy to tide over the impact of the pandemic and some of the money found its way into financial markets, providing high liquidity. Further, global liquidity provided additional funds that too got invested in the markets. Also, as with any market, when it rises, a lot of retail money gets invested further raising the indices and that is how the Sensex and Nifty rolled up and breached the 60k (in September’21) and 18K (in October’21) respectively. The bull trend in the market with liquidity all-around has resulted in a slew of equity raises. The high market indices provided an opportunity to raise funds through IPO at attractive valuations.
The Reserve Bank of India in its Indian Economy Report had mentioned that 2021 could be India’s year of IPOs and that prediction came true. In 2021, more than INR 1.30 Lac crores were raised through 72 odd IPOs (excluding IPOs for SMEs which is approximately INR 700 crores) which is the highest amount that companies have raised via IPO proceeds in the two decades. In terms of numbers, 17 IPOs were launched in Q12021 (including Indian Railways, Brookfield India REIT, Kalyan Jewellers, Nazara technologies etc.), 7 in Q22021 (including POWERGRID InvIT, G R Infraprojects etc.), ~27 in Q32021 (Zomato, Glenmark, CarTrade, Paras Defence & Space Technologies) and ~21 in Q42021 (which includes FSN E-Commerce, Fino Payments, One 97 Communications i.e., Paytm).
Some IPOs such as Zomato, Nykaa etc. gave retail shareholders an opportunity to invest in the new age tech / digital unicorns which were earlier available only with PE/VC funds. Also, of all the IPOs so far, more than 70% of IPO companies have shown an increase in share price vs issue price which is certainly good for the investors.
While 2021 was a ground-breaking year in terms of IPOs, we look forward to 2022 with cautious optimism. Equity markets in India have been very choppy and are fluctuating significantly over the last few weeks. The Bank of England was the first major central bank to hike its interest rates since the beginning of the pandemic and the US Fed is seen to be taking a hawkish stand. This is bound to affect the markets adversely. Further, just like wave 2 of the pandemic which did not affect the markets as such, we hope Omicron has an equally tepid effect.
Also, we hope any adverse effects of interest rate hikes are negated by an increase in the earnings of the companies. While markets may continue to stay choppy for some time, there is an interesting line-up of IPOs which is already slated. The estimates and reports state that there are 38 odd IPOs in the pipeline for the year 2022 to make their market debut. Of all, the IPO by state-owned Life Insurance Company is expected to be the biggest with a valuation of INR 10 lac crores. Further, cab aggregator Ola, online education Byju’s (if US SPAC does not go through for any reason), logistic company Delhivery, OYO rooms etc. are also exploring IPOs in 2022. Apart from the above, several other big names are also expected to climb the IPO ladder. Assuming there are no big adverse events, we believe the year 2022 will also be equally attractive for IPOs especially for good companies who 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)