IPO collections for FY23 fell by more than 50%

After the big bang IPO year of FY22, it must be said that FY23 was relatively disappointing. The Rs21,000 crore LIC IPO in May 2022 raised hopes that FY23 would be another bumper year. However, compared to FY22, the fiscal year FY23 witnessed rather tepid flow of initial public offerings (IPO). For the full fiscal year, just about 37 companies managed to raise a sum of Rs52,116 crore through the main board. We are not including the SME IPOs, but they would not have made any substantive difference to the value of IPO collections. Also, the IPO collections of Rs52,116 crore for FY23 is less than half the FY22 IPO collections of Rs111,547 crore. LIC alone accounted for 40% of the IPO collections while LIC and Delhivery jointly accounted for 50% of the total IPO collections in FY23. 

It was not just lower collections but even the number of companies coming out with IPOs was much lower in FY23. It was just 37 IPO in FY23 compared to 53 IPOs in FY22. The year also saw the maximum number of IPOs that got SEBI approval but eventually decided to put off the IPOs due to adverse market conditions. PharmEasy, MobiKwik and Go Air were some of the big proposed IPOs that have shelved IPO plans for the time being. This is despite LIC being the largest IPO in the history of Indian IPO markets during the year. The difference was the digital IPOs as FY22 had some mega digital IPOs like Paytm, Nykaa, Zomato and Paisabazaar. The only digital IPO in FY23 was Delhivery, unless you also include information provider, Tracxn in that list of digital IPOs during the year.

Despite these challenges, the year FY23 was the third best year in history in terms of IPO collections with only the years FY22 and FY17 bettering it. This can be largely attributed to the LIC IPO which accounted for 40% of the IPO collections. The other significant IPOs during the year were the Delhivery IPO which raised Rs5,235 crore and the Global Health (Medanta) IPO, which managed to raise Rs2,206 crore. The average size of IPOs in the fiscal year FY23 stood at Rs1,409 crore but that was largely a skewed number due to the dominant size of the LIC IPO. In fact, most of the IPOs in the last quarter were extremely small and could hardly be differentiated from SME IPOs, albeit by a small margin.

There was also a concentration of IPOs in select months. For instance, out of the 37 IPOs in FY23, a total of 25 IPOs (68% of the IPOs) happened in just 3 months viz. May 2022, November 2022 and December 2022. In most of the other months, the volatile conditions and fears of an economic slowdown kept the companies on tenterhooks as they were apprehensive about the customer response to these IPOs. The fourth quarter hardly saw any worthwhile IPOs of size and despite the robust flows into SME IPOs, the mainboard IPOs left a lot to be desired. Q4 FY23 was the lowest IPOs in last nine years, which says something about how markets have been extremely sceptical about the conditions.

Some experts feel that the tepid performance in FY23 owes its origins to the digital IPOs going overboard on size and valuations in the fiscal year FY22. For instance, in FY22, there were 5 new age technology companies or digital companies which raised Rs41,733 crore between them. However, the post listing performance of all the major IPOs viz. Nykaa, CarTrade, Zomato, Policybazaar and Paytm was disappointing to say the least. These stocks lost around 60% to 70% from their peak levels due to a combination of a global start-up meltdown as well as very rich valuations in India. These New age tech companies realized that, unlike the PE funds and VC funds, the stock markets ask some very pointed question on performance and their levels of patience for cash burn is quite low.

In terms of subscription patterns, the data was largely spread out. For instance, a total of 11 IPOs in FY23 got subscribed more than 10 times with 2 IPOs even getting subscribed more than 50 times. In addition, there were 7 IPOs that were subscribed over 3 times while 18 IPOs got subscribed more than once but less than three times. That is not a bad piece of statistic, and the good news is that the small HNI (S-HNI) segment gave a good response to various IPOs during the year. However, with retail investors suffering the most from the sell-off in the fiscal year FY22, the tepid retail participation was an obvious reaction. The retail indifference was best captured by the number of applications, compared to previous years.

For instance, according to data provided by Prime Database,  the average number of applications from retail in FY23 fell sharply to just 5.64 lakhs. This is sharply lower as compared to  13.32 lakh in FY22 and 12.73 lakh in FY21. Clearly, retail interest in the IPO market has been one of the big casualties after the massive tech meltdown seen in the previous financial year FY22. For FY23, the 3 companies that got the maximum number of applications include Life Insurance Corporation of India (32.76 lakhs), Harsha Engineers (23.86 lakhs) and Campus Activewear (17.27 lakhs). The tepid reaction of retail investors also saw a lower share of retail in the value of applications received in FY23. On the positive side, this meant that allocation to retail increased from 20% in FY22 to 28% in FY23.

But the biggest casualty of FY23 was the listing gains. For instance, the average listing gains for FY23 stood at just about 9.74%. This is sharply lower than 32.59% in FY22 and 35.68% in FY21. In terms of star performers, it was DCX Systems that gave best point to point return of 49%. This was followed by Harsha Engineers (47%) and Electronics Mart (43%). With only 36 of the 27 IPOs concluded in FY23 listed, it has been observed that 21 of the 36 IPOs are trading above the issue price while the remaining 15% are trading below their issue price. That is a fairly high share of IPO losers in any year. The number of companies filing for IPOs has also halved, so FY24 may have some work to do before IPOs can pick up steam.