Year 2022 sees record IPO filings, but actual issues lag
If you want to understand the gap between intent and actual delivery, it is starkly visible in the field of initial public offerings or IPOs. If you just looked at the IPO market intuitively, you can say that the enthusiasm that companies show in filing for IPOs is not matched up with the enthusiasm to do the actual IPO. For the calendar year 2022 so far, a total of 50 companies have already filed their draft red herring prospectus of which only 16 IPOs have actually fructified. The table of H1 of each year captures this dilemma rather eloquently.
|
Year |
Number of IPO Issues |
Amount Raised |
No. of DRHP filings |
|
2018 |
18 |
Rs.23,452 cr |
47 |
|
2019 |
8 |
Rs.5,509 cr |
8 |
|
2020 |
1 |
Rs.10,341 cr |
9 |
|
2021 |
22 |
Rs.27,419 cr |
38 |
|
2022 |
16 |
Rs.40,311 cr |
50 |
A word of caution here. In the first half of 2022, the IPO scene may look impressive in terms of the collections of Rs.40,311 crore. But that was largely due to the predominance of just two IPOs viz. LIC of India and Delhivery, which accounted for 70% of IPO collections in the first half. Also, in 2021, most of the mega digital IPOs like Zomato, Paytm, Nykaa and Policybazaar happened in the second half. For now, it does not look like the second half of 2022 could see that kind of fireworks, especially with the global turmoil and FPI selling.
There was one more dubious distinction for the IPO markets in the month of June 2022. If you leave out the peak COVID period and start from August 2020 onwards, then June 2022 is the first month when not a single IPO hit the market. This is despite the fact that there are several mega issues like NSDL, PharmEasy, GoAir etc in the queue. Amidst the spate of FPI selling and the global turmoil, most of the IPO issues have preferred to wait in the side lines as the response to most of the recent issues (including LIC and Delhivery) has been tepid.
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One reason has also been the performance of these IPOs post listing. While much has already been written about the digital stocks like Paytm, CarTrade and Policybazaar, the recent market sentiments were soured by the likes of LIC and Delhivery. In the case of LIC, the stock is trading 31% below the IPO issue price, which has severely dented investor enthusiasm in the IPO market. Similarly, Delhivery had a strong listing and gained 27% from the IPO price, but eventually lost all these gains and came back to the issue price.
Investment bankers have a different take on the subject. They feel that the surge in DRHP filing is representative of the surge in interest in IPOs in the year 2021. Hence, the picture is more retrospective in nature rather than being prospective. It is very likely that many of these companies may have put plans on hold or even abandoned plans for the IPO on fears that appropriate valuations may not come by. The tightening of liquidity by the Fed and the RBI has also contributing in lower interest in IPO investing.
It is not that filings have not fallen. For example, between January 2022 and April 2022, the average number of DRHP filings were 10 per month. However, in May and June it file to just 4 DRHP filings a month. In a nutshell, the data points to the fact that even filings have actually tapered with the market conditions. There is also an aspect of approval validity. The SEBI approval given to an IPO is valid for a period of 1 year and if the IPO is not completed within 1 year of the approval then the company has to file a fresh DRHP with updated data.
As per data put out by Prime Database, the company run by Prithvi Haldea, a total of 66 companies will look to raise a cumulative sum of Rs.105,000 crore where SEBI approval has been received. Out of these 50 IPOs worth Rs.60,000 crore will have to complete their IPOs in the second half of 2022 to prevent the approval validity from expiring. Either ways, it promises to be a tough and challenging period for the IPO market in H2.