Poor Investor Sentiment Delays $4.5b Worth Of Indian IPOs

Thirty-four companies, which have received approvals for initial public offerings (IPOs) totalling ₹33,516 crore, are yet to tap stock markets, data from the Securities and Exchange Board of India (Sebi) showed.

Following a lacklustre 2019 that saw only 16 companies raise around ₹12,365 crore, the lowest since 2015, the year 2020 was expected to see a rebound. However, with India going into lockdown to contain the spread of covid-19 in March, only two public offers have hit the street—Rossari Biotech Ltd and Mindspace Real Estate Investment Trust.

Experts said thanks to ample liquidity, the market has sufficient capacity to absorb public offers, which will fuel IPOs.

“Considering listing requires a sea change in the DNA of a company in terms of more disclosures and higher standards of governance, companies and sectors, which have higher visibility on their current financial situation, will find it easier to list with the enhanced disclosure requirements,” said Niraj Kumar, partner, DSK Legal.

According to Prime Database, just three companies are in the queue for IPO approval, the shortest such list in the last six years.

Market volatility, longer regulatory timelines, stricter compliances and higher disclosures are expected to keep the IPO pipeline short, market experts said.

Only a few high-quality issuers are scheduled to hit the markets this year, including UTI Asset Management Co. Ltd, Angel Broking Ltd and Happiest Minds Technologies Ltd.

UTI’s ₹4,000 crore IPO planned for September is primarily to help its shareholders such as State Bank of India and Life Insurance Corp. of India (LIC) cut their stakes to 10% as mandated by Sebi.

The other outliers are technology and brokerage companies, which have fared relatively better amid the pandemic and can hence fetch better valuations.

Market experts said the disruption from the coronavirus pandemic has made valuations unreliable in most sectors; some sectors may be overvalued and some undervalued.

“In the initial phase of the lockdown, there were apprehensions that deals could not happen, but things have changed, and we have started seeing interest from corporates for public issuances. Case in point is the recent IPOs of Rossari and Mindspace, and follow-on public offer (FPO) of Yes Bank, and a spate of qualified institutional placements and rights issues. The markets are giving a signal that they have the capacity to absorb new public issuances. The road shows and interactions with investors are happening digitally and online. The recent IPOs/FPOs have seen excellent retail participation, too. Since the markets continue to be volatile, deal valuations need to factor in the extra element of caution,” said Salil Pitale, joint managing director and co-chief executive officer of Axis Capital Ltd.

The article was first published on livemint.com.