IPO Market To Gain Momentum

The IPO market in India has been extremely investor-friendly all these years, so much so that we find many ‘IPO only’ investors across the country. Indeed, IPO investing has been extremely popular with the investors for decades. However, there is something amiss about IPOs in 2019. IPOs have become non-existent. You hardly find any investor talking about IPOs and even lesser number of investors who are excited about investing in IPOs. The euphoria is missing in the primary market even when the Sensex – the key benchmark index – is trading close to its all-time highs. Normally, when the valuations are high and the key indices are trading at historically high P/E levels, we have seen companies hitting the IPO market to raise equity capital. But this time around, very few companies have hit the markets despite higher P/E valuations for the market.

Says Rishabh Jain, who has been investing in equities for more than 20 years now, “My 99 per cent of the equity portfolio is IPO investments. I do not know of any other better way to participate in the equity markets than investing in quality IPOs. More than half of my portfolio consists of multi-baggers which I purchased when the respective companies hit the markets for the first time. One thing though, the IPO market is throwing less opportunities these days. I hope the situation improves in the second half and I get something to fish this year”.


IPO market in 2019

The year 2019 so far has been a disappointing year for the IPO market when it comes to the number of issues and the amount raised in the primary market. So far in 2019, only 8 IPOs have hit the market. The best part is that the average listing gains have been impressive at 8 per cent approx. 



After an extremely slow IPO market in the first half there are signs of the momentum picking up in the second half of 2019. As of now, around 70 companies are expected to hit the markets in the remaining part of the year as they have already received clearances from the market regulator SEBI, even as 19 more companies are waiting for clearance.

"Fund raising via IPOs in 1st half of 2019 is at 4-year low. In eight issues a cumulative Rs.5,509 crore was raised though IPOs. This is the lowest amount raised in past four years. The year 2015 saw eight companies raising Rs.3,849 crore via IPO route"

With as many as 16 IPOs during April-June quarter on both the stock exchanges, i.e BSE & NSE (including SMEs), India is ranked sixth globally in terms of number of IPOs. If we exclude SME IPOs and include only the mainboard IPOs, there were four IPOs during April-June quarter versus five in Q1CY2019 and seven in Q2CY2018. This goes to show that there is almost 43 per cent drop YoY and 20 per cent drop on QoQ basis when it comes to the number of issues



"In the US markets, investors are awarding a high multiple to the stock market this year, so IPO investors are benefiting but the same phenomenon is not seen in the Indian market."

Global IPO performance

If we take a look at the global IPOs, the trend is more or less similar to that of the Indian markets. The global IPO activity has been extremely slow in the first half of 2019, even though the Q2CY2019 has been much better than the Q1CY2019. In fact, Q2CY2019 has been excellent for the US markets. In the second quarter, 62 IPOs managed to raise $25 billion, which is the highest capital raised in five years. What is interesting to know is that the average return for these IPOs have been 30 per cent for these IPOs. Technology was the most active sector, not only in Americas but worldwide.



Conclusion

The Indian IPO market is taking a hit due to the liquidity issue facing the equity markets. The liquidity crisis, along with slowing economic growth, is impacting the Indian equities negatively and is seen eroding the premium that Indian markets have always enjoyed within the emerging market space. The same fundamental issues are seen impacting the primary market in India. The first half of 2019 was marred by a major event such as the general elections. Now, with the major event of elections behind us and with expectations of expansionary Union budget, the second half of 2019 is expected to be much more promising. The average listing gains for the IPOs launched in 2019 is something that may boost investor sentiments. Also, with RBI expected to ease liquidity restrictions and the government expected to adopt an expansionary policy, it will lead to higher expenditure and growth. The revival in earnings is also on the cards, which may encourage more companies to tap the IPO market to raise capital. Expect more action in IPO market in the second half, considering the favourable election outcome and a conducive global equity market momentum owing to easing of trade war tensions. The US markets are already seeing a pick-up in momentum in the April to June quarter. Indian markets will follow suit in the remaining part of the year.