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Sebi, investment bankers turn cautious as IPO market faces uncertainty

The initial public offering (IPO) market is facing uncertainty as market regulator Sebi returns multiple IPO documents and investment bankers and corporates tread cautiously as the stock market is down 8.79 percent since December 2022.

The regulator has returned bid documents from Oravel Stays, the parent company of travel-tech company OYO, and Go Digit General Insurance, a company backed by Canada-based Fairfax Group owned by Prem Vatsa. It also sent back bid documents from Pune-based integrated facility management company BVG India, payment service provider Paymate India and Fincare Small Finance Bank, which resubmitted their draft prospectus to the regulator in August last year. Several others who had planned to file the IPO papers have decided to hold off on their plans, an investment banker said.

Although the regulator hasn’t released a reason for the return of the IPO documents, bankers said it could be due to the poor performance of many new-age companies in the stock markets after listing in 2021 and 2022.

With stock markets so volatile in the wake of the global turmoil, investment bankers are also pessimistic about smooth stock listings. “Although the reasons for returning the bid documents may be company-specific, Sebi wants the documents to be fully compliant at the time of submission. In general, any material update or change must be incorporated into the draft prospectus and resubmitted,” said one banker.

What is rattling IPO aspirants’ plans is the Sensex’s decline of 5,493 points (from 63,583.07) since Dec 1, 2022 to 57,989.90 by Friday (March 17). Given the ongoing global banking turmoil and fears of inflation, investment bankers do not expect the IPOs to go smoothly.

Even organizers and companies have become cautious as many high profile IPOs of 2021 such as Paytm, FSN E-Commerce (Nykaa), Nazara Technologies, PB Fintech, CarTrade Tech, Easy Trip Planners, Aditya Birla Sun Life AMC and Fino Payments are attracting investors disappointed with their stock prices falling well below their IPO prices. LIC’s share price, which went public at Rs.949 per share, has fallen 39 percent on the stock exchanges to Rs.579.90.

Within a year of going public, the valuations of new-age firms like Zomato, Paytm, Delhivery, Policybazaar and Nykaa have plummeted by over 60 percent.

While Sebi used to be lenient in releasing IPOs, it is returning the documents to bankers rather than leaving them in the processing phase indefinitely. The companies themselves have previously opted to withdraw the offer document if a significant amount of time has elapsed after submission.

Several new-age companies that submitted the offer documents do not comply with Sebi’s disclosure and valuation requirements. In view of the flood of submissions in the recent past, it is possible that the quality of the work put together by the banks during the compilation of the offer documents has declined somewhat.

In 2022, issuance at Rs 55,472 crore was lower than 2021’s Rs 1.22 lakh crore as the company and promoters became cautious amid stock market volatility. IPO mobilization is expected to continue falling in 2023.

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