The two-month dry spell in IPOs ends in March, but should you sign up? Here’s what experts say

After a dry spell of two months, the domestic primary market faces new initial public offerings (IPOs) in March. The first IPO of the year, Divgi Torqtransfer Systems, opened for subscription on March 1st.

Another public issue of the month, the Global Surfaces IPO, opens for subscription on March 13th.

A report by the Economic Times (ET), citing bankers, suggested that around nine companies could enter the primary market over the next four to six weeks to raise more than €1000,000 €17,000 crores.

“Companies planning to enter the primary market in the next 4-6 weeks include Avalon Technologies, Capillary Technologies, Cogent Systems, Divgi Torqtransfer Systems, Mankind Pharma, Nexus Malls REIT, Signature Global, TVS Logistics and Utkarsh, according to bankers Small Finance Bank,” says the ET report.

MintGenie has not been able to independently verify this.

However, companies are reportedly eyeing the IPO route after a two-month hiatus due to high market volatility.

Not much has changed for the markets in the last two months. Concerns remain about persistent inflation, interest rate hikes, slowing global growth, geopolitical tensions and continued outflows of foreign funds.

Manish Khanna, Co-Founder at unlisted assets, stressed that global issues related to inflation, supply chains and the long-running war between Russia and Ukraine are leading to a drop in the number of motherboard listings. The settlement or normalization of these global problems will provide a boost on the capital market.

Apart from all that, the Adani Group saga has also taken a significant toll on the market sentiment.

“India has experienced one of the greatest devastations of all time following the Hindenburg Report covering irregularities at the Adani Enterprises. The blocking of retail investor funds in Adani Enterprises and the erosion of their overall assets has further impacted the upcoming IPO market,” said Channa.

“Although the number of Demat accounts has risen to 11 billion from 8.4 million last year, boosting retail investor participation in the capital market, events such as the Adani sell-off may affect investor sentiment in the near term and affect retail participation in upcoming IPOs added Khanna.

The BSE IPO Index has been negative for a year and is unlikely to improve any time soon.

BSE IPO Index last year.

While market concerns remain, some companies have the courage to enter the public market.

Why so?

Quality matters

One reason could be that the IPOs of fundamentally healthy companies can do well even in a declining market.

“History proves a fact – even a bear market is a good time to go public, provided the business model and valuation of the company is attractive. So now is also a good time for any thematic business model to go public with an IPO.” said G.Chokkalingam, Founder and Head of Research, Equinomics Research & Advisory.

However, Chokkalingam added that those companies that rely on hype rather than solid profitable business models (like e-commerce companies) and lack adequate earnings to meet expected valuations at debut should avoid IPOs at this time .

Gaurav Sood, Managing Director and Head of Equity Capital Markets avendus capital, has similar views.

“Despite continued volatility, select mid-cap IPOs from quality companies available at reasonable valuations will whet investors’ appetites,” Sood said.

“Companies contemplating launch should, in consultation with their bankers, assess readiness while seriously considering roadshow feedback and immediate market sentiment,” Sood said.

Will there be an abundance of IPOs?

It is unlikely that we will see a large influx of IPOs in the short to medium term as there is still a lot of uncertainty as to which direction the market will take in the short term.

Chokkalingam agrees that there will not be many IPOs at this point as market sentiment is gloomy and many IPOs tend to be expensive.

“On average, about two-thirds of stocks other than broad index stocks have lost between 10 percent and 25 percent of their market cap over the past six months. Recently, most event organizers’ expectations of the markets have increased significantly due to IPOs and there has been only a small portion of companies that had valuation comfort when they debuted on the markets. Therefore, it is very likely that many companies, except those with strong business models, solid balance sheets and reasonable price expectations, would delay their debut in the markets,” Chokkalingam said.

Many companies would like to wait a little longer and evaluate the performance of other IPOs launched during these uncertain times to gauge their prospects.

“We think three to four early risers will take the initiative and launch their issues in the same window. Based on their reception, performance and market conditions, several other companies could back their decision to go public, which can go either way,” he said.

Sood expects some companies in sectors such as industrials, real estate and pharmaceuticals to market issuance in the coming weeks.

Should retail investors bet on IPOs now?

That’s not a right question. The real question is which to choose and which to leave.

According to Chokkalingam, retail investors should certainly bet on IPOs, but they should carefully consider key parameters such as the quality of corporate governance, viability of business models, past track record of financial performance, balance sheet strength, and valuations and IPO prices.

“If these criteria are accepted, IPOs would usually be a profitable proposition for investors. To be conservative, avoid losing companies through IPOs. One can pay the premium and buy them after they successfully turn their business around after listing,” Chokkalingam said.

With so much uncertainty in the market, it is always better to seek advice from financial advisors. Investment in any form or asset class should be consistent with the risk tolerance and investment objective of the investor.

“Retail investors should do their own research on companies before applying for IPOs. Given market volatility, investors should only make a decision after considering their risk tolerance and the recommendations of their financial advisor,” Sood said.

Disclaimer: The views and recommendations contained in this article are those of individual analysts and brokerage firms. These do not represent the views of MintGenie.

Here we explain how to find a good IPO to invest in