Robust investor confidence drives India’s IPO boom ahead of 2024 polls

The enthusiastic response from retail investors and the anticipation of the upcoming general elections in May 2024 is driving a boom in IPOs in the country with the year set to close with 12 new IPOs aiming to collectively raise about Rs 4,600 crore.

This flurry of activity comes close on the heels of a robust previous week where IPOs collectively worth Rs 4,000 crore made their debut.

The recent trend in the IPO market is marked by an increasing average size of IPOs for small and medium enterprises (SMEs) which has seen a total of 156 IPOs raising over Rs 4,200 crore. The average IPO size has escalated from Rs 13 crore in 2021 to Rs 18 crore in 2022, and it has further expanded to Rs 25 crore in 2023, as per media reports. This progression reflects the intentions of corporates to seek more substantial capital funding to facilitate their growth objectives. Concurrently, there is a noticeable positive reception from investors towards these more significant investment avenues.

Defying global trend

An Ernst & Young report on global IPO trends as of Q2 2023 has pointed out that Indian exchanges have defied the global downward trend, and have sustained a vibrant IPO market with 80 listings in YTD 2023, a 33 per cent increase over the 60 IPOs in 1H 2022, and tops the global stock exchange ranking by number of IPOs. The surge is largely due to SME IPOs showcasing the underlying entrepreneurial activity, the report said.

Although funds raised in YTD totalled US$2.1billion, reflecting a 62 per cent YOY decline, Q2 saw a shift toward larger deals than Q1, mostly from the industrials, health and life sciences, and technology sectors, including a fundraise of $638 million in April by an emerging asset class relating to an infrastructure investment trust, the Ernst & Young report said.

“India has continued to increase its share in the global IPO number, from 6 per cent in 2021 to 11 per cent in 2022, and further increasing to 13 per cent YTD 2023,” the report said.

There has also been some stand-out performance from some of the big firms like Tata Technologies whose IPO attracted 73.58 lakh applications and listed with a substantial gain of 140 per cent, surpassing previous records for the largest number of IPO applications.

The previous week witnessed the launch of five big IPOs whose minimum post-issue paid-up capital was Rs 10 lakh. These IPOs accounted for around 6.5 per cent of the nation’s currency in circulation, totalling about Rs 2 lakh crore, a newspaper report pointed out. Among these, IREDA Ltd made a significant debut, climbing 88 per cent on its listing day, marking it as one of the most successful openings for a PSU IPO, following IRCTC. Additionally, Gandhar Oil Refinery experienced a notable first day of trading, opening at a 76 per cent increase.

What is significant to note is the number of startups that floated IPOs, including, Zomato, PolicyBazaar, Paytm, Nykaa, Nazara and Delhivery. Some of them came with a lot of hype only for their stock prices to crash post-listing. Here is a list of startup stocks and their performance post-IPO.

Paytm

Performance: Paytm has shown promising signs of recovery. Its holding company, One97 Communications, reported a 32 per cent YoY rise in its revenue to ₹2518.6 crore in the second quarter of 2023-24. The fintech company’s net loss (attributable to owners) narrowed down to ₹290.05 crore during the same period.

PayTM shares listed on November 8, 2021 at Rs 1,955. As of December 18, 2023, it was trading at Rs 615.80.

Zomato

Performance: Zomato managed to get 'Buy' calls from brokerages. The company reported revenue growth of 72 per cent to Rs 2,848 crore in Q2 FY23-24 while losses narrowed to Rs 36 crore.

Zomato shares were listed on the bourses on July 23, 2021 at Rs 116. At the close of trading on December 18, 2023, its shares were trading at Rs 128.55.

Nykaa

Performance: Nykaa (FSN E-Commerce) reported a 22 per cent year-on-year increase in revenue from operations to Rs 1,507 crore while net profit grew 50 per cent to Rs 7.8 crore during quarter three of 2023-24.

Nykaa’s shares were listed on November 10, 2021 at Rs 1,225. By December 18, 2023, its shares were trading at Rs 174.20.

PolicyBazaar (PB Fintech)

Performance: PB Fintech's revenue grew 42 per cent to Rs 812 crore during Q2 of 2023-24 while showed a substantial improvement, with its losses reduced 82 per cent to Rs 21 crore.

PB Fintech's shares were listed on November 15, 2021 at Rs 1,150. On December 18, 2023, they were trading at Rs 800.85.

Nazara and Delhivery

Overall market trends: Most of the new-age tech stocks, including Nazara and Delhivery, have struggled to get back to their issue prices. However, these companies, along with Paytm and Policybazaar, were noted as the best performers in 2023, outperforming the NIFTY IT index. Specifically, Nazara Tech and Delhivery have delivered positive returns this year.

Nazara’s shares were listed on March 30, 2021 at Rs 1,990 and as of December 18, 2023, were trading at Rs 888.

Delhivery’s shares were listed on May 24, 2022 at Rs 493. As of December 18, 2023, they were trading at Rs 366.50.

While these companies have faced challenges, especially with the changing economic conditions post-pandemic, there are signs of recovery and optimism from analysts, particularly for Paytm and Zomato. Nykaa, despite its profit decline, continues to maintain a strong market presence, and PB Fintech's narrowing losses indicate potential for future profitability. Nazara and Delhivery have also shown positive trends in their stock performance.

Analysts said that the regulator, SEBI, should also be given credit for the increasing number of IPOs hitting the market as it has carried out several changes to make it attractive both for investors and the corporates. However, post-IPO, the ones that will sustain themselves in the market will be those whose fundamentals are strong and have a robust business plan.