Sixteen IPOs have been launched in the first half of the calendar year so far, from the 67 that received approvals. In the corresponding period last year, 24 were launched.
Weakening sentiment in the secondary markets, the Russia-Ukraine war, high oil prices, inflation concerns, policy tightening by several central banks and rising fear of a slowdown in the United States are cited to be the reasons.
"Yes, currently, sentiments are weak. This is also reflected in the lower number of primary market issues. The weakness is more due to global factors and the fear of recession in developed markets in the near term due to rising rates and sticky inflation," Narendra Solanki, Head, Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers, said.
The Sensex and the Nifty50 have fallen more than 9 percent in the current calendar year against the 22-24 percent return in the previous year.
If we take the returns from the record-high levels, the correction in the benchmark indices is more than 15 percent. In fact, the indices are also trading way below the 200-day moving average (17,152 for the Nifty).
Anand Varadarajan, Director, Innovation & Growth, Asit C Mehta Financial Services, said IPO sentiment being low is a function of multiple factors, the largest of which is the market sentiment.
"We, for some time, have seen the market moving sideways. This negative sentiment is due to the pressure caused by FII selling. On the contrary, we have seen the strength of the DIIs in terms of buying. So, this is largely an overhang of the selling," he explained. FIIs have sold shares worth nearly Rs 3 lakh crore in the first half of CY22.
In the second half of the year, "we may see a couple of these effects coming down, which may neutralise negativity. This, in my view, could trigger a resurgence in IPOs," he said.
IPOs await Sebi nod
According to the latest report of Axis Capital, 67 companies have received approval from the capital market regulator Securities and Exchange Board of India (SEBI).
After filing the draft red herring prospectus (DRHP), Sebi goes through the same and issues its observations for every IPO. This is necessary for any company to launch a public issue.
Companies that received Sebi observations and that are still valid include API Holdings (a parent firm of PharmEasy), One Mobikwik Systems, Go Airlines, Bharat FIH, TBO Tek, Suraj Estate Developers, Fedbank Financial Services, Archean Chemical Industries, Aadhar Housing Finance, Imagine Marketing (BoAt), Harsha Engineers, FabIndia, Capiliary Technologies, Asianet Satellite Communications, and Syrma SGS Technology.
IPOs from Elin Electronics, JK Files & Engineering, Wellness Forever Medicare, Waaree Energies, LE Travenues Technology (ixigo), Emcure Pharmaceuticals, Sterlite Power Transmission, India1 Payments, Gemini Edibles & Fats India, Electronics Mart India (Bajaj Electronics), Tracxn Technologies, Fusion Micro Finance, ESAF Small Finance Bank, Chemspec Chemicals, Fincare Small Finance Bank, and Jana Small Finance Bank are also in the pipeline.
On the other side, 38 companies have filed DRHP and are awaiting Sebi approval. They include Snapdeal, Droom Technology, OYO, Allied Blenders and Distillers, Navi Technologies, EbixCash, Inox Green Energy Services, Paymate India, Biba Fashion, KFin Technologies, Hemani Industries, Joyalukkas India, Yatra Online, Vikram Solar, and Lava International.
The IPOs listed in the current calendar year have shown a mixed trend. Half of the stocks traded below their issue price due to the weakness in the secondary market as well as valuation concerns.
AGS Transact Technologies was the biggest loser, falling nearly 60 percent from its issue price, followed by the country's largest life insurance company, LIC.
AGS Transact corrected 29 percent, Uma Exports 24 percent, and Prudent Corporate Advisory Services slipped 22 percent. Ethos and Rainbow Children's Medicare were down more than 10 percent, while Pradeep Phosphates and Ethos were the other losers.
On the other side, Adani Wilmar reported a stellar performance and was the biggest gainer, rallying more than 150 percent from its issue price, followed by Veranda Learning Solutions, with 70 percent gains.
Aether Industries, Campus Activewear, Hariom Pipe Industries and Vedanta Fashions gained 12-26 percent, while Delhivery and Venus Pipes traded with 2-3 percent gains over their issue price.
Revival of sentiment
Most experts believe some concerns, including inflation, may start easing in the second half of 2022. Overall, that could help improve the market sentiment and some of the companies might decide to launch IPOs during this period. Of course, they have to think about their IPO pricing, which kept most of the investors away from IPOs launched recently.
“As far as the second half of the current year is concerned, the markets are anticipating inflation peaking. This could help improve overall sentiments and confidence in growth," Solanki of Anand Rathi said.
In the secondary market, Dr Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, said most of the negative factors are already priced in today.
"However, easing of even some of the factors could have an upside effect on the markets, improving the sentiments significantly. Of course, all of this could happen in H2 2022 or H1 2023. It is difficult to predict the precise timings of such things," he added.
On the primary market, Gupta believes unless sentiment and market direction improves, many IPOs will be postponed because the typical promoter would want a large valuation in the IPO, which is possible only when markets display a strong bull sentiment.
Except for the IPOs of small companies, where the cost of going through the process is too heavy for the companies, larger IPOs are likely to hold out until market sentiments improve, he said.Disclaimer: The views and tips by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decision.