Investor frenzy over initial public offerings that started with a recovery in the secondary stock markets and the revival in the economy in the second half of 2020 continued into this year and has turned out to be better in terms of funds raised and number of IPOs.
So far this year, 38 companies had IPOs and raised Rs 71,833.37 crore compared with 16 public issues that raised Rs 31,128 crore in 2020.
Abundant availability of liquidity globally, recovery in the economy and earnings as states lift pandemic-related restrictions, measures by the government and the Reserve Bank of India to spur growth and help severely affected sectors are among the factors that boosted sentiment in the secondary market.
The benchmark S&P BSE Sensex and Nifty 50 indexes scaled new highs this past week, more than doubling since their March 2020 lows.
“The momentum of IPOs will depend on the behaviour of the secondary market and it is believed that this bull run is likely to continue for this year where we could have some minor correction but the overall trend may remain bullish. Therefore, we can expect the primary market may remain busy with many IPOs in 2021,” Santosh Meena, head of research at Swastika Investmart, told Moneycontrol.
Not missing chances
An additional 25-30 companies are expected to come out with IPOs in the remaining months of 2021. Companies from food delivery, digital services, payment banks, analytics, trading and service platforms to niche segments and chemical makers don’t want to miss the chance to raise funds for expansion and working capital, apart from giving their marquee investors an exit option.
“We are in a strong and classical bullish trend, which was started in March 2020 amid extreme fear or pessimism and this trend is becoming stronger and stronger day-by-day and companies don’t want to miss cashing out the opportunity to raise funds via the IPO market,” said Meena.
More than 30 companies have already debuted in the secondary market and at least 30 companies are expected to sell shares for the first time, including state-owned Life Insurance Corporation of India, Paytm and Nykaa, he added.
Most companies that listed in 2020 and 2021 are trading above their offer prices, which is another factor supporting the IPO rush. Experts predict that IPO fundraising this year will cross the peak attained in 2017, when companies raised more than Rs 75,000 crore.
Premium listing
“CY21 has been lucrative for investors, with the majority of companies listed in the secondary market trading in the green and most of the IPOs listing at a premium. These are the key factors that have influenced investors to pump in more and more money into IPOs,” said Gaurav Garg, head of research at CapitalVia Global Research. “Following a busy first half of 2021, the domestic primary market is set to have an even busier second half of the year, with as many as 25 businesses lining up to launch initial public offerings.”
Favourable government measures and a stronger-than-expected economic recovery could support primary market confidence, he said.
“We may see total IPOs of more than Rs 1 lakh crore in the second half of CY21 if we add LIC’s anticipated Rs 60,000-70,000 crore IPO,” Garg said.
Likely IPOs in the remainder of 2021 could include Vijaya Diagnostic Centre, Penna Cement Industries, Fincare Small Finance Bank, Paradeep Phosphates, VLCC Health Care, Adani Wilmar, One 97 Communications (Paytm), FSN E-Commerce Ventures (Nykaa), PB Fintech (PolicyBazaar), Aadhar Housing Finance, Aditya Birla Sun Life AMC, Ami Organics, Bajaj Energy, One MobiKwik Systems, Star Health and Allied Insurance Company, PharmEasy and ESAF Small Finance Bank.
However, experts advise investors to check a company’s fundamentals and valuations before applying for IPOs.
“The majority of IPOs are good but at a bad price or with expensive valuations. Investors are advised to stay nimble while investing in any IPO where they can play for listing gains but they should take care of fundamentals and valuations to hold it for the long term,” said Meena. “The time may come when there will more bad issues at bad prices and that is the time when investors have to be cautious.”
Disclaimer: The views and investment tips expressed by investment 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 making any investment decisions.
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