October likely to be busy month as IPOs worth over Rs 20,000 crore likely to be launched

The primary market is expected to be pretty busy in October 2021 as initial public offerings (IPOs) worth more than Rs 20,000 crore are likely to be launched during the month, given the positive secondary market environment and ample liquidity.

This is much bigger, compared to the nearly Rs 6,700 crore mopped up from IPOs in September. Ami Organics, Vijaya Diagnostic Centre, Sansera Engineering, Paras Defence and Aditya Birla Sun Life AMC were the five companies that launched IPOs last month.

The number of IPOs likely to be launched in the second half of FY22 is very big, and the fund-raising could cross the Rs 1 lakh-crore mark, if LIC also hits Dalal Street. A potential Fed tapering is the only concern for the time being as that can impact FII inflows, to some extent.

Economic recovery, earnings season to encourage IPOs

Garuav Garg, Head of Research, CapitalVia Global Research, said the current year has been very favourable for IPOs as market conditions are optimistic and the rise of first-time investors have helped firms to raise capital.

Garg feels the primary market's performance for the remaining part of the year will depend on the secondary market also. “The primary market may face problems due to factors like Fed bond tapering or inflation that can arrest momentum in the secondary markets. However, the expected economic recovery and the start of the earnings season may provide a fillip for firms to go public."

“Better-than-expected economic recovery, post the second wave of COVID, followed by foreign portfolio investments (FPIs) and domestic inflows into the secondary markets and rise in retail participation keep overall sentiments optimistic," said Prashanth Tapse, VP, Research, Mehta Equities.

“If we believe this bull market will continue for the rest of the second half FY22e and FY23e, we may see a huge rush in the IPO space. This is the phase where emerging companies/promoters look to tap investor sentiments," he said.

12 companies gear up for IPOs

About 12 companies are expected to hit Dalal Street in October. They are Nykaa, Ixigo, Northern Arc Capital, Star Health And Allied Insurance, Fincare Small Finance Bank, Utkarsh Small Finance Bank, Arohan Financial Services, Medi Assist Healthcare Services, Emcure Pharmaceuticals, MobiKwik, Seven Islands Shipping and ESAF Small Finance Bank.

These companies are expected to raise more than Rs 27,700 crore.

Out of these, companies like Northern Arc Capital, Fincare Small Finance Bank, Medi Assist Healthcare Services, Utkarsh Small Finance Bank, and Arohan Financial Services have received SEBI approval. Generally, a company needs to launch its IPO within one year of receiving approval.

“We are expecting another month, full of action, from the IPO point of view. We expect some digital players like Nykaa (IPO size Rs 4,000 crore), Mobikwik (Rs 1,900 crore) and Ixigo (Rs 1,600 crore) to launch their IPOs in October 2021. Star Health and Allied Insurance, Arohan Financial, Emcure Pharmaceuticals and many more are expected to come up with their IPOs," said Yash Gupta, Equity Research Analyst, Angel One.

Click here to read all IPO-related news

The country’s largest life insurance company, LIC, is expected to file its IPO papers with SEBI in November. It is likely to launch the IPO in the current fiscal, finance ministry officials said.

Total capital-raising so far

In the current financial year, 26 companies launched their public issues and garnered Rs 59,716 crore, which is more than double the Rs 27,125 crore in the corresponding period of last fiscal.

A total of 43 companies closed their public issues in FY2021 and mobilised Rs 78,520 crore, surpassing the record Rs 75,278 crore mopped up in 2017, at least in the current decade.

This year also created a record in terms of subscription and listing gains. Paras Defence and Space Technologies' public issue received 304.26 times subscription in September and its shares opened and closed with 185 percent gains on listing day, becoming the biggest gainer among IPOs listed at least since 2011.

The subscription as well as listing gains data clearly indicate that investors prefer companies with niche businesses, strong financials, new-age businesses (technology), reasonable valuations, high growth potential with strong exports etc.

"We feel that, in FY22, stocks of 25 companies got listed on the exchanges. Of them, 18 have generated positive returns till date (as on October 1, 2021). The market has rewarded companies with reasonable valuations, attractive business models with future prospects and stocks with strong promoter pedigree," said Astha Jain, Senior Research Analyst, Hem Securities.

The BSE Sensex hit 60,000 in September, registering 24 percent gains in FY 2021, and it has rallied more than 20 percent so far in FY22, despite intermittent corrections and consolidation.

What works and does not work for investors

Factors like new age-business model, potential growth, high margins, high export potential, and discounted valuations to industry peers play a role, Tapse said.

Large offer, high debt, low promoter holding, low brand coverage, and high valuations, compared to industry peers, are not factors with investors, he said.

Gupta of Angel One advised that investors need to be more vigilant nowadays as several IPOs are being launched at the higher band of valuations. "Investors should look at the valuations of the IPO and compare those with listed peers. Retail investors should use ratios like PE (Price to Earnings) and EV/EBITDA (Enterprise Value to Earnings before Interest, Taxes, Depreciation and Amortisation). This will help investors to apply for IPOs which can generate good listing gains as well as long-term gains."

Disclaimer: The views and investment 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 making investment decisions.