Following a period of slumber in 2022, initial public offerings (IPOs) emerged as the flavour of the season in 2023. The past several months have witnessed a flurry of activity in the primary market, marked by a succession of back-to-back public offers.
So far, 10 public offers have made their way to the primary market since the start of the calendar year. The bullish mood in the secondary market is a key factor driving the trend. The excitement surrounding these IPOs was evident as 9 out of the 12 stocks listed in 2023 experienced net gains on their debut. After a silent start to the year in the secondary market, mainly due to the Adani-Hindenburg controversy, the number of public offers began to accelerate in March.
But the story doesn't end there. What's more interesting is that around 18 public offers are sitting with an approval from the Securities and Exchanges Board of India, looking forward to raise over Rs 22,100 crore in total. Time's also ticking as these approvals are also bound to expire by the end of 2023.
Why the enthusiasm?
A vibrant secondary market often enhances the allure of the primary market, as more investors are likely to bid for new issues when the overall sentiment is upbeat. Analysts cited this factor as a major trigger for the rise in the number of IPOs hitting the Street since March.
Amid cooling inflation, central banks pausing rate hikes, and optimistic expectations of a robust economic performance, the secondary market has maintained a sustained bull run since March, resulting in the headline indices reaching new highs.
Pranav Haldea, managing director of PRIME Database Group, believes that the strong momentum in the secondary market seeps into the primary market, albeit with a lag, a phenomena that has aided the rise in public offers in 2023 as well.
Another point which Haldea highlighted is the fact that most of the public offers that have come in 2023 have been of smaller size. With the exception of Mankind Pharma, all public offers that hit the Street in 2023 have been below the issue size of Rs 1,000 crore. All the same, strong listing day performance of the recent IPOs bodes well for larger issuances to hit the market.
Moreover, Siddhartha Khemka, Vice President – Head of Research (Retail) at Motilal Oswal Financial Services, also shed light on another trigger that ensures strong listing success for IPOs in 2023. “Lots of companies that came out with an IPO either had unique businesses or belonged to sectors where the growth outlook is steady,” Khemka said.
Also Read: Utkarsh SFB retains momentum, IPO shares trade in green in the grey market
Will gains sustain?
On the prospects of shares that listed at a premium in 2023 continuing to do well, Khemka was cautiously optimistic. But one positive was that most of the companies that were listed in 2023 did not go in for aggressive pre-IPO funding. That means there is unlikely to be a dash for the exit when the lock-in period expires.
“Since many of these companies are not heavy on pre-IPO institutional investing, they do not have any big sellers waiting for an opportunity to exit the company after the lock-in ends,” Khemka explained.
However, he indicated that lower-than-anticipated earnings, or a major negative development, could lead to a downslide in these newly listed counters.
Also Read: India tops the world with 80 listings as SMEs rush to go public
What's in the future?
As we enter the second half of 2023, 18 SEBI-approved IPOs with a combined issue size of over Rs 22,100 crore are waiting to hit the Street. Among the 18, at least 10 have an issue size of over Rs 1,000 crore.
When asked about his thoughts over the sustenance of this stellar run in the primary market, Haldea believes it is too early to expect a deluge of IPOs like one saw in 2021.
Khemka concurred with that stance and said that the fear of unexpected news that may trigger a sell-off in the market always persists, and that can prompt companies to back out from launching their IPOs.
However, if market conditions were to remain the same, analysts see the momentum in the primary market continuing. All in all, the prospects for the primary market look promising at the moment.
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 taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
