The impact of slowdown was not only seen in secondary but also in primary market (IPO) during the Diwali 2018-Diwali 2019 period. Only 13 companies launched their IPOs during this period against 34 IPOs in previous Diwali.
The underperformance of mid-smallcaps, overall bearish sentiment, introduction of long-term capital gains (LTCG) tax, rejigging of mutual funds folios etc along with economic slowdown hit the IPO market. The primary market slowdown was also seen in global counterparts due to the cautious approach of investors and fall in funding.
Moreover, the cancellation of IPOs measures ideal bear market bottoms which indeed happened with KPR Agrochem and Sudarshan Pharma in June, thus validating the theory that as and when bull markets mature, more IPOs hit the market.
"Last year, small and midcaps were facing a carnage therefore the sentiment was negative. Additionally, investors become risk averse when times get tough, be it due to the liquidity crisis or the slowing down of growth. When the sentiment turns bearish, primary markets become more inactive and more and more companies fail to get listed but the reverse happens when things start to become cheery," Umesh Mehta, Head of Research, Samco Securities, told Moneycontrol.
Gaurav Garg, Head of Research at CapitalVia Global Research Limited, said the elections and the budget had turning out to be not-so-friendly towards the markets had played a big role in the decline too.
But, the returns provided by 9 out of 13 stocks listed from Diwali 2018 were in double and triple digits. The recent IPO from government - IRCTC - was the bumper one amongst them, showing 181 percent rally in a short period from its listing which took place on October 14.
IndiaMart was the second biggest gainer with 105 percent gains, followed by Affle India (up 87 percent), Neogen Chemicals (up 84 percent), Metropolis Healthcare (up 54 percent) and Polycab India (45 percent).
The returns given by these stocks indicated that IPOs with unique business model, reasonably priced, leaders in business segment, strong balance sheets and strong management teams, where the promoters are willing to reset their expected company's valuations; there is always a respectable demand for quality IPO papers.
With initiative from the government to improve economy and sentiment through several measures, experts expect the primary market trend may see substantial improvement by Diwali 2020 and there could be more appetite for quality IPOs, like we saw in IRCTC, Affle India, Polycab India, IndiaMart etc.
In fact, the equity market already started its run with Sensex and Nifty rallying more than 9 percent from last Diwali, and broader markets (midcap and smallcap) also trimmed their losses significantly.
"By next Diwali, IPOs will become vibrant and active as there has been a shift in sentiment from negative to neutral almost positive in the last few months. The primary market will be booming by Diwali 2020 and IRCTC kick-started the party with a stellar performance. Government's efforts along with corporate numbers will help revive the sentiment on D-Street and there is bound to be more listings than the previous year," Umesh Mehta said.
Prashanth Tapse, AVP Research at Mehta Equities, given the continued volatility in the markets on account of domestic as well as global issues, sees some of the IPO-bound companies look at alternatives options such as private equity funding. They may come back once the stage is set to go live on the main board.
According to him, in a good stable market scenario with proactive government actions on hand, one can have over 30-40 good quality IPOs by next Diwali 2020.
Expected IPOs by Diwali 2020
Umesh Mehta of Samco Securities
A few IPOs which have higher chances of hitting the market by next Diwali could be NSE, HDB Financial and some government-owned entities. FPOs, too, can be announced by companies like HDFC AMC.
Gaurav Garg of CapitalVia Global Research
Ujjivan Small Finance Bank, Lodha Developers and Mazagon Dock should be IPOs to look out for in the future.
Prashanth Tapse of Mehta Equities
There would be very few of quality companies such as small finance banks (Ujjivan Small Bank) which will have to go for an IPO due to the Reserve Bank of India's regulatory requirements unless they get some relief from the regulator.
We see that domestic primary market investors are keenly awaiting for some renowned firms like HDB Financial, ICICI Prudential AMC, UTI AMC, Route Mobile, NazaraTech, Tamilnad Mercantile Bank, Reliance Retail, Studds Accessories and CSB Bank.
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