The Indian initial public offering (IPO) market has seen an uptick in the third quarter, compared to the slowdown of the second quarter of FY23, according to the findings of an EY report.
Syrma SGS Technology Limited, Tamilnad Mercantile Bank Limited, and Dreamfolks Services Limited were the three IPOs with the highest proceeds in the third quarter. The most prominent industries were technology, banking and capital markets, and media and entertainment.
Says Adarsh Ranka, financial accounting advisory services leader, and partner, India, EY Global: “The IPO market has witnessed a bearish phase recently. The backlog of companies that have received approval from the Securities and Exchange Board of India (Sebi) and are yet to float an IPO is set to give market direction in the upcoming quarters. While volatility in the overall global markets and other macro factors will continue to affect investor sentiments, the pipeline of IPOs and momentum created by successful IPOs towards the end of Q3 2022 could lead to a recovery in the market.”
Four IPOs were introduced in the Indian market in Q3 FY23 compared to 19 IPOs in Q3 FY22. These four raised Rs 41,496 crore in proceeds. In comparison, the four main IPOs raised only Rs 2,717.3 crore in Q3 FY22. This was a 93 per cent increase in the amount of money raised despite a 79 per cent reduction in the number of IPOs released. During Q3 2022, 33 IPOs raised Rs 560 crore for the SME sector, the report added.
The report further said that both in terms of value and volume, PE/VC investments in July 2022 were the lowest in over a year.
At Rs 24,404.8 crore, PE/VC investments in July 2022 were 40 per cent and 69 per cent less than those made in June 2022 (Rs 39,861 crore and Rs 78,909 crore, respectively), the report said.
“In 2022, PE-backed IPOs will still be difficult to come by, despite being one of the distinguishing characteristics of PE/VC exits last year,” the report adds.
“With the tightening of liquidity, uncertainty caused by global headwinds and sharp correction in some recently listed companies, the sentiment for IPOs had dampened to an extent. Investors are adopting a cautious approach, both with private equity and large funds reducing their investment expenditure. In recent times it has been observed that many companies are also trimming down their IPO size,” Adarsh adds.
The report further highlighted that over 15 Indian companies filed their draft red herring prospectus (DRHP) in Q3 2022 with plans to raise money in the following quarters. Companies with established business strategies, higher levels of governance, and stronger financial positions would find it easier to list, once markets recover, the report said.
In line with continued regulatory developments aimed at enhancing disclosures and market practices, there have been several recent amendments, such as disclosures in terms of key performance indicators (KPIs) and price per share based on historical transactions.
Confidential pre-filing of offer documents as an alternative mechanism, and exemption for the requirement of a minimum 10 per cent shareholding for the non-promoter shareholders for offering shares through the ‘offer for sale’ (OFS) mechanism are among many other updates and detailed regulations now being rolled out by Sebi.
