IPOs Queued-up in FY22 Buoyant Stock Market, Highest In Last Two Decades

India Ratings and Research (Ind-Ra) believes that the strong initial public offering (IPO) issuances in FY22 in the Indian buoyant stock market bode well with the country's economic recovery. Moreover, equity raising by entities will not have a meaningful impact on their debt levels, as the objective of raising funds is largely to do with unlocking the value proposition rather than creating new investments. Overall issuances have reached a significant level after FY18 in terms of issue size, with four months still left in the financial year.

IPO Trend

During April to November 2021, the number of IPO count for FY22 stood at 71, amounting to Rs 856 billion, compared with INR272 billion raised by 56 companies in FY21. Enormous worldwide liquidity owing to the culmination of fiscal and monetary expansion, strong investor appetite, favourable financial market conditions and a sharp recovery in business conditions have uplifted the IPO market in FY22. With the announcement of IPO issue of Life Insurance Corporation of India of INR1,000 billion, the issue size could cross INR2,000 billion by the fiscal year end, a record high in terms of issue size.

Industry Trend

The last five-year industry-wise trend highlights the significant jump in retail IPOs. It includes the new-age, tech-oriented corporates such as the food aggregator Zomato Limited, fashion retail company Nykaa, online insurance broker Policy Bazaar Limited, auto classifieds platform CarTrade.com and CAMS Limited. The top 25 issuances in the last three years accounted for INR833 billion, of which the new-age, tech-oriented corporates have accounted for INR418 billion. The agency believes the surge in issuances by new age tech-oriented corporates compared to traditional corporates has more to do with value unlocking and brand recognition than the need for long-term assets capex or deleveraging.

Ind-Ra believes that along with a buoyant stock market, the favourable policies have encouraged the start-ups to issue IPOs this year. In March 2021, the Securities and Exchange Board of India reduced the time for which early stage investors need to hold 25% of the pre-issue capital to one years from two years earlier. The amended regulations, which previously barred corporates that were going public from making discretionary allotments, allow them to allocate up to 60% of the issue size of the IPO to an eligible investor subject to a lock-in period of 30 days on such shares.