After record-high levels of IPO activity in 2021, volatile market conditions have resulted in a significant slowdown during the first quarter of 2022. In Q1 2022, the Indian market introduced 16 IPOs vs 23 IPOs in Q1 2021, according to the EY Global IPO Trends Q1 2022.
During Q1 2022, proceeds raised through the main markets equated to $995 million via three main market IPOs compared to $2.57 billion during Q1 2021, which is a decline of 60 percent in proceeds raised and a decline of 82 percent in the number of deals. SME segment raised $17.46m via 13 IPOs during Q1 2022.
The sudden reversal can be attributed to a range of issues, both emerging and residual. These include the rise in geopolitical tensions; stock market volatility; price correction in over-valued stocks from recent IPOs; growing concerns about a rise in the commodity and energy prices; the impact of inflation and potential interest rate hikes; as well as the COVID-19 pandemic risk continuing to hold back full economic recovery.
The three largest IPOs in terms of proceeds were Adani Wilmar, Vedant Fashions and AGS Transact Technologies, with consumer products & retail being the most active sector followed by the diversified industrial products.
On the findings of the report, Sandip Khetan, Partner and Financial Accounting Advisory Services Leader, EY India, said, “The IPO momentum of a blockbuster 2021 has not carried over to 2022 so far. Issuance and proceeds are well off last year's pace, as geopolitical uncertainty along with other macro factors continues to affect investor sentiment. That said, we are witnessing the largest IPO (of LIC) in Indian capital markets and the successful closure of other recent IPOs. The backlog of IPOs could lead to a strong upswing in volumes if volatility does moderate and earnings are robust.”
However, in line with continued regulatory developments aimed at enhancing disclosures and market practices, there have been several recent amendments such as a change in disclosures for objects of the issue, revised norms for credit rating agencies (monitoring proceeds), revised norms for price band (wherein now 5 percent cap is to be maintained between the floor price and upper price). In addition, SEBI issued a consultation paper on ‘Basis of Issue Price’ covering additional parameters e.g., Key Performance Indicators (KPIs) to be disclosed, particularly for loss-making companies basis for arriving at the issue price.
The EY report also highlights that there is a strong pipeline for IPOs in Q2 2022 and beyond. More than 20 companies have filed their DRHPs in Q1 of 2022, planning to raise funds in the current calendar year. These include a mix of traditional companies with long track records as well as newer age companies across various sectors such as consumer, pharmaceuticals, technology, logistics and financial services.
In line with the sharp decline in global IPO activity, there was a considerable fall in cross-border, unicorn, mega (proceeds above $1 billion) and SPAC IPOs. There were also several IPO launches postponed due to market uncertainty and instability.
On a broader note, EY findings suggest witnessing a robust activity in the private market with more than 10 companies gaining Unicorn status in Q1 2022. PE/VC investments in 2022 continue good momentum, with Jan-Feb 2022 investments ($10.3 billion) being more than twice that of Jan-Feb 2021 ($4.1billion) but 7.6% lesser than the previous two-month period Nov-Dec 2021.