IPOs Wrap-up 2023: Navigating Highs, Lows, Game-changing Moments
80 per cent of the mainboard IPOs bag the premium listing in 2023
The 2023 wrap-up for the Indian stock market is expected to end on a positive note with benchmark indices Nifty and Sensex soaring to record-highs with nearly 18 per cent year-to-date (YTD) returns compared to Nifty 50’s 4.3 per cent return in 2022. Likewise, initial public offerings (IPOs) also have had a remarkable year with a few of the IPOs still in a queue to list before the year concludes.
The IPOs have been an amusing segment of the Indian stock market as it has the highest numbers of issues compared to any stock market globally. However, compared to 2022 the volume dipped to 14 per cent in 2023, but the successful listing has outperformed the prior with claiming 80 per cent of the mainboard IPOs bagging the premium listing.
Champions 2023
Metals, EVs, cosmetics, pharma and renewable inclusive of other sectors marched forward in the IPOs space in 2023. The top three IPOs in terms of issue size remained Mankind Pharma, Nexus Select Trust and Tata Technologies with Rs 4326 crore, 3200 crore and 3042 crore respectively.
Notably, 21 IPOs were issued in the Indian main market during the third quarter of 2023, which indicates a significant rise of 376 per cent or USD 1,770 million from USD 372 million over the same period in 2022. This increase suggests that IPOs this year have performed well in comparison to prior years.
Undisputedly, Tata Technologies excelled the peer IPOs with the highest listing and subscription of 140 per cent and 69.5 times respectively and secured the seventh position in terms of listing gains in Indian IPO history. Albeit, in terms of listing-to-date gains, IREDA surpassed all the other peers with a whopping more than 200 per cent gain.
But there are pitfalls in this idyllic vision as well. Due to market volatility, some initial public offerings (IPOs) have fallen short of expectations. This emphasises the necessity for rigorous investigation and deliberate choices after the initial buzz. Moreover, regulatory scrutiny about possible manipulation of the pro rata method has surfaced, raising concerns that may affect subsequent offerings.
“The usual hype-fueled frenzy gave way to cautious steps, fueled by memories of the 2022 boom and bust. Retail investors, empowered by platforms like UPI, surged to the forefront, while institutional players took a backseat. A few IPOs delivered multi-bagger mysteries, tempting investors with lottery ticket dreams. Uncertainty remains the tango partner for 2024, with the global slowdown casting a shadow. Expect a cautious, scrutinised, and discerning IPO landscape next year, where fundamentals trump hype and transparency take the lead. So, keep your eyes peeled, research deeply, and remember, in the IPO game, informed steps are the key to a graceful performance,” said Sonam Srivastava, Founder and Fund Manager Wright Research.
Mankind Pharma, Flair Writing Industries, Gandhar Oil Refinery, Plaza Wires, JSW Infrastructure, R R Kabel, Signature Global, Zaggle Prepaid Ocean Services, Rishabh Instruments, Jupiter LifeLine Hospitals, Concord Biotech, Utkarsh Small Finance Bank, Cyient DLM and Valiant Laboratories were also some of the premium listing baggers.
The Indian IPO Dance
Srivastava shared the views regarding the plethora of IPOs in 2023 and said ‘The significant surge in large IPO issuances in the Indian market is primarily driven by bullish investor sentiment and increased liquidity, fueled by both foreign and domestic investments. On the supply side, companies are capitalising on this favourable environment to fund growth and offer exit opportunities for early investors. The premium listings seen in some IPOs are partly due to this bullish sentiment, combined with underpricing strategies and strong demand exceeding supply. While such premiums are amplified by the market's optimism, they also reflect the normal dynamics in a growing and evolving market like India.’
The SME sector also showed impressive fundraising results, suggesting that investors are becoming more confident in smaller businesses. This change reflects an increasingly diverse variety of industries and company sizes in a maturing market. Around 234 SMEs have raised Rs. 3,100 crore on the NSE platform and their market capitalisation has exceeded Rs. 8,000 crore owing to strong investor interest in SMEs with promising business prospects.
“The influence of global and domestic factors, including the US economic situation and the upcoming 2024 Indian elections, has been evident in the strategic timing of these IPOs. This nuanced approach to market entry underscores a sophisticated understanding of broader economic conditions. Overall, these distinctive aspects of India’s IPO market in 2023 highlight its evolving and dynamic nature, responding adaptively to both internal and external economic influences,” said Anirudh Garg, Partner And Fund Manager, Invasset.
The Further Predicament
However, the smooth listing, timely approval and platform to promote SMEs came along with certain amelioration, the challenges still await the market regulator, Sebi to eradicate certain malpractices in the Indian equity segment.
“Malpractices in the IPO process still exist despite regulatory efforts to curb them. These include financial misrepresentation, where companies might inflate their financials or hide liabilities to appear more attractive to investors. Information asymmetry is another issue, with selective disclosure of information or insider trading that disadvantages retail investors. Additionally, there are concerns about manipulation and artificial hype, such as pump-and-dump schemes, and potential collusion between underwriters and institutions, which can skew the allocation process unfairly,” said Srivastava.
Companies might also exploit regulatory loopholes to bypass certain disclosure requirements. While not every IPO with issues is fraudulent, these malpractices highlight the importance of thorough due diligence and a cautious approach when investing in IPOs, added Srivastava.
“Nowadays, finance influencers (many of them are not well educated and registered with Sebi to give such verdicts) are playing a key role and their view and verdicts are influencing the Investors' decisions. Many are investing because some ‘Fin-influencers’ said to Subscribe or Avoid. Investors should listen to only and only reliable and verified resources to avoid such trapping or mal-information,” said VLA Ambala, Research Analyst and Founder, Stock Market Today.
Malpractices like bid rigging, price manipulation, and information asymmetry unfortunately persist in some IPOs. SEBI plays a crucial role in regulating the market, but investor vigilance and awareness are crucial for combating such malpractices, added Ambala.
Optimism Ahead
Concerns regarding the pro-rata system and institutional investors' possible abuse of it at the cost of retail investors have been voiced by SEBI. A few possible changes for the upcoming year could include, increasing the retail investor allocation ratio, changing the bidding procedure to include a price range for book building and enacting stronger rules to prevent institutional investors from manipulating and front-running the process.
Madhabi Puri Buch, Chairman, Sebi also expressed her concern and said, “The level of over-subscription was getting inflated. The price discovery mechanism was being corrupted. This process (pro rata) led to certain unnatural price discoveries. Demand is being inflated because of the way allotment was being done.”
Buch clarified, "We were attempting to fix a mechanism that was unhealthy in that it gave the impression of much higher demand than was."
Road For Retail Investors
“Retail investors should carefully consider several crucial indicators before venturing into IPO investments. A comprehensive analysis of the company's financial health is essential. This includes assessing factors such as revenue growth, profitability, and the company's debt levels. Moreover, the IPO's pricing should be scrutinised to ensure it aligns with industry standards and market conditions. Evaluating the demand for the IPO, as indicated by oversubscription, can also provide valuable insights into market sentiment, said Anirudh Garg, Founder And Fund Manager, Invasset.
As for investing post-listing, retail investors should exercise caution. While premium listings can be tempting, it's essential not to rely solely on market sentiment. Instead, it's wise to monitor the company's ongoing performance, quarterly results and ability to execute their business plans effectively. Keeping an eye on quarterly earnings reports, management guidance, and industry trends can help retail investors make informed decisions about whether to hold their shares after the IPO, added Garg.
Understanding the purpose of the IPO, funds utilisation, valuation comparisons with industry benchmarks, monitoring the grey market premium, and post-listing performance to analyse the stock's stability and growth potential in the secondary market, advised Ambala.
IPOs Pick 2024
Looking forward to 2024, the potential IPOs like Go Digit, Bajaj Energy, FabIndia, boAt, and OYO span across various industries, from digital insurance and energy to lifestyle and hospitality, indicating a diverse range of investment opportunities that cater to different market trends and investor preferences. These examples underscore the importance of sector diversity and the potential of emerging industries in the IPO market, suggested Srivastava.
In 2024, Aadhar Housing Finance, Go First (Go Airlines) and Wellness Forever Medicare will have major attractions in the IPO market(as on data available) to closely watch, suggested Ambala.
