Is the IPO magic over? Only 7 offerings in 2023 while equity markets approach record high

The primary markets are going through a dull phase so far this year while Indian equity benchmarks are trading close to record high. Since the start of the year, there have been only seven initial public offerings (IPOs) as against 38 IPOs in 2022 and record 64 IPOs in 2021.

The lull in primary markets has coincided with a prolonged phase of range bound movement for benchmarks as liquidity conditions tightened after central banks across the world raised interest rates to tackle spiraling inflation which surged to four decade high in the US and other developed economies of Europe. 

Spike in inflation happened after Russia invaded Ukraine in February last year and subsequent imposition of sanctions choked supply chains from everything to cooking oil to food grains to crude oil.

But Indian equities have outperformed global markets in May.  India is among the top performing markets in May 2023. The Indian market has stood out over the last 12 months. At the time when global market cap declined 2.9 per cent over the last 12 months, India’s market cap rose 2.7 per cent. Overall barring India and Japan, all key global markets witnessed a decline in market cap over the last 12 months, brokerage firm Motilal Oswal said in a report.

According to the report, India’s share in global market cap stood at 3.2 per cent, above its historical average of 2.6 per cent. India is among the top 10 contributors to global market cap. The top 10 contributors accounted for 80 per cent of global market cap in May 2023. Among the key global markets, Japan (up 7 per cent), Taiwan (up 6 per cent), Brazil (up 4 per cent), Korea (up 3 per cent), India (up 3 per cent), Russia (up 2 per cent), and the US (unchanged) ended higher in May 2023, while the UK (down 5 per cent), Indonesia (down 4 per cent), China (down 4 per cent), and MSCI Emerging Market (down 2 per cent) ended lower in local currency terms. Over the last 12 months, the MSCI India index (up 7 per cent) has outperformed the MSCI EM index (down 11%). Over the last 10 years, it has outperformed the MSCI EM index by 173 per cent.

Despite a strong trend in secondary markets the IPO markets have yet to pick up pace. 

Analysts say that generally primary market offerings are ripe when there is ample liquidity in the system and secondary markets are in a strong uptrend like it happened in 2021 when a record number of IPOs were launched in a calendar year.

Meanwhile, the uptrend for Indian markets just began from the third week of March after the Nifty 50 index rebounded from a low of 16,828 hit on March 20, data from the National Stock Exchange showed.

“Now only the market has started to rally... we were weak a few months back and from May and June only the market rally has begun,” AK Prabhakar, head of research at IDBI Capital, told Republic. 

“Normally euphoria for IPOs begin after a rally in secondary markets then only primary markets follow suit... for IPO market to pick up we need some more. There is a long way to go for a boom in the primary market,” Prabhakar added.

Moreover, many retail investors have become risk averse to IPOs in the aftermath of wealth destruction caused by a whole host of new age tech companies IPOs which were launched in 2021 and are trading way below their IPO price, analysts said.

Paytm which sold shares in price band of Rs 2,080-2,150 during the IPO in November 2021 is currently trading at Rs 710, Zomato sold shares in band of Rs 72-76 and is currently trading at Rs 71 and Nykaa sold shares in price band of Rs 1,085-1,125, is currently trading at Rs 137.60 (The stock has undergone a stock split and the company had announced bonus issue in 2022).