IPO Trends to watch out for in the year 2023

10 Jan 2023 , 09:55 AM

However, out of the 40 IPOs in year 2022, just 3 IPOs (LIC, Delhivery and Adani Wilmar) accounted for 50% of the total IPO collections with the other 37 IPOs accounting for the balance. However, it was not exactly a bad performance. 24 out of the 40 IPOs ended the year with positive returns, which is a fairly good strike rate of 60% in a tough year with too many global headwinds. The big question is what does this mean for IPO markets in year 2023 and what are the big trends to watch out for.

1. Year 2023 will the return of the Big IPOs

In year 2022, other than LIC, Delhivery and AWL, the big IPOs were really missing. With risk appetite back and FPIs more open to investing in emerging markets, the large sized IPOs are likely to be back in 2023. Some of the large IPOs planned for year 2023 include Rs8,000 crore OYO IPO, Rs7,300 crore Aadhar Housing IPO, Rs6,250 PharmEasy IPO, Rs5,450 Bajaj Energy IPO, Rs5,000 crore TVS Supply Chain IPO, Rs3,600 Go First IPO and a lot more. The key story for 2023 will be the return of the large sized IPOs. Of course, a lot would still depend on the subscription response to these IPOs and their post listing performance. That would be evident in the first quarter itself. But clearly, if institutional appetite is back, then mega IPOs could come back with a bang in the year 2023.

1. Expect digital IPOs, but with more reasonable valuations

In the whole of year 2022, there was just one digital IPO viz. Delhivery Ltd. Other than that, not a single digital company ventured into the IPO market. The reasons are not far to seek. Year 2021 saw IPOs like Zomato, Paytm, Policybazaar, CarTrade and even Nykaa destroy a lot of investor wealth post listing. That has made retail and institutional investors very cautious. However, two things are likely to help the return of digital IPOs in 2023. Firstly, most digital companies have seen rationalization of valuations and that is likely to result in better appetite. Secondly, SEBI now insists on digital new age companies justifying their valuations in detail including any major gaps in valuation compared to the last round of fund raising. This year, there are several marquee names queueing up for an IPO and it includes Oravel Stays (OYO), Byju’s, Swiggy, Mamaearth, Navi Technologies, PharmEasy etc.

1. SME IPOs could continue to grow in year 2023

Year 2022 was an irony of sorts. While the fund raising by the mainboard IPOs halved, the IPO fund raising by the SME IPOs doubled yoy. They are still too small by mainboard standards, but it just goes to show that there is rising interest in the SME IPOs. The year 2022 not only saw SME IPOs getting strong response, but also saw most of these companies giving solid post-IPO performance. Year 2023 is likely to see continuation of the SME trend. Most SMEs have been lying low for the last few years. After GST disrupted their operations in a big way, the COVID pandemic pushed many of these SMEs to the corner. The SME board is allowing a lot of these smaller companies to raise funds through a market mechanism. What is more, there are enough retail and NII investors interested. Year 2023 could see this SME IPO trend getting accentuated.

1. Higher interest rates will drive corporates to equities in FY23

The big story in the last few years was why should corporates raise money in the equity markets when debt funding was so cheap. Things have changed in the last one year. Thanks to the hawkishness of the RBI, the repo rates are up 225 basis points. As a result, the average yield on corporate bonds has gone up from 6.8% to 8.1%. This is likely to drive a lot more of fund raising in the equity market and act as a positive boost for the IPO market in the year 2023. After all, most corporates have deleveraged substantially in the last 3 years and with lower financial risk, they would not mind this equity dilution. Between 2019 and 2022, the corporate profits of the NSE 500 companies has grown from 2.5% of GDP to 4.4% of GDP and this gives substantial room for India Inc to raise equity without diluting ROE.

1. Shift from predominantly OFS to predominantly fresh issues

One of the big shifts in the IPO market that is likely in 2023 is the shift from the 2022 situation. Last year, the IPO scenario was dominated by offer for sale (OFS), including the mega OFS of LIC. While an OFS gives visibility to the company, it does not excite markets as OFS does not entail allocation of funds for capex. Even the fresh funds raised in 2022 were largely for debt reduction or for working capital needs. With the capital cycle showing signs of turning around and capital goods companies having overflowing order books, it is just a matter of time that more companies raise fresh funds. More importantly, fresh fund raising in 2023 is likely to be driven predominantly by capex, organic growth and inorganic growth rather than the utilization of IPO funds for debt reduction or working capital deployment.

Things are unlikely to change in the IPO market in a hurry. The March quarter may still be quiet but once there is clarity on Fed rates trajectory, a lot of things should be clearer. That is when FPI flows are likely to be more favourable for Indian markets, especially the IPO markets.