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Volatile market conditions have led to a significant slowdown in the Indian initial public offer (IPO) market during the first quarter of 2022 as compared to the first quarter of 2021, EY Global IPO trends report suggests.

Indian markets saw 16 IPOs in the first quarter of the year against 23 IPOs in Q1 of 2021, according to the EY Global IPO Trends Q1 2022 report.

In the January to March quarter this year, the proceeds raised through the main markets equalled $995 million via three main market IPOs against the $2.57 billion raised during Q1 2021, a decline of 60% in the value of proceeds raised and an 82% plunge in the number of deals.

The report attributes the slowdown in IPO activity to a slew of factors, including geopolitical tensions, stock market volatility, price correction in overvalued stocks, growing concerns about a rise in 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 small and medium enterprises firms raised $17.46 million via 13 IPOs in Q1 2022.

In line with the sharp decline in global IPO activity, there was a considerable fall in cross-border, unicorn, mega (proceeds above $1b) and SPAC IPOs. There were also several IPO launches postponed due to market uncertainty and instability, the report pointed out.

Sandip Khetan, partner and financial accounting advisory services leader, EY India, said: “Globally we are witnessing an inflationary environment in all western economies that has rattled many investors and bankers. Policymakers are trying to figure out appropriate response to this inflationary environment, including the added weight of geopolitical challenges. Companies that are planning to tap the markets will have to watch out for such large events to settle. Post which we can see a strong uptick in the IPO activity."

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. “The backlog of IPOs could lead to a strong upswing in volumes if volatility does moderate and earnings are robust,'' Khetan said.

The slowdown is evident since many big-ticket IPOs are in the pipeline but are yet to see the light of the day. Once the current scenario settles, a lot of IPOs may start coming to the markets in the next 3-6 months, he added.

The EY report also highlighted that there is a strong pipeline for IPOs in Q2 2022 and beyond. More than 20 companies have filed their draft red herring prospectus 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.

“Going ahead we will see a lot many commodity companies planning to raise funds through the public offer along with financial services, infrastructure players and renewable energy players that will look at going public", Khetan said.

Currently, all eyes are on shares of LIC which will list on 17 May. This may set a precedent for a lot more companies that are planning to go public this year, analysts said.

In 2021, nearly 60 companies raised 1.1 trillion from the markets.

ABOUT THE AUTHOR

Priyanka Gawande

Priyanka Gawande is a senior legal correspondent at Mint. She has worked as legal reporter for four years with both television and digital mediums. Based in Mumbai, she reports on disputes across sectors including banking, corporates and finance. This also includes insolvency and bankruptcy cases and intellectual property rights (IPR) litigation. Her focus also comprises tracking capital markets and disputes relating to securities law. Previously, Priyanka worked with Informist Media for 2.5 years covering major insolvency and bankruptcy cases and corporate developments. She started her career in journalism with Business Television India (BTVi) where she reported on primary markets, banking, finance and insurance companies.
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