Start-ups choose to give a miss to latest IPO rush

NEW DELHI: After a blip, around a dozen firms are going public. While four firms — DCX Systems, Fusion Micro Finance, Bikaji Foods and Global Health (Medanta Hospital Chain) — have launched IPO in recent times, four more initial public offerings (IPOs)—Archean Chemicals Industries, Five Star Business Finance, Kaynes Technology and Inox Green Energy Services—are hitting the markets this week.

Together, they will cumulatively raise over  Rs 5,000 crore. Add to it, three more IPOs are likely to be launched by mid-November. The big buzz in the primary market comes at a time when the secondary market is showing strength with benchmarks- Nifty and Sensex- trading in close vicinity of all-time highs.  
Arijit Malakar, Head of Research - Retail, Ashika Group, says that companies are taking advantage of strong market momentum and thus coming up with their IPOs. “Since, the beginning of 2022, the weakness in the secondary market has put a lid on the IPOs. Further, tepid performance from the last few IPOs put the investors on the sidelines,” adds Malakar.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, also says that the outperformance of the Indian market against global peers and the fact that the Indian economy is doing well has instilled confidence in the IPO market. 

Investors need to be watchful 
Despite weakness in the domestic equity market for most of 2022 in the backdrop of rising interest rates, geopolitical tension, depreciating domestic currency and persistent inflation, IPOs have given healthy returns. 

Adani Wilmar, Veranda Learning, Venus Pipes and Campus Active Wear have done exceedingly well, more than doubling investors' money. Nine IPOs have returned between 20% and 70%.  The big disappointment, however, has been the LIC, which had come-up with the country's biggest IPO ever. At present, the state-run insurer is trading 35% below its issue price.  

“Investors can invest in IPOs selectively. There are some OFSs (Offer For Sale) where the promoters are selling part of their holding, or some initial investors are exiting. These offers, where the valuations are high, may be approached very cautiously or even avoided,” said Vijayakumar. Malakar also notes that large IPOs have failed to impress investors through their returns and business dynamics. 

“Investors should be cautious at times of investing in new IPOs during the turbulent time. As it is hard to get proper information about the group and promoters of new companies, it is better to consider those IPOs having good fundamental track record, strong brand proposition, strong management pedigree and healthy financials.”

Start-ups missing from the action 
In 2021, start-ups were the flavour of the market and there was a flurry of start-ups IPOs. 
In 2022, however, they are in no rush as investors have turned a blind eye after Paytm, Zomato, PB Fintech and Nykaa wiped out billions of dollars from the market. 

It looks like it will take time for Oyo, Ola Electric, Snapdeal, boAt and PharmEasy IPOs to hit the market.  “After the Paytm and Zomato IPO disasters, big start-ups are facing an unfavorable environment. There are no widely accepted valuation parameters for such start-ups that borrow money to survive. So, either they will have to wait longer or bring down their issue price to acceptable levels,” said Vijayakumar.

Malakar said that due to lack of profitable growth, consistent cash burn and high valuation, start-ups have failed to impress investors. As central governments across the world have raised interest rates in order to tame inflation, there has been a liquidity squeeze that resulted in drying up in start-up funding. 

Start-up funding in India hit a two-year low in July-September period at $ 2.7 billion when compared to $11.4 billion funding in the same period last year, as per a recent PwC India report. 

NEW DELHI: After a blip, around a dozen firms are going public. While four firms — DCX Systems, Fusion Micro Finance, Bikaji Foods and Global Health (Medanta Hospital Chain) — have launched IPO in recent times, four more initial public offerings (IPOs)—Archean Chemicals Industries, Five Star Business Finance, Kaynes Technology and Inox Green Energy Services—are hitting the markets this week. Together, they will cumulatively raise over  Rs 5,000 crore. Add to it, three more IPOs are likely to be launched by mid-November. The big buzz in the primary market comes at a time when the secondary market is showing strength with benchmarks- Nifty and Sensex- trading in close vicinity of all-time highs.   Arijit Malakar, Head of Research - Retail, Ashika Group, says that companies are taking advantage of strong market momentum and thus coming up with their IPOs. “Since, the beginning of 2022, the weakness in the secondary market has put a lid on the IPOs. Further, tepid performance from the last few IPOs put the investors on the sidelines,” adds Malakar. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, also says that the outperformance of the Indian market against global peers and the fact that the Indian economy is doing well has instilled confidence in the IPO market.  Investors need to be watchful  Despite weakness in the domestic equity market for most of 2022 in the backdrop of rising interest rates, geopolitical tension, depreciating domestic currency and persistent inflation, IPOs have given healthy returns.  Adani Wilmar, Veranda Learning, Venus Pipes and Campus Active Wear have done exceedingly well, more than doubling investors' money. Nine IPOs have returned between 20% and 70%.  The big disappointment, however, has been the LIC, which had come-up with the country's biggest IPO ever. At present, the state-run insurer is trading 35% below its issue price.   “Investors can invest in IPOs selectively. There are some OFSs (Offer For Sale) where the promoters are selling part of their holding, or some initial investors are exiting. These offers, where the valuations are high, may be approached very cautiously or even avoided,” said Vijayakumar. Malakar also notes that large IPOs have failed to impress investors through their returns and business dynamics.  “Investors should be cautious at times of investing in new IPOs during the turbulent time. As it is hard to get proper information about the group and promoters of new companies, it is better to consider those IPOs having good fundamental track record, strong brand proposition, strong management pedigree and healthy financials.” Start-ups missing from the action  In 2021, start-ups were the flavour of the market and there was a flurry of start-ups IPOs.  In 2022, however, they are in no rush as investors have turned a blind eye after Paytm, Zomato, PB Fintech and Nykaa wiped out billions of dollars from the market.  It looks like it will take time for Oyo, Ola Electric, Snapdeal, boAt and PharmEasy IPOs to hit the market.  “After the Paytm and Zomato IPO disasters, big start-ups are facing an unfavorable environment. There are no widely accepted valuation parameters for such start-ups that borrow money to survive. So, either they will have to wait longer or bring down their issue price to acceptable levels,” said Vijayakumar. Malakar said that due to lack of profitable growth, consistent cash burn and high valuation, start-ups have failed to impress investors. As central governments across the world have raised interest rates in order to tame inflation, there has been a liquidity squeeze that resulted in drying up in start-up funding.  Start-up funding in India hit a two-year low in July-September period at $ 2.7 billion when compared to $11.4 billion funding in the same period last year, as per a recent PwC India report.