Careful, investors! Hectic IPO activity ahead; analysts advise caution

In the first two months of the year, a total IPO fundraising of Rs 3,559 crore has taken place from six offerings

After a fundraising of nearly Rs 700 billion via initial offerings (IPOs) in 2017, there still seems to be room for more. Over two dozen companies have lined up their initial share sale plans, together worth Rs 250 billion in the coming months, mainly for business expansions and capital requirements.
 
The first two months of the calendar year alone has seen a total IPO fundraising of Rs 3,559 crore from six offerings, including those of Newgen Software Technologies and Amber Enterprises India. March is expected to see IPOs of Hindustan Aeronautics Ltd (HAL), Bandhan Bank and ICICI Securities.
 

According to experts, the IPO market will continue to see hectic activity, with over a dozen firms awaiting Sebi's nod to launch their public issues. But Gaurang Shah, head investment strategist at Geojit Financial Services, advises investors to be very cautious while investing in IPOs, since they are a high-risk, high-return asset class. “Only investors with high-risk appetite should look to invest in them,” he cautions.
 

The BSE benchmark Sensex, which rose 6.37 per cent in January, shed 1,460 points or 4.3 per cent since the start of February to close at 34,436.29 on Tuesday. But, according to Shah, the correction will have very little or no impact on the IPO trend.

 
Barbeque-Nation Hospitality and Flemingo Travel Retail are also planning to launch their share-sale offers in the coming months, while Bharat Dynamics and Indian Renewable Energy Development Agency have secured Sebi's go-ahead to float their public offers this year.
 
In addition, 20 companies, including RITES, Mishra Dhatu Nigam, Bandhan Bank, IndoStar Capital Finance, Nazara Technologies and Route Mobile, are awaiting the regulator's approval to float IPOs.
 
“For liquidity to come to the markets, IPOs as well as government divestment are very important. These will take care of the excess liquidity getting avenues for investment. In case of lower run rate in terms of IPOs, there could be a problem of excess liquidity chasing very few listed stocks, resulting in a valuation bubble,” Shah said.

 
He added: “IPOs that are likely to hit the market in the coming time must be well justified in terms of their business strategy and, more importantly, have reasonable pricing, instead of commanding extraordinary premium which might lower the success rate of the IPO.”
 
During April-November of 2017-18 financial year, a total of 117 companies raised Rs 627.36 billion through the IPO route. This was much more than the cumulative amount Rs 621.47 billion garnered in the last five financial years. The year 2017 witnessed the highest IPO activity since 2007-08, when companies had mopped up Rs 52,219 crore through the route.