71% IPOs of 2022 at premium; will retail investor euphoria sustain in 2023?

After a tepid 2022 that saw 32 companies raise around Rs 55,000 crore from the primary markets, calendar year 2023 is likely to be relatively better.

Around 55 companies have received market regulator Securities and Exchange Board of India’s (SEBI) approval to raise about Rs 84,000 crore via IPOs, data from Prime database shows. These include Aadhar Housing Finance, TVS Supply Chain Solutions and Macleods Pharmaceuticals, which have proposed to raise between Rs 5,000-7,300 crore.

That apart, around two dozen IPO applications, including SoftBank Group’s Oyo Hotels and Tata Play are currently with Sebi, as per reports.

“2023 is expected to be a promising year with many relatively good businesses entering the primary market. Retail investors will remain excited about the offerings, especially, from profitable companies,” said Deven Choksey, managing director, KR Choksey Securities.

Tepid show

As rising rates and the Russia-Ukraine war roiled equity markets across the world, India’s primary market activity was also thrown into the backseat in 2022 as the number of new listings nearly halved compared to 2021.

About 32 companies have made their debut on the main bourses so far this year, down from nearly 65 in 2021. The cumulative amount raised via IPOs this year (till mid-December) has been Rs 55,000 crore versus Rs 1.2 lakh crore raised in 2021, data shows.

However, the average returns from the IPOs have outweighed the gains in the benchmark Sensex index. In 2022, while the Sensex has risen 7.6 per cent on average, the returns on IPOs have averaged 17.7 per cent, according to a note from Bank of Baroda.

Three sectors –edible oil, insurance and hospital & healthcare services– accounted for 56 per cent of the Rs 55,000 crore fund-raise, the note said.

Of the 32 newly listed stocks in 2022, around 71 per cent are currently trading above their respective issue prices. Among the lot, Adani Wilmar, Venus Pipes & Tubes, Hariom Pipe Industries and Veranda Learning Solutions are the top multi-bagger debutants that delivered 109-135 per cent returns in 2022, while around 10 others grew their investors’ wealth by 20-80 per cent.

On the other hand, the top wealth destroyers included India’s largest listing of state-owned insurer Life Insurance Corporation of India (LIC), which is down 29 per cent against its issue price. Delhivery and Inox Green Energy are the other worst performers, currently down 33 per cent each against their respective offer prices, data shows.

The new-age start-ups including Zomato, Paytm, Nykaa and PB Fintech have shed 20-86 per cent of the market price against their respective issue prices this year as rising rates, concerns on expensive valuations and anchor investors' exit sparked a sharp selloff.

Word of caution

That said, given the sharp slump in some of the recent big listings including new-age technology start-ups, experts advise investors to exercise caution going ahead and carefully evaluate the companies and the sectors they operate in before investing.

“New age loss-making companies created excitement in the market before their listing, which later fizzled out as investors began asking for profit performance. PE investors have also exited these players, which are still many years away from becoming profitable. This leaves important learnings for investors that a brand may be better for you as a consumer but not as an investor. Hence, it is crucial to be careful if the investment proposition for a company is weak,” Choksey said.