Navigating IPO Market Dynamics Amid Volatility and Regulatory Changes

Startup Business Economy

Posted by pallavi on 2024-07-11 11:54:32 |

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Impact of Market Volatility:

The broader equity market's ongoing volatility, particularly in the midcap and smallcap segments, has started to significantly affect IPO investor participation.  Analysts predict that as long as these segments remain volatile, the primary

market will continue to show signs of fatigue. The subscription levels for recent IPOs have been lower, and many new listings have not performed well despite decent subscription levels. This trend is evident in the reduced grey market premiums and the underperformance of recent IPOs, including those in the SME (Small and Medium Enterprises) segment.

Fundraising Trends:

Despite the challenges, the first half of 2024 has seen robust activity in the SME IPO market. Fundraising has reached Rs 3,095 crore from 100 issues by mid-June, nearly matching two-thirds of the funds raised in the entire previous year. This represents the highest amount raised in the first six months since the SME platform's introduction. The mainboard IPO market, while experiencing a slight decline in total fundraising compared to previous years, has also seen significant activity with several successful issues.

Investor Behavior:

Retail and high networth individual (HNI) investors have been the primary drivers of the robust performance in the SME IPO segment. The strong after-listing performance has buoyed retail enthusiasm, leading to a surge in direct participation by retail investors. However, the recent market volatility has caused a decline in IPO subscription levels, and many recent IPOs, including those of SMEs, have underperformed compared to earlier expectations.

Regulatory and Market Challenges:

The Securities and Exchange Board of India (Sebi) and stock exchanges are increasing surveillance and tightening regulations to address potential manipulation and maintain market integrity in the SME segment. Merchant bankers are urged to exercise greater diligence in selecting companies for IPOs. There are ongoing discussions about policy adjustments for SME IPOs concerning minimum thresholds and enhanced oversight of the secondary market.

Successful IPO Examples:

Despite the broader market challenges, there have been notable successes in the IPO market. Bharti Hexacom's IPO, for instance, was heavily oversubscribed, raising $8.43 billion, which was 29.88 times more than the shares offered. This reflects strong investor demand driven by the company's established presence in the telecommunications sector in Rajasthan and parts of northeastern India.

Market Outlook:

Analysts suggest that the current market weakness may lead companies to delay their IPOs or adjust their pricing and sizing strategies. The impact of the market conditions could result in more tactical timing of IPOs based on overall sentiment and more considered pricing and sizing of the issues. Investors are advised to focus on fundamentally strong companies for long-term investments, as the opportunities for quick profits from IPOs are diminishing due to the market's unfavorable backdrop for short-term gains.

FY24: A Rewarding Year for IPO Investors:

Despite the challenges, the financial year 2023-24 (FY24) has been rewarding for investors in IPOs. The S&P BSE IPO Index, which tracks the after-listing performance of newly listed companies, has risen by 69%. Around 80% of the companies that made their debut on the mainboard this financial year ended their listing day with gains, and over 70% of these stocks are still trading above their issue price. This demonstrates that, despite the broader market volatility, fundamentally strong IPOs can still deliver substantial returns to investors.

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