Trends and prospects in the market for IPOs of new-age Indian firms

Abstract

In 2021, the Indian IPO market witnessed a remarkable boom, raising a record INR 1.19 tn through 63 IPOs, marking a substantial increase from the previous years. This surge was predominantly driven by factors like flourishing tech startups, favorable interest rates, gradual post-pandemic recovery, and strong retail participation.Subsequently in 2022, the momentum changed, as the IPO market slowed down and produced just INR 0.59 tn across 40 IPO - a 50% decrease from the year before. Global financial volatility, concerns about a possible recession, lack of finance, rising interest rates, concerns regarding the viability & sustainability of business models, and the delicate balance between expansion and profitability were the main factors influencing this fall. Further, a key factor contributing to the market's downturn was the erosion of investor wealth following IPOs. Since their listing, several new-age companies such as Paytm, Nykaa, and Zomato reportedly led to a loss of Rs. 2 lakh crores in investor value by November 2022 (Today, 2022). Another key aspect to note is the distribution of funds between fresh issues and offer for sale (OFS). A significant amount of monies was raised through OFS, wherein existing investors offer their shares for sale diverting capital away from the business. To partially address this concern, SEBI introduced new restrictions in 2022 that stipulated that pre-IPO stakeholders holding above 20% equity could not sell more than half of their shares.