2023 Driest year for IPOs

Mamaearth Parent Company Holds Back IPO Plans amid Market Weakness: Analysis and Outlook

Introduction Indian consumer goods company, Honasa Consumer, which owns Mamaearth, has reportedly postponed its initial public offering (IPO) due to weak market conditions. This move follows recent decisions by other Indian companies, such as Fabindia and Joyalukkas, to shelve their IPO plans. Analysts suggest that the poor performance of recent IPO debutants and weakness in the secondary market, due to foreign outflows, the Adani-Hindenburg row, and the banking crisis in the West, have dampened market sentiment.

IPO Market Performance Data compiled from PRIME Database suggests that 2023 has been the driest year for IPOs since 2020, with only two IPOs hitting the market so far. In comparison, six mainboard IPOs hit the market in the first three months of 2022 and 16 IPOs hit the street between January and March 2021. Furthermore, in 2020, only one IPO hit the street by March.

Recent Developments Recently, the Securities and Exchange Board of India (SEBI) returned preliminary papers of half a dozen companies, including OYO-operating hospitality chain Oravel Stays, after over two months. These companies have been asked to re-file their draft red herring prospectus with certain updates.

Analysts suggest that asking IPO valuations are under scrutiny, citing intensified selling on a few 2021 debutants due to stake sales by key shareholders post the one-year lock-in expiry. Although the recent two IPOs Global Surfaces and Digvi TorqTransfer Systems performed well, analysts have expressed concerns that new IPOs may not garner a good response amid weakness in secondary markets globally.

Factors Affecting Market Sentiment According to Astha Jain of Hem Securities, 2021 saw ample liquidity globally, whereas 2022 and 2023 saw money tightening, lifting the dollar and making emerging markets unattractive. In 2023, secondary market returns have been negative, with equity barometers Sensex and Nifty falling 5-6%. These factors are impacting IPO decisions, as investment bankers and promoters of IPO-bound companies track market behaviour.

Outlook Astha Jain notes that the weakness in the secondary market is likely to persist, and IPO activity will remain muted in the fourth quarter of FY23 and the first two quarters of FY24. The market may revive from September 2024 onwards. Foreign outflows have been among the reasons behind tepid market sentiment, and Jain suggests that once the dollar loses its strength, the domestic market, both primary and secondary, may see revival.

PRIME Database reports that companies, such as Sanathan Textiles, Imagine Marketing, Capillary Technologies, and Asianet Satellite Communications, received SEBI nod for public issues last year but are yet to announce IPOs. The one-year period for these companies will lapse next month