Big Deal: Is the market appetite for IPOs intact? Experts discuss

On the IPO frenzy, Krishnan said, “The last 12 to 18 months have been a dream run, both for Indian equities and fundraising -- the frenzy that we have seen in the form of right issues, QIPs, and IPOs. By and large, if you were to look at statistics, IPOs are not something that makes long-term money. In fact, the odds of finding great successful bets within the IPO space are very few compared to finding it from the main markets. However, what we finally saw was that there are cyclical timeframes wherein IPOs tend to do extremely well. And clearly, the last 12-month period has been one such wherein they have done well.”

On why IPOs have done well in the last 12 months, Krishnan said, “First, there has been a regime shift in terms of expectations from the market. Associated with this regime shift is also the fact that there have been a newer set of investors. Then, you have got dedicated funds, which are based abroad, which look only at technology, and that is the second aspect. The third aspect is global IPO indices -- these indices had a stellar run till February this year, after which they have consolidated and started underperforming. So, that is another aspect that one needs to keep in mind. The fourth aspect is in terms of the share of fund-raise as a percentage of market-cap. Typically, that tends to hover around 1 percent of market-cap. Currently, we are at about half a percent of market-cap. So all of these, I would say, are interesting trends that we see as to why they have done reasonably well over the course of the last 12 months or so.”

The Reserve Bank of India on Friday issued a fresh set of rules for non-banking finance companies (NBFCs), one of which limits lending to IPO investors to Rs 1 crore per borrower from April 1, 2022.

With regard to RBI’s new rule for HNIs, Bhardwaj said, “It is a very relevant point. One of the IPO proposals is to keep the maximum funding allowed in IPO financing at Rs 1 crore. That is getting implemented from April 1, 2022. This move probably is to impose a limit on IPO funding that allows surplus liquidity in the system being used to fund large subscriptions from high net worth individuals (HNIs). If you look at the recent past, some of the IPOs which got listed, such as Paras, which got oversubscribed by 927 times, Ami Organics, which got oversubscribed around 155 times, and Rolex Rings by 360 times -- these are pretty mind-boggling numbers of oversubscription. But at the same time, I also believe that this is likely to result in greater spread of IPO funding, rather than just deepening or depending on a few large-ticket size customers. But it will also de-risk the business model of the IPO financiers. So, that is where I see the level-playing field for the retail customers’ participation coming to a product like IPO funding.”

On IPO pipeline, Ghogre said, “We are seeing quite a good build-up of pipeline. As was mentioned earlier, we already have seen 30-odd IPOs done this calendar year, I think the number is 33-34. If you look at the DRHPs filed with SEBI waiting for approval, there is quite a healthy build-up of pipeline. We are pretty constructive that we will see this pipeline build up into the next year as well. Of course, the next couple of weeks and months are extremely busy. So, we could see anywhere between 10 and 20 IPOs getting done this calendar year, and the spillover could go on to the first half of the next calendar year as well. So, I think there is a very good build-up.”