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India Witnesses Bumper IPOs, Surging Inventory Markets Amid Crippling Pandemic

A booming inventory market usually supplies fertile floor for an IPO spree.

With Meals-Tech platform Zomato’s Rs 9,375 crore preliminary public providing (IPO) being oversubscribed by 38 occasions, the main target now shifts to July 27, when the corporate’s shares will likely be listed on the inventory markets for buying and selling. As the primary Indian ‘unicorn’ – a startup valued at $1 billion or extra – to come back out with an IPO, Zomato has created a particular place for itself in India’s startup historical past.

Furthermore, the Zomato IPO – essentially the most excessive profile of the 12 months to this point – can also be emblematic of the ‘IPO spree’ being noticed in 2021 amid the crippling Covid pandemic.

Usually, a booming inventory market usually supplies the fertile floor for an IPO spree. “Major market (IPOs) is intently linked to the secondary market (share market). At any time when the latter is performing properly, corporations line up for IPOs,” mentioned Hitesh Punjabi, Asst. Professor, KJ Somaiya Institute of Administration Research, Mumbai, whereas referring to the inventory market growth of mid-2000s and the excitement round Reliance Energy’s IPO in early 2008.

In FY21, which lined the interval of the Covid-induced lockdown and a number of other ‘unlocks’, the BSE Sensex rose over 68 per cent and NSE Nifty 50 index rose by 71 per cent. In FY 21, over 20 IPOs listed at a premium to their concern value, in line with Equitymaster.

Pattern this: Comfortable Minds, an IT consulting firm, reported a 111 per cent achieve on itemizing – the most important in a decade. Its share was issued to the general public at Rs 166 and opened increased by 111 per cent at Rs 351.

Kiran A Shah, Co-founder and CEO, SRE Wealth, says, “Sectors like chemical substances and IT, and tech corporations are doing properly amid the pandemic.” Whereas the fast push for digitisation throughout the Covid-19 pandemic has been credited for the robust IT and tech sector efficiency, the growth in chemical sector has been linked to developments in China.

Lalit Kumar, Founding father of Chennai-based LKR Advisors, explains: “The growth in chemical sector is predominantly because of the environmental norms in China the place 40 per cent of its chemical manufacturing capability had been shut down for security inspections.”

The growth in chemical shares for the reason that final 12 months has meant that lots of the 20-odd IPOs since final 12 months had been from the sector. Clear Science, a speciality chemical agency’s IPO was oversubscribed by 93 occasions on July 9 and the shares listed at a premium of 98 per cent on the BSE on July 19.

At a time when studies of financial misery in India have been aplenty, the growth within the inventory market is certain to puzzle these not accustomed to its working. Market observers say that the exponential rise in demat accounts – signifying the rise in new retail buyers – and the large inflow of world cash into the inventory market is fuelling the “bull run”.

“Quite a lot of kids have entered the retail market throughout the pandemic. In reality, Paytm mentioned 27 per cent of the Zomato IPO candidates had been below the age of 25,” Mr Shah mentioned, including that low rates of interest are additionally encouraging individuals to put money into shares. As per the CDSL and NSDL, Indian buyers opened a report 1.42 crore demat accounts in 2020-21. “The pandemic has been a blessing in disguise for the markets. Many millennials sitting at dwelling are actually investing,” Mr Kumar mentioned.

India noticed report overseas portfolio investments (FPIs) of Rs 2,74,034 crore in FY21. Bloomberg, as well as, states that overseas buyers have invested over $8 billion in India this 12 months (until mid-June 2021). This has helped the market stay flush with liquidity since over a 12 months. For the uninitiated, FPIs are investments by overseas residents in securities together with shares, authorities bonds and company bonds and many others.

“IPOs at Nasdaq have raised $50 billion from January to June 2021. India raised $5bn as in opposition to $2.5 billion final 12 months throughout the identical interval. Non-institutional buyers are bringing liquidity out there purely from quick time period funding at 3.75-4.5 per cent for itemizing positive factors,” says Mr Kumar, highlighting the buoyant world markets.

Given the buoyancy within the markets, IPOs appear to be a viable choice for corporations and buyers alike. Nonetheless, many IPOs this 12 months, specialists say, will likely be distinctive. “New enterprise fashions are coming to faucet the markets this 12 months,” says Mr Punjabi whereas referring to the new-age tech corporations like Zomato, Paytm and Mobikwik amongst others.

The problem will lie in valuing such new-age corporations whose enterprise fashions, with years of losses outstanding of their revenue & loss statements, are fairly totally different from these of conventional corporations.

“It is extremely tough to worth digital companies in contrast to conventional companies. These corporations can develop enormously too,” says Mr Shah. Mr Punjabi nevertheless recollects how Infosys too had confronted such a problem when its IPO hit the market in 1993. “Analysts couldn’t decode a way to worth it because the IT was a brand new sector. Nevertheless, a few years down the road, we now understand how such corporations are to be evaluated.”

Therefore, Zomato’s recently-ended IPO has additionally come below the lens of analysts for its long-term viability.

“Zomato is extremely priced. Throughout the pandemic, it has accomplished properly. However as soon as issues return to regular, individuals will like to return to consuming out. We have to see if Zomato will have the ability to deal with such a state of affairs,” notes Mr Shah. Nevertheless, he additionally sounds hopeful, including that Zomato might be the torchbearer for ‘unicorns’ who’re planning to go for an IPO sooner or later.

Mr Kumar is much less captivated with Zomato’s prospects. “Zomato has not been capable of make a revenue for the reason that begin. For it to make a revenue, it wants some heavy lifting and Rs 9,000 odd crore infusion might not be sufficient,” he mentioned.

The present upswing within the inventory market has already triggered some murmurs of a attainable bubble burst sooner or later.

Mr Punjabi says that the positive factors Zomato shares accrue on the itemizing day (July 27) will likely be key. Whereas over-subscription does assist construct expectations of bumper positive factors, any detrimental issue coming to play that day may result in buyers gaining solely marginally, he added.

“For the long term, I might counsel individuals to attend and watch the monetary efficiency of the corporate for some time.”

Mr Kumar believes the IPO market is in a bubble which will not burst proper now, however when the market settles down and liquidity goes down. “We might even see a fall of 30-40 per cent in recently-listed shares,” he argues.

Amid the euphoria of a raging IPO market and a surging inventory market, the dire state of affairs of India’s actual financial system continues to be a contrasting actuality.

Take these numbers for a perspective:

Based on Confederation of All India Merchants (CAIT), localised lockdowns throughout the second wave led to losses of Rs 15 lakh crore in April and Might 2021. Based on the Centre for Monitoring Indian Financial system (CMIE), 1 crore Indians have their jobs because of the second wave of Covid-19. Ninety-seven per cent of the households have confronted lack of revenue for the reason that pandemic-induced restrictions started in 2020, it added. Gasoline costs are over Rs 100 in all main cities, including to the excessive retail inflation in India.

What explains this dichotomy? Mr Shah mentioned the inventory markets are mainly forward-looking, the place individuals commerce holding future potential earnings of an organization in thoughts. Mr Punjabi concurs with this, however provides that the inventory market has already discounted the disruptions in the true financial system and is anticipating higher financial prospects within the subsequent 6-8 months. “If issues don’t go as anticipated, then we might even see the inventory market taking place within the coming months,” he argues.

“Greater corporations have grown greater within the final one 12 months. However smaller MSMEs have struggled and lots of have shut down too,” Mr Kumar observes about the true financial system.

Anjela Tarneja of Oxfam India, a non-profit organisation primarily based in Delhi, dismisses any connection between the inventory market and the true financial system hit by the pandemic. “A lot of the rise of the inventory market is a results of worldwide investments in Indian corporations. Certainly, the RBI had warned that the surge in shares ‘poses the danger of a bubble’.” In reality, she bats for a extra multi-dimensional measure that measures totally different socio-economic dimensions than a single unit metric like inventory market or GDP progress.

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