Initial Public Offer, Initial Pensive Offers, IPO Fundraising


Several IPOs this year have seen PE or VC shareholders offer shares, including companies like Indigo Paints, Home First Finance Company, Stove Kraft, Craftsman Automation, Nazara Technologies, Suryoday Small Finance Bank, Barbeque Nation Hospitality, Krishna Institute of Medical Sciences, GR Infraprojects and Rolex rings. In addition, some of these public offers included an OFS component greater than the amount of the new share issues. For example, the IPO of GR Infraprojects, which opened in July to raise nearly Rs 1,000 crore, was entirely an OFS with funds like India Business Excellence Fund and India Business Excellence Fund I offering their shares. with promoters to public shareholders.

Likewise, Indigo Paints and Stove Kraft both saw top institutional investors and majors from PE / VC SCI Investments and Sequoia offloading their shares as part of the IPO. Craftsman Automation’s public offering also saw International Finance Corporation as one of the selling shareholders. PE’s global major General Atlantic sold its shares in the Krishna Institute of Medical Sciences IPO, which raised nearly 2,200 crore rupees in the market. In the case of Rolex Rings, while the IPO size was Rs 731 crore, the new issue component was only Rs 56 crore while Rivendell PE LLC offloaded shares worth of Rs 675 crore.

The highest amount of OFS in a calendar year was recorded in 2017, when shares worth 55,468 crore rupees were sold by existing shareholders of companies related to the IPO . Market participants believe the current year could set a new record as the IPO pipeline looks pretty strong with many PE / VC-backed companies ready to go public. For example, Paytm’s upcoming IPO will see entities like Alibaba, SoftBank, and Elevation Capital (formerly SAIF Partners) sell their shares as part of the public offering. Sequoia Capital is one of the selling shareholders of MobiKwik’s IPO. Likewise, Nykaa’s IPO will see well-known names like TPG Capital and Lighthouse India unload their shares while Policybazaar’s public offering will give SVF Python (Cayman) an exit option.

Retail investors have never been as bullish on stocks as they are today and, once again, lockdowns from Covid-19 likely had a role to play. Obviously, the trend started last year when people were locked in their homes and had time to experiment on the stock market. And in 2021, the trend has only strengthened. Data from the National Stock Exchange (NSE) shows that each month of the current calendar year has seen the addition of nearly 1.3 million new retail investors. That’s more than double that of last year, when the average monthly addition was set at 0.6 million. In 2019, before the pandemic, the average monthly addition was around 0.3 million.

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The growing involvement of retail has dramatically increased the market share of this group. The cumulative holdings of all retail investors in companies listed on NSE reached an all-time high of 7.18% on June 30, compared with 6.96% on March 31, 2021 and 6.55% on March 31, 2020, when the pandemic has started to impact the country.

The renewed interest of retail investors is also visible in the primary markets. It all started in February 2021 with the IPO of Nureca, which set a record for the highest subscription in the retail category. The Rs 100 crore issue has been underwritten overall almost 20 times, but the retail part has been underwritten 140.53 times, the highest ever in Indian capital markets, according to data from Prime Database. The show managed to break a 14-year record of 133.52 times held by Everonn Systems India since July 2007. This year, two more shows were ranked among the top 20 all-time IPOs in terms of oversubscription in the retail category: Nazara Technologies. (subscribers 68 times) and Easy Trip Planners (nearly 63 times).

“Retail investors are evolving and have understood that you can make money by being a patient investor. New retail investors are entering the market and they will continue to support the IPO market, ”said Saraf of ICICI Securities. “We don’t need an IPO frenzy. We need investors who understand the risk they are taking and that the returns should be seen from a 12 month perspective. The risks are many and many variables are involved. Retail investors should therefore exercise caution. The current calendar year has already seen its share of laggards where investors have burned their fingers and burned them badly. Take the example of Suryoday Small Finance Bank, which launched its IPO in March and valued its shares at Rs 305. The stock has more than halved and is currently trading at Rs 151.40 (September 6 ). Kalyan Jewelers India, Windlas Biotech and Indian Railway Finance Corporation all saw their stock prices drop more than 10% from their respective issue prices. Investors in shares of CarTrade Tech, Glenmark Life Sciences, Krsnaa Diagnostics and Nuvoco Vistas Corporation are also suffering losses.

“If you look at the performance of some of the recent IPOs, there are a good number of issues that didn’t work after the listing. This is a worrying sign, ”says Kapoor of UBS. “I think we’re just starting to enter a phase where there’s segregation between the strong IPOs and the relatively weaker ones. Overall, the outlook is still bullish, but it might not be easy to bring a not-so-strong company into the IPO market and get very high valuations. “

If you are considering investing in an IPO, be sure to read the section on risk factors in its draft document. This section includes details about current and potential litigation, disputes, business risks and any other factors that could negatively impact the business in any way in the future. Even the IPO market is full of risk. Currently, the situation looks good enough for companies to launch their offerings, but history is replete with cases where sentiment has taken a sharp turn and stocks have plunged.

What are the current risk elements around us? “The peak in the cases of Covid-19, the inflationary risks that are pushing the Fed to accelerate its withdrawal from the bond purchase program, the movement of interest rates and the relative impact on the rupee of these macroeconomic challenges will be key factors to watch out for, ”said Bank of America’s Balakrishnan. Saraf of ICICI Securities, which manages 30 IPOs with a cumulative value of $ 10 billion, adds that if interest rates rise in the United States, it could lead to an outflow of funds from the REIT and an impact on the REIT. short term on all stock markets in the form of debt. yields would improve.

The Zomato moment has passed. Will history be remembered as a happy milestone that changed the nature of Indian stock markets? Or, will it become a case study of how the valuations of booming startups were ultimately rendered unsustainable by a cutthroat profit-driven and profit-driven stock market? The answer will come years later. At that point, today’s investors will know whether they did the right thing or not.

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