IPO Surge: Navigating the Ever-Changing Market Landscape
An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time, raising capital by becoming a publicly traded entity. The secondary market deals with the trading of previously issued securities. The IPO landscape is a reflection of the broader financial market's dynamism. Recently, It has shown remarkable resilience in the face of the pandemic, rebounding with record-breaking activity.
The IPO market has rebounded strongly after the COVID-19 pandemic, with record-breaking activity in 2021 with 2,388 IPOs globally, raising $675.3 billion, up from 1,327 IPOs and $335.9 billion raised in 2020. The technology and healthcare sectors have been particularly active in IPOs, reflecting their resilience and growth during the pandemic. There has also been a trend toward early-stage IPOs as companies seek alternative sources of capital. Special Purpose Acquisition Companies (SPACs) have gained prominence as a quicker and less complex route to going public.
In India, the IPO market has also seen a resurgence, with a record number of IPOs. In 2021, there were 63 IPOs in India, raising a record amount of Rs 119,882 crore. The futuristic positive outlook for IPOs in 2022, where 40 IPOs raised 59,939 crores, and as of NOV 2023, 39 IPOs launched, which raised 31,932 crores, is supported by expectations of robust economic growth and government efforts to streamline the IPO process. However, rising interest rates, inflation, wars in Ukraine and Palestine, and global economic uncertainties could impact investor sentiment and IPO activity.
Valuation is a critical aspect of IPOs, and some companies have pushed their valuations to high levels in the post-pandemic market. Start-up IPOs have faced challenges when their valuations exceeded their actual performance. Several of these start-ups were categorized as "unicorns," which means they had valuations exceeding $1 billion (or a significant amount in Indian rupees). Despite their unicorn status, these companies faced challenges in the public markets. Companies such as Paytm, Policy Bazaar, and Nykaa fell substantially below their listing prices. This decline had a significant impact on investors, eroding the value of their holdings. Realistic valuations that reflect a company's financial health are essential for long-term sustainability.
The sustainability of the current market is still being determined and can be influenced by factors such as the mix of investors and political events. Short-term investors looking for quick gains and speculative trading can impact market sustainability. Experts advise a long-term investment horizon and investing based on a company's true fundamentals rather than just valuations.
In conclusion, the IPO landscape has shown resilience after the pandemic, but challenges remain regarding valuations and market sustainability. Companies must consider their valuations to align with investor expectations carefully, and investors should prioritize long-term investments based on fundamental strengths. The mix of investor types and external events can influence the market's sustainability. In this dynamic environment, a cautious and balanced approach is crucial for all stakeholders in the IPO market.