The new issue market experienced a boom in 2020 with a total of 43 initial public offerings (IPOs) raising $4,095.99 million. According to 'EY India IPO Trends Report: Q4 2020', as many as 15 IPOs ($4,070 million) were listed in the main market (BSE and NSE), while 28 made their debut in the SME markets ($25.99 m) in 2020.
The December quarter registered an increased activity, with ten IPOs in Q4 2020 in the main markets versus five IPOs in Q4 2019 and four IPOs in Q3 2020. This represents an increase of 100 per cent compared to Q4 2019 and an increase of 150 per cent compared to Q3 2020.
As regards to SME markets, there were nine IPOs in Q4 2020 versus six and four IPOs in Q4 2019 and Q3 2020, respectively, representing an increase of 50 per cent as compared to Q4 2019 and increase of 125 per cent as compared to Q3 2020.
The EY report further notes that Gland Pharma from the life sciences sector was the largest IPO in Q4 2020 with an issue size of $869 million. "In the main markets (BSE and NSE), real estate, (RE), hospitality and construction and diversified industrial products were the most active sectors (in terms of the number of IPOs) with three IPOs launched in each sector (including main and SME markets)," the report says.
IPO exuberance in 2021
Among key takeaways, the report points out that exuberance in the market has resulted in several companies including e-commerce and emerging technologies to accelerate their IPO plans. "Significant measures may be announced in the upcoming Union Budget 2021 that might boost demand, setting a positive tone for the Indian IPO markets," says the report.
Talking about new-age companies and their IPO plans, Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS), EY India says new-age companies are companies primarily in the technology sector or those (inc non-tech) that have adopted technology as part of the business model, leading to innovative platforms such as edu-tech, food-tech and agri-tech companies.
"These companies are growing rapidly as such when they are approaching an IPO stage and as such it is pivotal to harmonise/strengthen the financial, operational, business and regulatory requirements. This includes focus on resources (investment in talent/other resources), governance, setting up of new functions, ultimately to effectively operate as a listed company," Khetan tells Business Today.
Overseas listing norms awaited
The legal framework in India does not permit Indian companies to directly list on foreign stock exchanges. They can only do that through depository receipts (American Depository Receipts or Global Depository Receipts regime) or by listing their debt securities (such as, foreign currency convertible bonds, masala bonds, etc.) on foreign markets, says Khetan.
"In September 2020, the Parliament approved Indian companies for direct listing of certain prescribed classes of securities in permissible foreign jurisdictions. Detailed guidelines/rules are awaited."
The EY report further notes that GIFT City (Gujarat International Finance Tec-City), which offers trading in equities, currencies, and commodities, as well as a listing of international bonds might emerge as an additional platform for Indian businesses in global markets.
Globally, Indian stock exchanges (BSE and NSE including SMEs) ranked ninth in the world in terms of the number of IPOs in the full year of 2020.