34 IPOs raise Rs 39,380 crore despite September market selloff; will trend continue?

India’s initial public offering market pushed ahead in September despite a sell-off in the stock market, setting records for both deal launches and draft prospectus filings. In the month, 34 companies raised nearly Rs 39,380 crore ($4.1 billion) through IPOs, while 46 companies filed draft papers for mainboard offerings.

The deal flow also drew global funds. Citing National Securities Depository Ltd data, Bloomberg reported that overseas investors have put nearly Rs 545 billion into the primary market this year. In contrast, they sold about Rs 3 lakh crore worth of shares in the secondary market, set for its longest weekly losing streak in 25 years.

The acceleration reflects a combination of stronger domestic liquidity, institutional demand, improved market access and the release of pent-up IPO supply following a relatively subdued first half, said Ajit Mishra, SVP of Research at Religare Broking. The valuation discipline and business quality are becoming increasingly important, with focus on earnings visibility, operating cash-flow and return ratios, he said.

The Rs 22,562 crore IPO of National Stock Exchange of India Ltd (NSE) accounted for more than 57 per cent of September fundraise. Despite concerns over valuations and earnings have weighed on listed stocks, but attractively priced new listings and a growing pool of domestic capital have allowed companies to raise money even in a difficult market.

Ratiraj Tibrewal, CEO at Choice Capital believes that domestic liquidity has been the main driver as the steady mutual fund inflows kept demand strong, and foreign institutions came in through anchor books rather than the volatile secondary market. He noted that the valuations have become demanding in pockets, especially in OFS-heavy issues.

Elevate Campuses (Rs 2,100 crore), Rentomojo (Rs 1,256 crore), Moneyview (Rs 1,092 crore), Kanohar Electricals (Rs 1,056 crore) and Hero Motors (Rs 1,000 crore) were among mega IPOs. Karamtara Engineering, Manipal Payment & Identity Solutions, ARCIL Varmora Granito, Orient Cables, Runwal Enterprises, SS Retail and Prasol Chemicals are the issues raising over Rs 500 crore from investors.

Aakash Bansal, Co-Founder & CEO, MIDASX said that investors increasingly evaluating businesses on their fundamentals and long-term opportunity. This is creating a strong environment for companies with credible growth and future plans to raise capital. A healthy IPO market naturally brings greater focus on valuation and business quality, he said.

Deepa Jewellers, Glass Wall Systems, LCC Projects, Acevector, Steamhouse India, A-One Steels, Pranav Constructions, German Green Steel & Power, ArMee Infotech, SRIT India are IPOs below Rs 500 crore. Issues like Manika Plastech, Rays of Belief, Jindal Supreme, Nityas Gems & Jewellery, Shah Investor's Home, Vishal Nirmiti, Swastika Infra, Adroit Industries and Sonaselection India raised below Rs 200 crore from their stake sales.

The high numbers on subscription do not imply that an IPO is correctly priced. One has to examine revenue generation, profitability, cash flow, the level of debt, and how the valuation compares with other listed companies in the industry, said Piyush Jhunjhunwala, Founder and CEO at Stockify. "Investors shall focus on business fundamentals, rather than subscription buzz for an IPO."

The final quarter is expected to remain busy. Large offerings in the pipeline include Jio Platforms’ proposed share sale of around Rs 40,000 crore, Avaada Electro and Advanta Enterprises are also likely to launch big-ticket IPOs. One should note that about 144 companies have already received approval to launch IPOs, while another 80 are awaiting clearance.

Mishra cautioned that the actual pace of new issues will depend on secondary-market conditions, investor liquidity and absorption capacity, valuation expectations, regulatory clearances and issuer readiness. Tibrewal from Choice believes that the mew market's capacity to absorb new supply and on how quickly issuers refresh their financials to the September half-year.