Covid-19 surge will take toll on IPOs

Mumbai: Covid resurgence is expected to not only impact India's secondary markets but also the FY22 IPO season. The expected trend assumes significance since many unicorns plan to go public in the next six to eight months.

In financial parlance, a unicorn represents a startup which has a market valuation of over a billion dollars based on the capital generated in its previous funding rounds. Accordingly, the money flow situation in the secondary market with respect to the Covid resurgence will impact unicorns' ability to give early stage investors an exit.

"Covid resurgence will have an effect on the secondary market indices which will impact IPO subscription levels," HDFC Securities' Retail Research Head Deepak Jasani, told.

"TheIPO pricing is also important. In case sufficient money is left on the table for investors, then IPOs can sail smoothly." Till recently, many Unicorns have announced plans to tap the IPO market.

"When will this happen will depend on a number of factors including the pressure on such companies to exit, secondary market conditions, track record of recent IPOs etc." At present, more than a dozen companies have received market regulator's approval, and another dozen are awaiting the same to go public.

"Companies like SBI Cards, which went public during the early stages of the pandemic, were heavily affected during their initial public offering and were listed at a discounted price," said Gaurav Garg, Head of Research at CapitalVia.

"Even this year, we've seen how the rising number of Covid-19 cases has affected Macrotech's developer listing. So, if this trend persists, we could see a drop in IPOs." Besides, IPOs as a means of raising money for giving exit to investors have gained importance lately. "After the strong IPO show in FY21, we expect a similar trend in FY22 but only after the current consolidation phase that has been triggered by the Covid resurgence subsides," said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.

"Once the market start making gains then we expect all kinds of companies to go public - be it unicorns or others. Many have already attained regulatory clearance to enter the primary market. Last fiscal, India Inc. raised more than Rs 30,000 crore.

"Infection rate is expected to reduce in the coming weeks, as noticed in developed countries, and unlikely to impact the future outlook of businesses and thus IPOs market. It is great time, especially for new generation businesses, to raise money from the market," said Vinod Nair, Head of Research at Geojit Financial Services.