₹1.1 Trillion in IPOs Poised for Launch Amid Market Recovery

India's initial public offering (IPO) market, with a pipeline valued at over ₹1.1 trillion, may not meet expectations as numerous companies could postpone their plans or allow approvals to lapse due to weak sentiment in the secondary market, analysts suggest.

Following a record-breaking year, the country's primary market experienced a slowdown in the first two months of the year, as bearish trends in the secondary market impacted investor confidence. This led to a decline in the number of mainboard IPOs as well as a drop in the number of companies submitting draft filings.

In February, the total value of draft filings fell by more than 50% compared to the previous month, with the number of companies submitting documents dropping from 29 in January to 16. Over January and February, only nine mainboard IPOs were launched, significantly fewer than the 16 recorded during the same period last year. However, IPO activity in the SME segment remained robust.

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Market Sentiment and Delayed IPOs

As of February, 69 public issues worth approximately ₹1.15 trillion were awaiting approval from the Securities and Exchange Board of India (SEBI), according to data from Prime Database. Notably, around half of the pending companies have not yet disclosed their estimated issue sizes.

Market optimism may be short-lived unless overall sentiment improves, experts caution. The current IPO pipeline reflects last year’s market conditions, which were more favorable. Pranav Haldea, Managing Director of Prime Database Group, noted that the surge in IPO filings was driven by last year’s strong subscription demand and listing gains.

However, Haldea emphasized that filing for an IPO does not guarantee that a company will proceed with the launch. "While favorable market conditions can lead to a surge in filings, not all filings translate into actual IPOs," he said. If conditions remain unfavorable, many companies may choose to let their approvals expire rather than debut in a weak market.

Persistent volatility, ongoing foreign investor sell-offs in secondary markets, and concerns about valuations may push some companies to defer their IPO plans until the environment stabilizes, according to Prashant Rao, Director & Head - ECM, Investment Banking at Anand Rathi Advisors. However, firms with ambitious growth strategies may still move forward but must carefully assess their valuation expectations, he added.

At present, 45 companies have received SEBI's final approval but are waiting for the right market conditions to launch their IPOs, Rao noted. Investor interest will likely be drawn to companies with strong track records, solid cash flows, high-quality leadership, and attractive growth prospects at reasonable valuations rather than being purely sector-driven, he explained.

Factors Contributing to Market Uncertainty

One of the primary reasons behind the slowdown in IPO activity is the continued exodus of foreign institutional investors (FIIs) from Indian equities. Since the start of the year, FIIs have been pulling funds from domestic markets due to concerns over global interest rate hikes, inflationary pressures, and geopolitical tensions. This has resulted in increased volatility, making investors more cautious about participating in new listings.

Additionally, the global economic environment remains uncertain, with central banks across major economies maintaining a tight monetary policy stance. The US Federal Reserve, for instance, has signaled that it may keep interest rates higher for an extended period to combat inflation. Such moves impact capital flows into emerging markets like India, affecting both the secondary and primary markets.

The valuation expectations of companies looking to go public are also under scrutiny. Over the past year, many IPOs that launched at aggressive valuations failed to deliver substantial post-listing gains, leading to increased investor skepticism. Market participants now prefer companies with strong fundamentals and reasonable pricing over high-growth, high-valuation businesses.

Upcoming IPOs and Market Outlook

The primary market typically follows the secondary market. Once sentiment improves, IPO activity tends to pick up, though there is usually a lag of a few months, Haldea added. Even after the market downturn began in October, some IPOs still proceeded as they were in advanced stages of preparation. However, the current bearish sentiment is significantly stronger, he observed.

Despite the slowdown, the pipeline of upcoming IPOs remains strong, with major offerings such as LG Electronics India Ltd.’s ₹13,000 crore issue and HDB Financial Services Ltd.’s ₹12,500 crore IPO.

Several other large IPOs, including Tata Capital Ltd., Ather Energy Ltd., and ICICI Prudential Asset Management Co., are expected to generate significant investor interest. Reports suggest that Tata Group is aiming for a valuation of up to $11 billion for its financial services unit, potentially making it India’s largest IPO this year.

Experts believe that a revival in IPO activity will depend on improvements in overall market sentiment, foreign investor participation, and macroeconomic stability. While short-term uncertainties remain, long-term growth prospects for India’s capital markets continue to be strong, driven by a resilient economy, digital transformation, and increasing retail investor participation.

However, until conditions become more favorable, many companies may prefer to wait rather than launch their IPOs in a challenging market. Investors, too, are expected to be more selective, favoring businesses with proven track records, sustainable revenue models, and clear growth trajectories.

For now, market participants will closely monitor developments in global financial conditions, FII activity, and corporate earnings before making significant investment decisions. If stability returns and sentiment improves, the IPO market could see a resurgence in the latter half of the year.