After a sharp correction in the stock market last year, all the major stakeholders of the capital markets, including investors, and IPO aspirants, have become cautious to the core
Mamaearth recently faced severe backlash for reportedly aiming at an IPO with an inflated valuation
While the mainboard IPOs of the unicorns and high-valuation companies are being deferred, many smaller IPOs are taking off
After the bull run of 2021, the years to come were expected to be golden for startup IPOs. Well, the expectations were further fuelled by the 11 startup IPOs that garnered an overwhelming response during the year. According to the founder and CEO of Capitalmind, Deepak Shenoy, investors are scared right now for their portfolio companies to go public. He believes that even if these companies go public, there are chances that the market may not show much interest in them. “Amidst persistent macroeconomic and geopolitical uncertainties, exacerbated by stress in the global banking system, IPO windows are fleeting and funding conditions are getting tougher, with investors now prioritising value over growth,” said Paul Go, EY’s Global IPO Leader, in the report.“The legacy of loss that investors have seen in the past is the reason enough for them to avoid these (new-age startup) issues. Now, when the market is in a lull, the kind of response which is required to fulfil even the minimum subscription doesn’t seem to be happening. This is a clear reason why startup IPOs are being deferred,” Parashar said.Echoing a similar sentiment, Ambareesh Baliga, an independent research analyst, said that the new-age stocks have already been hammered badly, so if these IPOs have realistic stock market valuations (not PE valuation), there can be a glimmer of hope. “The underlying fundamentals that DroneAcharya has had, the reasonable valuation with which it went public, and the absence of any Offer for Sale (OFS) element, led to such oversubscription of its shares during the IPO. Also, it is sustaining above the issue price,” said Parashar.“Out of more than 100 SME IPOs in 2022, more than 30 listings turned out to be multi-baggers and the rest gave returns between 20% and 80%, excluding 15-20 IPOs. However, the last few SME IPOs gave poor or negative returns. With the story of IPO listing gains more or less getting over in the SME IPO space, public listings could dry up here too,” he added.Hence, the best possible way for the new-age companies is to start reconsidering their valuations, which might also be difficult for them as investors today want hefty returns, regardless of their financial health and dwindling growth outlook, he opined.
However, the tables turned in 2022 and only three startups could gather the courage to walk down the IPO aisle. Further, twenty days into the second quarter of 2023, no startup appears to be nearing an IPO launch.