By- Bhavesh A Shah, Managing Director, Consumer and Healthcare  Banking, Equirus 

After a robust calendar year 2021 for IPO market that helped companies debuting on capital markets raise over INR 1,306 billion, the calendar 2022 seems to be more somber in the year so far with a fundraise of only INR 475 billion. The rainy months of June and July were dry months for IPOs followed by little activity picking up in August and September. The third quarter i.e. July to September of 2022 saw a fund raising of just INR 29 billion compared to a whopping INR 521 billion during the same period last year.

This phenomenon has largely been due to uncertainty in the global markets, which in general has also impacted the foreign portfolio investments (FPI) in India. The FPI investments have been a negative USD 22 billion in the year till September 2022. The strengthening of the USD / INR has been a significant influencer in the FPI trends, which in turn has been a function of the US Fed rate movements and expectations. While the domestic inflows have been providing a reasonably good counterbalance to the FPI outflows, they have been largely confined to secondary market investing and value capturing by the domestic institutional investors. The domestic institutional investors have been tentative towards the IPO markets, which seemed to have been overvalued for most of this year.

It is just a matter of time and how the interplay of the Indian economy shapes up relative to the world economy, the foreign investors will loosen up their purse strings to invest in India. They are clearly watching and tracking how India can grow well while managing the inflation rate.

The centre’s and RBI’s policy moves in that direction can potentially delink India from the emerging markets investment basket for the global investors. If that happens, India can become an independent investment destination attracting significant amounts of greenbacks. Given this, despite the global uncertainties, India does appear to be a bright spot investing destination in the world.

Amongst many positives, India is undergoing a structural shift in the world as it is firmly jostling for its space to be the manufacturer to the world. India has largely been a services-oriented economy for the past few decades. The next few would see manufacturing sector gain a
significant portion of the economy. The other key strength for India comes from stronger balance sheets of companies, banks and individuals.  Stronger balance sheets for Companies, by way of steady deleveraging and smarter working capital management; Banks, by way of resolution of bad loans and Individuals by way growth in income by way of enhanced entrepreneurship and increased work force.

Growing consumerism in India is one of the other major factors adding to its domestic strengths. Unfortunately, the demographic dividends of benefiting the consumer spending have been interrupted by several aspects since the last 6-7 years – be it the demonetization, the GST
implementation and then the Pandemic.

This Diwali, however, optimism is looming large with lights expected to be brighter. The consumers are widely expected to come out of the pandemic enforced closets and splurge out on big purchases, from jewellery to apparels to durables and even cars and homes. This is despite inflation perking up the prices and the ecommerce companies not doling out large discounts as they had been doing so on the back of equity financing to buy growth. The growing incomes, the kicking in of the wealth effect coupled with positive sentiment is expected provide the much-needed boost after so many years.

The lead indicators are clearly there for us to see. The passengers at the airports are bursting at the seams, the planes are full clearly reflecting that the travel is back after being submerged during Covid times. The restaurants have started doing well and the footfalls in malls are inching up. Events are back with a greater number of people and get-togethers are becoming more frequent. Social distancing is giving way to social bonding. Work from home is giving way to work from office and travel. This would mean upgrading of wardrobes among other buying.

These trends are encouraging enough to see that the rising consumer spending will have a trickle-down effect impacting across the economy, through various sectors including consumer, retail, manufacturing, logistics, financials etc. leading to higher growth in revenues and
profitability of the listing wannabe companies. On the other hand, a large section of the 100+ companies waiting in the wings to get listed are
dawning upon the realization of correcting their valuation expectations. An increased growth and profitability of the companies coupled with tempered out valuations will likely lead to a more active IPO market.

Diwali has always represented the triumph of light over darkness. This year’s Diwali, given the sentiment, vehemently promises to bring back the cheer to the IPO market. So, let the festivities begin! Happy Diwali!