The Future of IPOs: Predicting Trends and Innovations in the Public Offering Space

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Introduction

The IPO (Initial Public Offering) space is one of the most exciting and dynamic areas of the financial market, where companies and investors meet to create value and growth. IPOs are not only a way for companies to raise capital, but also a way for investors to participate in the success of innovative and disruptive businesses.

However, the IPO space is also constantly changing and evolving, influenced by various factors such as technology, regulation, competition, and consumer behaviour. In this blog post, we will explore some of the possible trends and innovations that may shape the future of IPOs in the next decade.

Predicting Trends and Innovations in the IPO Space

Based on the current and emerging developments in the IPO space, we can make some predictions and speculations about the possible trends and innovations that may occur in the future. Some of these include:

  • The proliferation of alternative IPO methods, such as SPACs (Special Purpose Acquisition Companies), direct listings, and dual-class shares, which may offer more flexibility, efficiency, and control for companies and investors. These methods may also challenge the traditional role and dominance of investment banks and underwriters in the IPO process.
  • The integration of blockchain and cryptocurrency technologies, which may enable more transparency, security, and decentralisation in the IPO process. For example, companies may issue digital tokens or coins instead of shares, and investors may use smart contracts to execute transactions. These technologies may also create new opportunities and challenges for regulation, valuation, and taxation.
  • The emergence of new sectors and markets, which may drive the demand and supply of IPOs in the future. For example, sectors such as biotechnology, green energy, and artificial intelligence may see increased IPO activity, as they offer solutions for some of the global challenges and opportunities. Moreover, markets such as China, India, and Africa may see more IPO activity, as they offer large and growing consumer bases, as well as untapped potential.

IPO Landscape in India

Before delving deeper into the IPOs of new-age tech stocks, let's briefly examine the overall IPO landscape. According to BSE data, 92 companies opted for the IPO route in 2023 until mid-November, surpassing the 90 companies in the entire 2022. By early December, the number of IPOs exceeded 100. Notably, SME IPOs in 2023 outnumbered mainboard public listings. Although the first half of 2023 mirrored the previous year's sluggishness, a reversal occurred in the second half. IIFL Securities data reveals that out of the 48 mainboard listings in the first 11 months, 39 occurred between July and November.

For these 48 companies, the intended fundraising was INR 44,159 Cr, but the total subscription interest, spanning qualified institutional buyers (QIBs), high net-worth individuals (HNIs), and retail investors, reached INR 14.29 Lakh Cr. Tata Technologies' IPO, the Tata Group's first in two decades, garnered substantial demand, with 70X subscriptions and bids totaling INR 1.56 Lakh Cr. Other notable IPOs included Mankind Pharma, Gandhar Oil, and JSW Infrastructure.

Future Prospects for Companies in IPO Sector

In the startup sector, five new-age tech companies—ideaForge, Mamaearth, Yatra, Zaggle, and Yudiz—went public in 2023. Their cumulative IPO size exceeded INR 3,600 Cr, contrasting with a little over INR 5,500 Cr in 2022 and approximately INR 50,000 Cr in 2021. t's worth noting that 2021 saw 11 new-age tech startups going public, while only three did so in 2022. Despite numerous startups delaying their IPO plans, experts anticipate a surge in new-age tech IPOs in 2024.

The EY report on Q3 2023 IPO data attributes the heightened IPO activity in India to robust economic conditions and positive investor sentiments, anticipating this momentum to persist into the second half of 2024. Looking ahead, key trends in the Indian new-age tech IPO market for 2024 include an expected rise in IPOs, categorised into three groups: those with filed draft red herring prospectuses (DRHPs), those with prior DRHPs but withdrew or didn't list due to market uncertainty, and those aggressively pursuing IPO plans in 2024.

Notable companies in the first category include Navi Technologies, GoDigit, PayMate, Portea, EbixCash, and OYO, with a cumulative IPO size of around INR 20,250 Cr. Amid uncertainties such as geopolitical tensions and high-interest rates, startups like Swiggy, PayU, Awfis, and Garuda Aerospace fall into the third category, targeting mid-2024 listings. The IPO plans of Swiggy and Ola Electric are anticipated to be highly awaited in 2024, with Ola Electric eyeing a market capitalization of $10 Bn. Amid a global market slowdown, the trend in the last two years has seen an increase in SME IPOs in India, with 2024 expected to witness a focus on mid- and small-sized IPOs rather than large ones.

The upcoming general elections in 2024 are expected to influence the IPO timelines of several companies, including OYO, Swiggy, and FirstCry. The success of IPOs in 2024 is predicted to hinge on companies demonstrating strong fundamentals, profitability, or a clear path to profitability. The market's emphasis on profitability was underscored by the share price performance of new-age tech companies like Paytm, Zomato, and PB Fintech.

Furthermore, companies planning IPOs in 2024 are likely to seek reasonable valuations, with investors scrutinising valuations closely after the wealth erosion of high-valuation listings in the previous year. A notable shift is observed in Indian startups preferring domestic listings over overseas ones. Regulatory concerns, a lower corporate tax rate, and the Indian government's efforts to ease compliances are factors promoting this reversal. Increased demand from high-net-worth individuals (HNIs) and retail investors is expected to drive up IPO subscriptions in 2024. SEBI's decision to divide the non-institutional investor (NII) category has contributed to this trend.

Conclusion

The IPO space is a fascinating and dynamic field, where the future is uncertain and unpredictable. However, by analysing the current and emerging trends and innovations, we can make some educated guesses and hypotheses about what may happen in the next decade. Of course, these predictions and speculations are not definitive or guaranteed, and they may change or be proven wrong by new developments and events. Therefore, companies and investors need to be vigilant and adaptable, and always do their own research and due diligence before making any decisions.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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