Sharp decline in IPOs in third quarter, but more expected before elections says EY data

Last Updated: Tue, Oct 09, 2018 12:58 hrs

Initial Public Offerings, considered as the easiest way for corporate to raise capital may not be the easiest way after all. This, according to data released by Ernst and Young.

In fact, the number of IPOs released in the third quarter of the year has drastically reduced. In the third quarter this year, only three IPOs were raised in comprison to 11 in 2017.

EY in a report titled India IPO Market Insight said that a signficant decline was reported in the third quarter in comparison with the same period in 2017.

A similar trend was witnessed in the SME segment too. There were 19 IPOs in the third quarter (Q3) of 2018 versus 49 IPOs in Q3 2017, representing a drop of 61%.

Sandip Khetan, National Leader for Financial Accounting Advisory Services at EY explained that the decline in IPOs suggested a difficulty in raising equity capital.

"With an ongoing volatility in equity markets along with the rising risk of trade-wars across different markets, it is becoming difficult for companies to raise equity capital," he said.

Other factors contributing to uncertainties were currency volatilities, higher inflation in the US that compelled central banks to tighten monetary policies (increase in interest rates). These further resulted in withdrawal of investments from emerging markets back to the US.

Khetan also added that companies looking at tapping markets in the near term needed to look proactively to alternative sources to raise capital.

The report also observed that 128 IPOs garnered $5.24 billion in the year until August. Sectorwise, manufacturing sector (Metals & Mining and Chemicals) is the most active sector in terms of the number of IPOs, whereas financial sector is at the top in terms of issue proceeds, the report said.

Khetan and analysts at Ernst and Young are confident that the remainder of the year could be busy owing to a strong pipeline of Draft Red herring Prospectus filed with the SEBI (Securities and Exchange Board of India).

The report added that companies were expected to advance IPOs to last quarter of 2018 owing to the general elections.