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Coronavirus: How it's impacting IPOs

Mid March this year, Burger King India put its IPO plans on ice because of the coronavirus-induced uncertainty engulfing markets

When it comes to IPOs, 2020 spelt promise for India.

That was up until March.

With the coronavirus pandemic, which was first recognized on the last day of 2019, rapidly spreading across nations from its initial epicentre of China and strict lockdowns becoming the norm of the day, consumerism which fuels economies went into a tizzy.

This dealt a gut punch to the investor sentiment. Subsequently, markets world over crashed and taking a cue from them, primary markets, where private companies go public by selling their stocks and bonds for the first time on bourses to raise capital through a process called initial public offering (IPO), became jittery as well.

Soon enough, companies started shelving their plans of an IPO. 

The Indian primary market, predictably enough, couldn’t escape unscathed.

With coronavirus cases rising by the day and forcing the government to impose strict measures to severely restrict movement of people, companies have started putting their stock market launches on hold.

The first three months of the year saw a total of 10 initial public offerings worth $1.41 billion. Most of those had a median size of $1 million.

But the goliath among those, the billion-dollar IPO of the credit-card arm of India’s largest national lender SBI bank called SBI Cards and Payments Services, just a month after the first coronavirus case was detected in India, set the tone.

Even though the IPO saw 26 times subscription, the stock listed at a steep discount of 13 percent from the offer price of Rs.755 per share.

Expected to be a multi-bagger on the back of rising discretionary consumption, popularity of digital payments and SBI’s strong fundamentals, it disappointed because of the near closing of the economy.

Currently, the stock is trading down 20 per cent from its issue price of Rs.755.

Another IPO candidate, Antony Waste Handling Cell, faced with weak investor interest was forced to withdraw its RS.2.03 billion IPO on the last day of the bidding.

Learning from the debacle of these two companies, many others such as Burger King, Rosary Biotech (a specialty chemical manufacturer providing customized solution mainly for apparel, FMCG and animal feed industry), KPR Agrochem and Dinesh Engineers either postponed or withdrew their market debut.

Now it remains to be seen how other entities set to hit the primary market will react to the coronavirus induced uncertainty and weak investor sentiment.

A name that features prominently on the list is LIC. It manages around Rs.30 lakh crore in assets and was expected to mop up Rs.70, 000 crore – the staggering amount was expected to help the nation narrow down its widening fiscal deficit.

However, with a bruised investor sentiment – almost all of LIC’s investments have taken a beating with its total loss amounting to Rs1.84 lakh crore in 2020 – one wonders if the government would scrap the IPO.

The same kind of uncertainty shrouds the IPO of India’s oldest mutual fund UTI AMC, online travel company EaseMyTrip, Equitas Small Finance Bank and even the nation’s largest bourse NSE.

2020 was supposed produce quite many multi-baggers including LIC and SBI Cards and Payment Services. Together all the listing companies were expected to rake in somewhere between Rs.40,000 to Rs.50,000 crore.

But that is all set to change now.

By comparison, 2019 which saw just Rs 12,362 crore raised by 16 companies on the main exchange boards – the lowest in five years – appears to have done better. Simply because 12 of the 16 IPOs doubled investor money.

As of now, for 2020, till and until coronavirus recedes completely, the sentiment in the secondary market may not revive. And till then, the primary market will remain in doldrums too.