The slowdown in initial public offerings (IPOs) may impact private equity players looking to exit through this avenue. In February, only three IPOs were launched, down from six in January and 15 in December, pointing towards a slowdown. This is happening amidst a volatile secondary market where the Nifty has dropped by 16 percent from its peak. Furthermore, three out of the last four IPOs have seen negative returns on the listing day, indicating investor caution.
The ongoing selling pressure from foreign investors and uncertainties related to global events such as the Trump administration have added to the challenges for IPO launches, especially for companies with significant exposure to the US market. This, coupled with a 20-40 percent decline in valuations, may deter private equity firms from exiting through IPOs in the current market conditions.
Pranav Haldea, Managing Director of PRIME Database, suggested that PE firms seeking exits may need to wait for a more favorable market environment or explore alternative options such as secondary sales. Last year, $3.3 billion of PE exits were through IPOs out of a total of $27 billion, representing a significant increase in value compared to the previous year.
Most PE-backed IPOs are in the mid- and small-cap segments, which have experienced heightened volatility and price corrections recently. Vivek Soni, Partner and National Leader of Private Equity Services at EY India, highlighted that if this volatility persists, finding buyers at previously prevailing multiples could prove challenging, leading to a slowdown in the IPO pipeline momentum.
In light of these challenges, private equity funds may shift their focus towards enhancing the performance and financial discipline of their portfolio companies rather than pursuing immediate exits through IPOs. Once market conditions improve, PE players are likely to reconsider the IPO route. On the other hand, companies in need of growth capital or promoters looking to divest may turn to private equity as an alternative to the public markets.
Despite the current slowdown, the IPO pipeline remains strong, with 43 filings in the past two months. Regulatory approvals have been granted to 43 companies for IPOs, while 70 more await clearance. Collectively, these companies could potentially raise ₹1.85 lakh crore through IPOs. Additionally, 23 of the 43 approved companies received regulatory nods in the last three months, indicating a window of nine months for potential launches considering the one-year validity period for IPO approvals.
