2021 turned out to be an exceptionally busy year for investment bankers dealing with initial public offerings (IPOs). If filed draft red herring prospectuses (DRHPs) are any indication then the first quarter of 2022 would be equally hectic for bankers as around two dozen companies have lined up their IPOs. Major IPOs that are in pipeline include Oravel Stays (Oyo), Adani Wilmar, Emcure Pharma, Delhivery and LIC. Industry sources predict that if LIC’s IPO hits the market, then a new IPO record, surpassing last year’s collection of ₹1.31 lakh crore, is on the cards. (see table)

Global central banks' crisis interventions to cut interest rates combined with improved corporate earnings have buoyed investors’ sentiments. Institutions and retail investors are willing to bet more on risky companies on the back of easy access to cheap capital. 2021 was the year of risk assets as global equity issuance smashed all past records, crossing $1.44 trillion, and India was no different as many new age tech companies tapped the public market for their further growth.

Speaking with Fortune India, Ramnish Kochgave, president - investment banking at Elara Capital, says domestic financial institutions are now willing to test new valuation metrics that were a no-go area for them a few years ago.

"Earlier domestic mutual funds were wary of new-age companies as the valuation metrics were different and these institutions believed that the high valuation given by private equities to such companies may work in private markets but not the public markets," he opines.

On the question of why he believes 2022 will be a good year for IPO volume, Kochgave says public market assigning higher valuation than private markets is a major reason for his belief.

“Lot of private equity guys exited in the 2021 round of IPOs which means the valuation they got in IPOs were higher than the valuation at which they entered and I believe this trend may continue,” he says.

Explaining the logic behind his belief, he says, "Private equity guys value companies on price-to-revenue or price-to-EBITDA basis, but public markets normally move under price-to-earnings metric. Recent IPOs show that domestic mutual funds are open for price-to-revenue or price-to-EBITDA as a valuation benchmark," he says.

“Blockbuster response to new age consumer tech companies like Zomato and Nykaa indicates that domestic funds have matured and now they are giving good hearing to all the proposals that are currently being pitched to them,” Kochgave adds.

Ajay Garg, founder and managing director of Equirus Capital, is quite optimistic. He says lots of good quality companies with smooth earnings are going to file DRHPs in the next few quarters.

“Weightage of India has gone up from 8% to 14% in global fund managers capital allocation list and India is slowly emerging as an option for funds that are leaving China,” he says.

Another investment banker on condition of anonymity says that the IPO market in 2022 would shape as per the volatility in the public market. “Rather than focusing on Nifty levels, investment bankers keep an eye on volatility levels and any warning signs on it may upset the IPO applecart,” he views.

Pick up in the economy and no further threat from the pandemic are must for maintaining buoyancy in the market, he adds.

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