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India Had 8 IPOs in Q3; H2 Looks Significantly Better: EY India Report

India recorded eight IPOs in the third quarter with Real Estate, hospitality, construction, technology, and telecommunications being the most active with two IPOs launched in each sector, said the EY India IPO Trends Report: Q3 2020

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India recorded eight IPOs ($850 million) in the third quarter of 2020 with Indian stock exchanges (BSE and NSE including SMEs) versus 12 IPOs at this time last year. Globally, India ranks ninth in terms of the number of IPOs in year-to-date (YTD) 2020 according to EY India IPO Trends Report: Q3 2020.  

Real estate (RE), hospitality, construction, technology, and telecommunications were the most active sectors with two IPOs launched in each sector. 

During Q3 2020, IPO by Mindspace Business Park REIT from RE, hospitality, and the construction sector was the largest, with an issue size of $602 million. In the main markets (BSE and NSE), there were four IPOs in Q3 2020 versus three IPOs in Q3 2019 and no IPO in Q2 2020, representing an increase of 33 percent compared to Q3 2019 and a significant increase in IPO activity as compared to Q2 2020. 

In the SME markets, there were four IPOs in Q3 2020 versus four and nine IPOs in Q2 2020 and Q3 2019, respectively, representing no change as compared to Q2 2020 and a decrease of 56 percent over Q3 2019. 

Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS), EY India said, “We have seen COVID-backed under-performance in the first half of 2020, while the second half looks significantly better. IPO’s attraction might continue to allure investors in the primary market after successful IPO subscriptions in recent times. Companies with higher standards of governance, differentiated business models, and better financial positioning will find it easier to list. Indian shares have rallied recently led by upbeat investor sentiment as businesses opened up and economic activities restarted after stringent lockdown restrictions due to the coronavirus. September has seen the most activity as compared to the second quarter when the pandemic hit India.” 

The Securities and Exchange Board of India (SEBI) had rolled out several measures amid the ongoing pandemic. These provide several temporary relaxations and one-time measures, including extending the validity of observations on the draft offer documents of companies, reducing the minimum subscription amount in rights issues by companies and increasing permissible issue size variations from 20 percent to 50 percent, to name a few. 

New guidelines are yet to be finalized for an overseas listing of Indian companies. Once these enabling provisions are enacted into law, it would allow Indian companies to directly list on certain foreign stock exchanges. In addition, while many IPO plans had come to a standstill due to the pandemic, several start-ups have now gone ahead and announced their IPO plans. 

Global findings 

Q3 2020 bucked the traditionally slow IPO period as the markets were awash with liquidity resulting in the most active third quarter in the last 20 years by proceeds, and the second-highest third quarter by deal numbers. Globally, YTD IPO activity accelerated, resulting in a 14 percent increase in the total number of IPOs to 872, and an impressive 43 percent rise in proceeds of $165.3 billion. 

Americas IPO activity picked up the pace in Q3 2020: IPO activity in the Americas gained momentum overall, seeing an 18 percent increase in IPOs (188) and a 33 percent increase in proceeds ($62.4 billion) YTD, exceeding 2019 YTD levels. While the health care sector dominates YTD in the number of IPOs (71), the technology sector leads in proceeds, raising US$22.3 billion through the quarter. The Americas have proven to be the birthplace of unicorn (privately held startup companies with a value of over $1 billion) IPOs, launching 12 of the 2020s 18 IPOs in Q3 alone. 

US exchanges accounted for the majority of IPOs with 82 percent of deals and 87 percent of proceeds in Q3 2020. In addition, the importance of Special Purpose Acquisition Company (SPAC) IPOs on US exchanges also rose in 2020. In other parts of the Americas, the Brazil IPO market picked up as low-interest rates led investors to the stock market, with 13 IPOs through Q3 2020, compared to no IPOs during Q3 2019, putting 2020 on track to be the most active year in Brazil since 2007. 

Asia-Pacific IPO landscape grows stronger, the window of opportunity remains open: YTD 2020 Asia-Pacific IPO activity has surpassed YTD 2019 activity by both volumes (29 percent) and proceeds (88 percent). Activity in the region accelerated in part due to COVID-19 pandemic- related government stimulus policies, for example, employment subsidies provided to airlines in the region. 

In Greater China, Q3 2020 IPO activities are on track to hit historic highs with deal numbers and proceeds up 152 percent and 139 percent, respectively year-on-year. As US-China trade tensions heighten leading up to the US presidential election, some Chinese companies listed on US exchanges chose to conduct a secondary listing on the Greater China exchanges, tapping into the Chinese equities market.  

The market in Japan has also intensified compared to Q3 2019 with a 67 percent increase in numbers and 40 percent rise in proceeds.  

EMEIA IPO market gains momentum to get back on track 

Following a slower H1 2020, EMEIA IPO markets gained significant momentum in Q3 2020 with deal numbers increasing 34% and proceed rising 49% compared with Q3 2019, due in part to several large IPOs in the region. The region’s big winners are those riding on the tech digitalization wave – in a particular technology, industrial and health care sectors. 

In Europe, markets are beginning to rally, with Q3 2020 IPO numbers up 48 percent and proceeds increasing 51 percent as compared with Q3 2019. At the same time, the UK IPO activity increased for the region as a whole with a mega IPO (deals with proceeds greater than $1b) demonstrating the available liquidity of the market and showcasing international investor interest for the right deal. 

Q4 2020 outlook: expect the unexpected 

This year has been nothing if not unpredictable, the report. As we move into the final quarter of the year, investors may look to lock in profits as soon as they see signs of market uneasiness. Globally, a divergence between economic well-being, GDP, and stock market valuations may also cause anxiety among some investors. While there are some unknowns in the US-China trade tensions, the outcome of the US presidential election, and uncertainties still surrounding Brexit, the outlook for Q4 remains positive with a healthy spread of deals in the pipeline across many markets. As long as the window of opportunity remains open, it is expected that deals will continue to be made. 

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