Fund raising through primary market for equity offerings was more subdued in 2022 compared with the previous year. With the secondary market experiencing volatility right from the outset of this year due to geopolitical tension and large foreign portfolio outflows due to central bank tightening, the quantum of money raised through IPOs was far lower this year.

Around 84 companies raised ₹55,492 crore until December 15 this year, which compares quite poorly with the ₹1.22 lakh crore raised by 99 primary offers in 2021. Excluding the large divestment of LIC amounting to ₹22,000 crore, the primary market fund raising looks rather dismal. But the tempered activity in the mainboard IPOs is a welcome change from the heightened speculation in 2021.

With many primary offerings on the mainboard of the exchanges listing at large premiums to their offer price in 2021, investors had begun to view these offers as a way to make quick gains. Some new-age digital companies had used the increased investor interest in primary markets to make primary offers at sky-high valuations, only to see their prices fall steeply after listing, resulting in large losses to investors. The more difficult market conditions this year have acted as a deterrent to companies demanding excessively high valuations from investors. Investors have also become more discerning having suffered losses in highly popular primary offers last year such as Zomato and Paytm. Listing day gains have been far more modest in mainboard IPOs this year with many stocks listing below offer price, dampening speculative fervour. Recent regulatory guidelines such as the one requiring digital start-ups to make additional disclosures in their offer documents regarding the valuation at which past fund-raising deals were executed and to display key performance indicators prominently, will help better decision-making in these companies. A tighter surveillance on listing day activities and on the grey market for IPOs is also called for.

The primary market activity this year has been marked by increased interest in offerings of SMEs. There were around 76 issuances on the SME platforms of the BSE and NSE in FY23, raising ₹1,465 crore until the end of November. This is much higher than the ₹916 crore raised in the whole of 2021-22 through 64 issuances. Smaller companies being able to raise funds through equity markets is a welcome trend as it provides a viable source of long-term finance to them. But SEBI needs to watch out for excessive speculative activity in this segment. Many of the SME IPOs have delivered outsized listing gains this year, implying that speculative activity may have switched to the SME platform. With disclosures and surveillance being lower on the SME platform compared with the main board of the exchanges, and liquidity and participation also being quite narrow, the regulator needs to stay vigilant so that the credibility of this platform is not eroded.