Published in July 2014

It indicates a high degree of investor exuberance

The number of fresh listings do not necessarily indicate a genuine economic revival

IPO’s like these are generating a lot of investor excitement and getting media attention

Alibaba Group Holding, September 2014

Twitter IPO, November 2013

Q1 of 2014 saw greater IPO activity vs Q1 2013.About 85 global listings were ready in the month of January alone.

Japan is expecting to see new listings rise to 80 in 2014. 760 Chinese companies are waiting for listing approval in Q2 2014.

Total number of IPOs on the US exchanges in 2013 was 222 with USD 59.6bn raised in proceeds. The report asserts that year 2014 will maintain the IPO momentum of 2013.

Source: Goldman Sachs

Source: EY

Number of possible public listings indicates: great economic mood, stronger investor confidence and imminent peak of speculative activity

Volume of IPOs have a significant positive co-relation with investor optimism

However, growing number of IPOs may not be a definite precursor to a bull-run. In fact, the reverse could be true!

Of the 864 IPOs worldwide in 2013, the US had about 222 new listings: the most in the world.

However, as seen in the table above, the S&P index annual return over the next 12 months for periods 2004 & 2007 marked with high IPO activity is at 9% and 3.5%, respectively which is not very high.

In fact for the year 2000, which had the highest number of IPOs in the history of US markets, the S&P index gave (-) 10% returns.

Majority of public issues happened around 2006-07, after which IPO numbers driedup to a trickle

• Looking at the two year forward return, Sensex seems to have rewarded the lean IPO periods much better.

• An investor who bought equity during a low sentiment year i.e. 2003 has made an average return of 99% and 234% on the Sensex in 2 and 3 years, respectively

• Whereas two year forward return on equity during high optimism period like 2007 and 2008, have remained comparatively low at around -1% and 31%.

Currently, the IPO market is at a 12-year low, with just three big main board listings in 2013. Also, 2014 being an election year, the IPO situation may not see a drastic revival.

Uncertain economic conditions and a volatile secondary market do not make an IPO revival likely in the very near future.

According to reports, about Rs 72,000 crore (USD 12m) worth of IPOs already cleared by SEBI are still in limbo or have been called off completely.

On the regulatory front, SEBI’s demand for offering a safety net for retail investors in the IPO market has acted as a big dampener.

Cautious market sentiments, dull economic conditions and new regulatory issues have not helped the IPO situation.

Increasing levels of investor optimism are making way forrevival of IPOs in equity markets across the world.

The large volume of IPOs are not a sign of any real economicrevival or sound market fundamentals; they merely denoteinvestor optimism.

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