How Global Events Impact IPO Success?

Global Interest-Rate Cycles Reshape IPO Valuations

Wars, regional conflicts or trade wars create uncontestable impacts on equity capital markets and IPO deals, particularly, are always the first to feel these impacts.

Indian investment bankers, dedicated to the IPO action, balance the elements of both geopolitical events and the risk appetite of foreign portfolio investors (FPIs) in their engagement.

When there is a conflict and occasioning risk events, inevitably, FPIs will decrease their risk exposure. This results, inevitably, in lower levels of subscription in Indian IPOs, especially for IPOs featuring new-age companies or with little or no prior profit histories.

Unyielding uncertainty sends investors quickly, even, away from the rising risk appetite practice toward safety and reduces the momentum of subscription. Even the IPO proposals would be reduced, postponed, or decreased in order to avoid weak listing outcomes.

What Drives the IPO Valuation?

The actions of central banks, in particular the US Federal Reserve, in relation to monetary policy directly affect the capital flows into emerging markets like India. Higher interest rates typically lead to a strengthening of the US dollar and result in outflows from emerging-market equities.

This in turn leads to a reduction of liquidity in India's capital markets, and compresses the valuations on IPOs in all sectors of the economy, especially in the interest-sensitive sectors of financial services, real estate and consumer discretionary.

On the other hand, rate-cut cycles support improved risk sentiment and investment bankers will attest that during cycles of global rate-cutting, Indian IPOs usually see stronger subscription from domestic and international institutional investors and a stronger pricing environment for issuers.

New-Age Indian IPOs

Technology landscape changes globally are increasingly affecting investor behavior toward Indian tech IPOs. Changes in the overall market mood around global tech stocks, whether stemming from regulatory issues, weak earnings, or AI-inspired rallies, spill over into valuations.

For example, a contraction in the Indian IT index may lead to a more cautious approach toward high-growth, loss-making technology startups looking to go public in India. On the other hand, a positive outlook for industries such as AI, fintech, cybersecurity, or digital commerce will positively impact valuations for their Indian counterparts.

FIIs, DIIs Participation in the IPO Market

Although global uncertainties persist, India's increasingly robust pool of retail investors, driven by exploding demat account openings and evolving adoption of digital trading structures, continues to generate significant support for the IPO Market.

However, analysts express caution that retail enthusiasm alone can't replace the effects of large global shocks. Pricing discipline and realistic expectations for post-listing valuations remain key factors for generating sustainable performance after a listing.