Why fewer Indian companies have had IPOs in 2019

The financial year ending March 2018 was a blockbuster year for Indian initial public offerings. But it’s gone all downhill since then.

Of the 85 companies that had their IPOs in the past three financial years, a bulk of them – to be precise, 41 – happened in the financial year 2018, raking in Rs 76,200 crore, a KPMG analysis of market debuts in India shows.

The next year, though, saw a 56% year-on-year decline in the number of such debuts.

In the financial year 2019, the total funds raised plummeted by a whopping 74% to a three-year low of Rs 19,900 crore. But that’s not all.

Deal sizes shrunk by 41% from Rs 1,860 crore in financial year 2018 to Rs 1,090 crore the next year. Big-ticket deals were fewer, too.

Then there were the muted gains in share price made on the first day of trading post-IPO. The average listing day returns of the 18 companies that debuted in financial year 2019 was a meagre 2%, as against 21% the year before, and 20% in financial year 2017.

The slowdown in IPOs has come despite market regulator Securities and Exchanges Board of India making it easier for companies to list. In June 2018 it decided to reduce the number of years for which a company must declare the financial results, from five to three, before going public.

The biggest share of IPO activity in the financial year 2019 happened in the financial services sector, but it still accounted for less than a quarter of the funds raised the previous year.

Toeing the IPO line

On their part, budding companies are simply avoiding the headache of paperwork and compliance issues involved in an IPO. Instead, they are relying on high investor confidence and the country’s robust angel investor community, especially after there was some relief on the angel tax issue.

Experts also point out that startups’ lack of profitability is a hurdle to going public. Even bigwigs such as OYO and Ola are still burning cash. “Almost no Indian company, unicorn or otherwise, is in a position to make its financials public, let alone chart a clear path to profitability,” according to Karthik Reddy, co-founder and managing partner of Blume Ventures.

However, optimism still runs high. Unicorns like Freshworks, Ola, and OYO are reportedly eyeing IPOs in the US. This is despite some highly-anticipated IPOs like those of ride-hailing firms Uber and Lyft performing unimpressively recently, and co-working company WeWork even withdrawing its listing plans.

This article first appeared on Quartz.