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Wednesday, 31 October 2018

How to Plan an IPO During Volatile Market Conditions?

In the past we have seen IPOs getting postponed due to volatile market conditions. The reasons could be varied. For example, managements may be worried about a tepid response. They may also be concerned that weak market prices could spook the demand for IPOs. Also there is a lot of negative press in bad markets and the IPO may get lost in the melee. Take the case of the Saudi Aramco IPO that was supposed to come out with a valuation of $1 trillion during 2018. The Kingdom of Saudi Arabia had to postpone the IPO due to unfavourable market conditions and due to the volatility in oil prices. Aramco is now talking about an IPO meaning with a potential valuation of $2 trillion, but that only looks all the more impractical. That brings us to the question of how to plan an IPO when the market conditions are extremely volatile?

How to plan an IPO during volatile market conditions

Planning your IPO when market conditions are volatile

The easiest way to handle volatile market conditions is to postpone or put off the IPO for the time being. That may not be the ideal answer if good deal of preparation is already made. That is why a Plan-B always helps. Plan-B is intended to be your strategy when your original IPO assumptions are questioned by too much volatility in the markets. Here is how you need to tweak your IPO strategy in the face of market uncertainty.


  • One thing you can look to do in volatile times is to tweak the size of your IPO. You may end up raising around 20% less money but that is better than raising no money at all. During the current fiscal year, ICICI Securities had to resort to that. The company had to reduce the size of its IPO due to negative market conditions and the negative vibes around the conflict of interest issue involving their then CEO. Reducing the IPO size in the last minute may still look embarrassing so if you have the time to plan you can reduce the size in advance so that it is more of a conscious strategy.
  • Another method of handling volatile markets is to reduce the price of the IPO to make it more attractive. You can gauge this fact by talking to institutions and taking their inputs. A lower price may be the right strategy as it makes the IPO less aggressive and hence more attractive to the investors. Of course, your story should be intact and the valuation matrix should also be intact in this case.
  • Aggressive marketing is another way of playing through volatile markets. Normally, volatile markets require more of guidance and that what you must use your IPO to provide to investors. Take the brokers into confidence and tell them to adopt a more financial planning approach to investors rather than an IPO specific approach. This can be helpful to your IPO and also to the brokers.
  • Focus on the unique selling proposition of the company and the business. Explain how your model is ready to handle disruption and also prepared to disrupt the sector. Institutions are always looking for a good story and this is the time to force the story through. Quite often, your institutional investor interest can become a guiding force for the retail and HNI investors.
  • Tie up with financers so that the HNI investors are active. They normally rely on funding for putting their IPO applications. If you can work out an attractive package of fund for them, they would be more than willing to stand up and invest in the IPO. Use this as an opportunity to tap the vast HNI segments.
  • Look at innovative methods of tapping your clients. The traditional methods of campaigns are quite outdated. Don’t worry too much about oversubscription. Even Infosys struggled to push its IPO through. But the value they created for their shareholders is well known and also well documented.

Approach your customers with full preparation and go armed with data. Nothing emphasizes the importance of an IPO as well as data does. If you can reasonably demonstrate to the retail and institutional customers about the value proposition with adequate back testing, they will be more than willing to buy your story.

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