US Rating downgrade may cast difficult times ahead for IPOs

A downgrade of US credit ratings by ratings agency Standard&Poor’s from an AAA to AA+ triggered heavy sell-offs across the global markets including on the Dalal Street. US credit rating has been lowered by S&P for the first time since granting it in 1917. S&P said that in addition to the downgrade, it is issuing a negative outlook, implying that there is a chance that it may lower the rating further within the coming years. S&P also stated it was now pessimistic about the capacity of US Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon

Indian markets, as ever, reacted to the negative news and have plunged over the past few trading days with the Sensex now dipping well below 17000. Apart from very brief reliefs, most of stocks, including heavyweights have been hammered quite a bit. Although the market may bounce back, any sort of repair work is likely to take time. When it comes to IPOs however, where its timing is often the most crucial factor that drives its fate, raising capital through IPOs at this point could be real tough, if not a herculean task. The downgrade and the resulting negativity in sentiments would certainly be a challenge for companies who already have their IPOs scheduled

It is quite evident that these types of jolts in markets would halt some IPOs and even reset pricing of certain others. How bad it gets for the markets or whether they do bounce back any time soon will come to light in the days to come, but, while the IPO pipeline may be strong, even the bravest would wish to postpone hitting the streets at this time