In 2021, a number of companies went public, ranging from computer start-ups
to chemical manufacturing industries and restaurant franchises. In addition,
more companies are expected to list on domestic stock exchanges through an
initial public offering (IPO) later this year. According to investment bankers
who analyze IPOs, this will be a great year for fundraisers. 30 corporations
have already filed IPO papers for a total of Rs 55,000 crore, with at least
10-15 more preparing to go public and generate another Rs 25,000 crore. Later
this year, more companies are likely to go public.
Companies have raised the most money through initial public offerings (IPOs) in
almost a decade so far this year. Despite the impact of the Covid-19 outbreak,
it appears that the country will experience a record number of initial public
offerings (IPOs) this year. But why are so many corporations aiming to go public
in 2021? Let's try to make sense of the initial public offering (IPO) mania.
What Is An IPO?
An initial public offering, or IPO, is a procedure in which a private firm sells
its stock to the general public in order to raise funds. A private corporation
becomes a publicly listed company through this approach. Some initial public
offerings (IPOs) include an Offer For Sale (OFS), which allows existing
investors to sell their shares in publicly listed firms. The money raised
through the OFS route, on the other hand, goes to individual investors who are
selling their stock. Unicorn companies (those with a valuation of more than $1
billion) are more likely to go public, but there are no hard and fast criteria.
Typically, private companies with good foundations and a track record of
profitability file for an IPO to become publicly traded.
An initial public offering (IPO) is a significant step for a company because it
is the first time it raises a considerable sum of money from the general public.
A firm is completely owned by a small number of investors - founders,
professional investors, and angel investors - before it goes public. Companies
use capital acquired through public offerings for a variety of purposes,
including debt repayment, company expenses, and expansion.
Some Interesting Things About Ipos
- An IPO is a free issuing of equity shares that permits a private firm to
offer its shares to the public.
- Companies must follow a series of regulatory compliance defined by the
country's market regulator, the Securities and Exchange Board of India (SEBI),
before going public.
- A Draft Red Herring Prospectus (DRHP), considered the preliminary
registration document prepared by merchant bankers in charge of the IPO
selling process, is required of companies.
- The DRHP contains important information regarding the IPO, such as the
company's operations, financials, industry position, shareholding pattern,
- The prospectus also explains why the company is seeking public funding
and how it intends to spend the funds obtained.
- SEBI either clears or requests amendments from merchant bankers handling
the IPO on behalf of a particular company after reviewing the offer document
- After the IPO has been cleared by the market regulator, a company can
proceed with setting the IPO price, lot size, and launch date.
How Do Initial Public Offers Work?
When a firm receives market regulator's approval to go public, essential details
about the IPO are released. The price range for the IPO, launch date, lot
size, and share sale portioning for several types of investors institutional
investors, non-institutional investors, Qualified Institutional
Investors, existing employees and anchor investors - are all included in the
Once the IPO process has begun, a company's shares begin trading on the
unofficial market (a market for unlisted shares also called grey market) until
they are officially listed on the stock exchanges. This market's activity can be
used to estimate demand for a company's shares before it goes public. In Grey
market trading takes place over the counter (OTC), meaning they are not offered
by a stock market and can only be traded by traders.
Simply defined, grey market activity predicts whether a stock will list at a
premium or a loss on the stock exchanges. After the IPO release date, investors
usually have a short window, usually 2-3 days, to subscribe to a company's
public offering. Investors can trade for the shares on multiple trading
platforms during this time. Investors must check their allotment status beyond
the deadline through available methods, such as the BSE website or the
registrar. Company's shares are listed on the stock market on a predetermined
date once allotment is completed.
Why The Initial Public Offering Craze During Pandemic?
Since last year, a number of companies have gone public in order to raise
capital. According to data, firms raised $4.6 billion through initial public
offerings last year. According to investment bankers, this figure will be easily
surpassed in 2021 as more companies choose to go public. Since the end of 2020,
many companies have chosen to go public, owing to the impact of the Covid-19
epidemic on business and brisk stock market activity.
According to analysts, companies are going public as a result of strong stock
market performance and increased participation of first-time investors,
particularly high-net-worth individuals. According to a survey by the State Bank
of India (SBI), over 14.1 million new individual investors participated in the
stock markets in 2020-21. Despite the fact that the pandemic is still wreaking
havoc on India's economy, the domestic stock market has remained unaffected.
The S&P BSE Sensex and Nifty50 stock market benchmark indices are currently
doing better than ever. Given the strong market, a bigger number of recent IPOs
have performed well, and more investors are keen to take advantage of this
opportunity. The combination of high retail investor interest and liquidity has
produced an ideal environment for companies to go public.
Companies are going public to raise finance in the aftermath of the Covid-19
outbreak or to fund corporate expansion in response to growing demand. The
primary motivation for most digital and online delivery start-ups, such as
MobiKwik, Paytm, Zomato, and others, to go public is to generate finance and
expand their businesses as market develops rapidly. Analysts predict that over
50 digital technology companies will be listed on stock exchanges in the next
This year will see a number of large IPOs. The IPO of public sector insurer Life
Insurance Corporation (LIC), which has received Cabinet approval, is anticipated
to collect at least Rs 70,000 crore. It will be the country's largest initial
public offering. The current IPO craze, which is primarily coming from the
startup world, has resulted in ecstatic tales about sky-high valuations, massive
fund-raising, and a who's who of elite investors.
The Indian new-age IPO market, in my opinion, is in a bubble and promoters are
rushing to get their loss-making businesses on the market in order to protect
their own futures. No one seems to care how much of the IPO is an OFS (offer for
sale), in which current promoters and investors dump their own shares on public
Are they, nevertheless, to blame? Why are investors willing to pay 30-80 times
sales for companies that are not profitable, do not have a path to
profitability, or have such fierce competition that any meagre profits earned
can vanish in an instant due to competition or regulation? The answer is likely
to be found in the phenomenal success of Big Tech in the United States. Indians
have witnessed the remarkable growth of firms like Amazon, Facebook, and Google
and believe that now is the moment to invest in such new-age technology
equities. After all, hasn't Amazon been losing money for a long time?
There are two major issues with using Amazon as an example - and Amazon is
almost always used as an example.
- Amazon's retail business was struggling, but Amazon web services, which
no one foresaw coming along, stepped in and began spouting cash with a fury.
That cash is what propelled the stock to new heights.
- Amazon is and has always been a strong worldwide business with the
ability to lower costs through size. It developed a virtuous cycle by being
a low-cost, consumer-friendly enterprise that returned a big portion of its
scale gains to the client. Because of Amazon's scale, individuals were able
to get low pricing, and as a result, more people purchased more things on
the site, increasing its size. Even then, this isn't enough because many
other companies, such as Costco and Walmart, have done the same thing in the
offline world. Walmart attempted to replicate the same in the internet
realm, but failed miserably.
Take a look at the stocks of the Big Tech companies. Is it possible to imagine a
world without Google (YouTube, Search, Maps, Gmail, Translate)? Is there a tech
company in India that is as dominating in its field as WhatsApp or Facebook, or
that has as devoted a customer base as Apple? Do we have a Tesla or Netflix
equivalent? Almost all of the Big Tech companies in the United States have
global supremacy. When you look at each company that is launching an IPO in
India today, you'll see that none of them are brand new.
They've been in business for a while and are still having trouble. Their claim
to fame is a public relations campaign, most likely funded by the companies
themselves, that focuses on how much money they have garnered from investors. Is
it possible to live without Paytm for a day? Yes, without a doubt. It's really
unlikely that you'll notice. Can Zomato make money if labour laws become more
stringent or if (and when) eateries come up with their own ordering apps?
Nobody wants to be the one to say that these initial public offerings are
overpriced. Investors are ecstatic if they receive an allotment and see a
positive return on their investment. No one is interested in buying and holding
these companies for the next ten years. In reality, for many entrepreneurs,
bringing their company to market is the final goal, rather than a phase in the
long and laborious process of establishing a business.
I'm not the type of person who obsesses over monetary values. I believe that
high-quality items are always costly. But paying an exorbitant premium for
something that the promoters are eager to sell and that has a dubious business
model with a nebulous road to long-term success terrifies me. I am quite
concerned of the current IPO situation in India because I come from a
middle-class family and feel that capital is precious and irreplaceable. The
bubble is in place. In low tones, it is recognised. However, no one wants to
leave the gathering. For the obvious reason that nobody ever knows whether the
party is coming to a close or is just getting started.
During the Covid 19 pandemic, many industries, particularly entertainment and
hospitality, suffered significant losses as a result of the lockdowns. While
some businesses suffered losses, those in the fintech and medical sectors
generated big profits. Those that have suffered losses are launching initial
public offerings (IPOs) in order to pay off their debts and maintain a healthy
operating capital. Those who have profited are bringing in their initial public
offerings (IPOs) so that they can expand their operations and cater to a larger
Because of the government's favourable policies, analysts believe that more
companies will issue initial public offerings this year. In addition, following
the pandemic's imposed lockdowns, the government is now formulating favourable
laws to encourage startups and businesses in different areas. This is being done
in order to help the country's economy.
Moreover, during the lockdowns, the stock market in the country was severely
impacted and suffered a significant drop, wreaking havoc on the economy.
Following the relaxation of the norms, the market is currently gaining traction.
The initial public offerings (IPOs) that were launched in 2020 performed
remarkably well. They delivered a phenomenal result, attracting an increasing
number of investors to invest in fresh IPOs. The combination of significant
retail investor interest and liquidity has provided them with an ideal platform,
increasing demand for new IPOs in the stock market.