Making sense of big-bang IPOs in pipeline
It’s the year of IPOs, with Indian companies about to raise record-breaking capital from the markets. If in 2017, over 67 companies that went public collectively raised about Rs 67,000 crore—the highest annual haul ever—the 2021 IPO rush is sure to pack more wallop. Eight months into the current calendar year, some 38 companies have already scooped out a Rs 63,000-crore helping, but the market appetite, it appears, hasn’t hit its limits yet. Another 40 companies, Sebi data shows, have filed draft papers with the market regulator for public listing, of which 13 have secured Sebi’s blessings and are steps away from ringing the opening bell.
Interestingly, some of the upcoming IPOs include new-age technology firms known for their big-bang listings with obscene valuations and oversubscriptions. This is where investors need to exercise caution. Broadly, IPOs help raise interest-free capital and unlock the exit-door for sitting shareholders. There’s another category—which investors must avoid—where companies simply try to capitalise on the market frenzy. Data compiled by Capital Minds shows that one in every four companies that went public during the 2010 boom ceased to exist. One out of every two are trading below the issue price even a decade after going public.
Clearly, the ongoing IPO rush is partly influenced by soaring benchmark indices and the wall of liquidity provided by the central bank. In some cases, HNIs and institutional investors are the driving force, taking valuations to dizzying heights. A case in point is the recent listing of Zomato, whose IPO was oversubscribed nearly 39 times. All this, in turn, is attracting retail investors, who are weighed down by the twin evils of negative real returns on deposits and falling incomes. Buoyed by the equity market prospects, some three crore new demat accounts were opened in just one year—again the highest annual churn—taking the tally to eight crores as of June. While stock markets do offer attractive returns, they come with hidden and unforeseen risks and investors shouldn’t get unduly swayed.