This year has turned out to be one of the most active for IPOs as Indian companies are keen to tap the growing investor demand in the stock market. Perhaps the best example of this IPO craze is that 15 firms filed their initial public offering (IPO) paperwork on the last day of September 2024, which became the record high of monthly filings. This IPO frenzy is not so much a bubble but one of the trends that have started appearing a few years prior.
The Scale of the IPO Frenzy
The current wave of IPOs can be seen from the number of companies out there seeking IPOs. Currently, twenty five firms have got the green signal from SEBI to mobilize as much as Rs 63,550 crore through their IPOs. But it doesn’t end there, IPO stands for Initial Public Offer and the Stock Market is going to be ever busy with it. Besides, another 48 companies are keen to get SEBI nod to mobilize close to Rs 91,805 crore. Collectively, these numbers suggest the IPOs that may be up and running will attract more than Rs 155,000 crore in the Indian market.
This IPO activity does not only lie on the total volume of offerings; it also lies with the sectors of the economy involved. It’s not all technology firms but a great cross section of industries from technology startups to old economy manufacturing firms reflecting a broad based economic optimism.
Several factors are contributing to this IPO frenzy
Strong Macroeconomic Environment
These companies have wanted to go IPO due to the thriving economic growth in India. The people hold high confidence in the nation’s growth narrative, which means more of them will be willing to engage with IPOs.
Past IPO Successes
One cause of the IPO craze is based on the high returns from most newly floated companies in the last couple of years. This has resulted in a formation of feedback and more investors are encouraged to join theIPO frenzy.
Increased Retail Participation
TheIPO frenzy has led to an influx of small retail investors. More importantly it has democratized the stock market thus offering companies a wider pool of investors to reach out to.
Government Infrastructure Push
Indian government’s core area thrust in infrastructural development has attracted private entities, IPO rush as companies look for funds to unlock this growth story.
Positive Market Sentiment
The overall market sentiment has been influenced and bears a bullish character, which has encouraged thisIPO frenzy, where Investors are eager to buy new floats.
Some of the market players that engaged in the IPO craze
The current IPO frenzy includes some big names that have caught investors’ attention:
Hyundai Motor India
Proposing to mobilize Rs 25,000 crore essentially making it one of the biggest in thisIPO frenzy.
Swiggy
Suddenly it is the tech sector’s turn to seize the IPO bandwagon with the food delivery giant planning to mobilize Rs 11,000 crore through IPO.
Afcons Infrastructure
The construction company of the Shapoorji Pallonji Group will plan to mobilize Rs 7,000 crore and thus, too, is the ‘IPO craze’ from the construction/infrastructure fraternity.
Tata Play
Previously Tata Sky, it aims to mop up Rs 2,500 crore, diversified to media and entertainment business and thus joining the bandwagon of IPOs from the sector.
NTPC Green Energy
As it plans to mobilize Rs 10,000 crore, it is among the new generation green energy companies in this environment of renewed IPO rush.
The following examines the Wholesale Effects of the IPO Frenzy on Investors
It is necessary to draw attention that despite the fact that there are so many opportunities for investors at the moment when the IPO is launched, there are some specific difficulties amid it. A SEBI study on IPOs revealed some interesting insights into investor behavior during this IPO frenzy:
Short-term Focus
Unfortunately, even during the many IPO offerings, investors are much more concerned with quick profits. More than half of the IPO shares that were floated to investors (other than anchor investors) were traded in the first week of their listing.
Retail Investor Behavior
The average retail investor invested only 49.8% of the number of shares that were given to him or her for three-months in theIPO frenzy but unloaded 50.2% of those within a week of listing.
Institutional vs. Retail
The NIIs also disposed of their stocks faster, 63.3% in the first week while the rest 42.7% by the retail investors.
Oversubscription Trend
There has been an IPO frenzy with 80 IPOs oversubscribed by over 10 times out of the 144 IPOs that have been carried out.
Positive Returns
This IPO frenzy has been generally beneficial for buyers: three quarters of all IPOs that were launched between April 2021 and December at the latest had positive returns.
Navigating the IPO Frenzy: What Investors Need to Know
New issues are here and the mania goes on, and to invest in IPOs, they have to be carefully and thoroughly examined every time.
Company Quality
Move past the hype of IPO frenzy and consider the company fundamentals. This can include issues like experience and reputation of promoters, corporate governance mechanism and financial parameters having effect over the period of a few years.
Growth Strategy
How does the company’s future development look like, what new opportunities does it see on the background of the overall industry development? IPO Obsession enumerated by the authors is problematic and can have severe consequences for firms in the long term, once the IPO frenzy is over, a sound growth strategy is paramount.And even in this climate of widespread IPO, the key element is valuation. To get a feel of whether there is merit in the valuation proposition, investors should compare the IPO price with those of the listed peers.
Sector Performance
In addition, awareness must be made about the sector to which the company belongs and about its future outlook. Even though some industries can be labeled to be participating in the IPO frenzy wave, they cannot be as effective in the long run.
The Future of the IPO Frenzy
In the following years, many analysts believe that there will be the continuation of the currentIPO frenzy. Mahavir Lunawat, Managing Director of Pantomath Capital Advisors said that the amount of more than Rs 1.5 lakh crore can be raised through the IPOs this year. The author also sees more early and mid-capitalization companies coming publicly after the market due to this raging IPO frenzy.
One other noteworthy development within this maniacal IPO billing is the perspectives of multinationals in the Indian capital market. This could add a whole new twist to theIPO frenzy currently in the country, giving investors direct access to global brands using the Indian bourses.
TheIPO frenzy is also being backed by fund and mutual fund, the latter have improved by nearly 100% than previous quarters. Approaching Rs 40,000 crore for monthly capital inflow, this fund is indeed helping the market and theIPO frenzy.
Conclusion
The current craze for IPO in the market can be said to be a landmark in the economic history of India. It has signified increasing investor interest, development of capital market and then corporate ambitions cutting across sectors. [However,] it must be borne in mind that this period of high market activity is no different from any IPO (Initial Public Offering) mania which investors need to be careful about.
For this reason, although the IPO frenzy appears to provide many impressive investment opportunities, it will be important for investment managers to look beyond the obvious in order to come up with secure investment information analyses. Thus, while the process of IPOs remains active, the position of the Indian stock market will look very interesting.
FAQs
This research seeks to establish what has led to the current IPO craze in the Indian market.
Answer: Some of the unprecedented forces that are fueling the current IPO boom include favorable macroeconomic conditions in India; positive historical performance of some recent IPOs; higher participation rate by the retail investors; the government’s emphasis on developing additional infrastructure; and a generally positive investor sentiment.
What number of companies have gone for IPOs in the current IPO boom?
Answer: Alone on the last working day of this month, that is, on the last day of September 2024, 15 companies filed their IPO papers. Today, 25 companies are approved by SEBI to mobilize funds and 48 others are moving in this direction, making 73 companies at different stages of the IPO cycle.
IPO frenzy may be driven by high expectations for quick gains, but what should investors look out for when participating in this circus?
Answer: Several things should though be borne in mind by investors during thisIPO frenzy: quality of the company: promoter track record and corporate governance, growth strategy of the company, relative valuation to index/sector peers, performance of the sector and, finally, the internalization of the offer.
Are all IPOs in this frenzy generating good returns?
Answer: Not all IPOs are positive, according to SEBI’s report about IPOs that have been listed in between April 2021 and December 2023, 75% of them are positive.
How long do we expect the IPO craze to endure?
Answer: Chamber of Commerce has observed that consultancy houses are under pressure estimating thatIPO frenzy is set to persist in the near future. Market predictions indicate that this year as much as Rs 1.5 lakh crore might be mobilized through IPOs. However, the period of rapid IPOs is dependent on various economic factors and the market trends in the situation.
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