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2021- India’s year of Initial Public Offerings/ IPOs

April 25, 2022

By Rupin Chopra and Apalka Bareja

In 2021, India witnessed a record number of Initial Public Offerings (IPO) where over 40 firms had already launched their IPOs till September raising over ₹70,000 crore with more companies in the pipeline waiting to go public in 2021. This raises a question as to why so many companies are going public and why is there an increasing demand for the IPOs?

In order to remain competitive companies have realized that they must adopt modern technology and be a part of digital transformation trend. There is also a growing craze of retail investors to participate in IPOs. The recent IPO For Zomato created a frenzy in the Indian Market as the company bucketed up close to Rs.3.5 lakh crore through the applications where it wanted to raise about Rs.9,400 crore. The IPOs are receiving an overwhelming response which reflects the change in the way retail investors are investing and the shift in their investment patterns from fixed deposits and real estate to IPOs and share market. This shift is mostly driven by the higher profit potential in the stock market. Zomato, for instance, doubled investor money in less than 10 days.

Let’s look at what IPOs are to better understand the craze among the people.

What are Initial Public Offerings or IPOs?

As a result of the Covid-19 pandemic many businesses are affected and are in dire need of funds to get back in the business and face the competition in market. One of the best way of raising funds is through IPOs. It also lets the early investors in the business to cash out their investment.

IPO refers to the process of offering shares of a private company to the public. This process converts a private company to public company. Before transitioning into a public company investment is made only by small group of investors like promoters, professional or angel investors.

Why companies are going public?

IPO brings value and prestige to a company and added funds serve as an icing on the cake for the company. A business may need funds for numerous purposes some of which are listed below:

  • The additional capital that company raises through issuing IPO can be used for expansion, technology advancement, research and development, corporate expenses or paying off debt.
  • Other avenues by which capital can be raised like private investors, venture capitalists or bank loans are often very expensive.
  • IPOs also ensure that the companies going public get huge amount of publicity by making their products known to a new group of potential customers. This leads to increase in the market share of the company as more and more people want to hold the shares of such a company.
  • A company with a successful IPO has a better standing and finds it easier to raise funds from both government and private lenders. Such companies have a better position to negotiate about the terms of the agreement.

In addition to these, The Securities and Exchange Board of India (SEBI) has also eased listing norms for start-ups, enabled minimum public offerings, thus easing the IPO mechanism.

Why people find it beneficial to invest in IPO?

Hordes of people specially millennials and Gen Z are looking to mark their debut in stock market. With increase in household disposable income and ease of opening Demat accounts retail investors are being attracted to participate in the IPO and stock market. By investing in an IPO, an individual can become a part of company’s high growth potential. It may give rapid profit in short run or even help in generating wealth in the long run. It helps common man to fulfil his long term financial goals. IPO is generally offered at a discounted rate. This is the cheapest price which is offered if the company goes big in future. Once the window to invest in an IPO is closed, the stock price may skyrocket making it financially burdensome to buy the shares.

IPO Hot Cake

Giants  like Zomato, LIC, Paytm, Nykka  PhonePe, MobiKwik, Grofers, PolicyBazaar, Flipkart Internet and Delhivery have gone or are likely to go public this year. PayTM is expected to join the IPO league by October 2021, with its Rs.16,600 crore (US$ 2.24 billion) listing, which is likely to be the biggest listing ever. Life Insurance Corporation’s (LIC) IPO- public sector insurance giant is also expected to raise at least Rs 70,000 crore alone.

IPOs like Nureca, Paras Defence, MTAR Tech, Nazara Technologies, Tatva Chintan turned multibaggers this year with Nureca reporting a surge of as high as 418 percent versus its issue price

Conclusion

IPO fever continues in India with more people wanting to make robust returns in a short period in case of a premium listing. Most of the IPOs of the year have proved to be really profitable for the investors and are continually trading above the issue price. Experts have advised investors to work on a diversified portfolio and closely observe and evaluate the companies before investing. The IPOs need to display a strong fundamentals and profitability potential to attract investors to participate in the market. Seeing the market momentum, there is a major possibility that the remaining IPOs which are in line will witness a strong demand as well.

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