What is Fuelling the IPO Investment Boom in India? – Research & Ranking

The primary markets, commonly referred to as the IPO markets, are on a roll. Companies are hitting the street in a hurry and investors are lapping up IPOs like there’s no tomorrow! In fact, in calendar year 2020, 15 companies raised nearly Rs. 27,000cr, more than twice the money raised in CY2019 from a similar number of IPOs.

The number in CY2021 till now is even more robust. In the first month of the year itself, four companies have raised more than Rs. 7,300cr. Almost all of these IPOs have received very high subscription figures and stellar debuts on bourses. So what’s leading to this frenzy? Let’s find out.

What is an IPO?

IPO or Initial Public Offering is a mechanism by which a privately owned company becomes a publicly owned company. In other words, promoters and other investors sell some of their stake to the general public and other large investors. By doing this, promoters and key investors can monetize some of their stake in the company, new investors can enter and the company can raise funds for future capacity expansion, debt repayment and other purposes. The process also creates a transparent and liquid platform for buying and selling of company’s shares. The success of an IPO is decided by two main factors:

1. The amount of subscription it receives from all types of investors
2. The response it gets on the day of listing

Point #1 depends on the company itself – financials, management quality, future growth prospects and so on. Point #2 can get influenced somewhat by market sentiment prevailing on the day of listing.

For now, we shall not get into any further technical details regarding IPOs as this background is good enough to understand the rest of the article.

Proof of the pudding

Here’s a summary of the IPOs that got listed in CY2020 and CY2021 (till date):

Company	Issue Close Date	Issue Size (Rs. Cr.)	Overall Subscription (xs)	Issue Price (Rs.)	Listing Date	Listing day Gains (%)	Current Gains (%)
CY2020
SBI Cards and Payment Services	05-Mar-20	10,286	27	755	16-Mar-20	-10%	32%
Rossari Biotech	15-Jul-20	496	3	425	23-Jul-20	75%	113%
Happiest Minds Technologies	09-Sep-20	702	151	166	17-Sep-20	123%	113%
Route Mobile	11-Sep-20	600	73	350	21-Sep-20	86%	224%
Computer Age Management Services	23-Sep-20	2,244	47	1230	01-Oct-20	14%	48%
Chemcon Speciality Chemicals	23-Sep-20	318	149	340	01-Oct-20	72%	31%
Angel Broking	24-Sep-20	600	4	306	05-Oct-20	-10%	15%
Mazagon Dock Shipbuilders	01-Oct-20	444	157	145	12-Oct-20	19%	49%
Likhitha Infrastructure	07-Oct-20	61	10	120	15-Oct-20	14%	71%
UTI Asset Management Co	01-Oct-20	2,160	2	554	12-Oct-20	-14%	3%
Equitas Small Finance Bank	22-Oct-20	518	2	33	02-Nov-20	-1%	30%
Gland Pharma	11-Nov-20	6,480	2	1500	20-Nov-20	21%	43%
Burger King India	04-Dec-20	797	157	60	14-Dec-20	131%	138%
Mrs. Bectors Food Specialities	17-Dec-20	541	198	288	24-Dec-20	107%	44%
Antony Waste Handling Cell	23-Dec-20	300	4	315	01-Jan-21	29%	-3%
TOTAL		26,546
CY2021 till date
Indian Railway Finance Corporation	20-Jan-21	4,633	3.49	26	29-Jan-21	-4%	-5%
Indigo Paints	22-Jan-21	1,176	117.02	1490	02-Feb-21	109%	102%
Home First Finance Co India	25-Jan-21	1,154	26.66	518	03-Feb-21	NA	NA
Stove Kraft	28-Jan-21	413	18.03	385	To be listed	NA	NA
TOTAL		7,376

Source: Chittorgarh.com, Moneycontrol.com, BSE Website

As seen in this table, most IPOs have received very enthusiastic response from investors, resulting in high subscription figures. Also, these have created significant wealth for investors since their listing. No doubt the stock markets are doing extremely well currently. Let us examine few more reasons why the IPOs have been receiving such good response.

Why this mad mad mad rush for IPO investment?

So what is the reason for this scramble for IPOs? It’s not just IPOs but even broader markets which are rallying. Let us examine the reasons one by one for the same. Some reasons could be common to IPOs and broader markets.

1. Entry of new kids on the block – retail investors

During lockdown months, a flurry of retail investors and first time traders entered the capital markets. They were lured by low market levels in March-April, 2020 and also traction from discount brokers. As per SEBI data, demat accounts grew from 39.6mn in January, 2021 to 47.6mn in October, 2020, rise of 20% in as less as 10 months, despite COVID times.

Source: SEBI Data

1. Eeny meeny miny moe, Equities is the way to go!!

The scenario in India is that there are hardly any investing options that are giving good returns. FD rate for SBI is a measly 4.40% for 1yr, real estate rates have hardly moved over the past few years, PPF rates have come down 100bps over past five years to 7.10%. BitCoin market is beyond comprehension for most common investors. Gold is purchased in India more in physical form rather than E-Gold. So the most obvious choice is equity markets. 

Asset	Returns in CY2020 (%)
Bank Fixed Deposits	6.25%
Equity – Large Cap	15.46%
Equity — Mid-Cap	24.30%
Equity — Small Cap	30.41%
Short Duration Bond Funds	9.73%
Long Duration Bond Funds	12.53%
Liquid Funds	4.16%
International Funds	19.08%
Gold	27.32%
Real Estate — Commercial	8.25%
Real Estate — Residential	2.00%

Source: Moneycontrol.com

1. The bigger a war chest you build during times of peace, the less you bleed during war

For owners of companies which are hitting the primary markets, this seems to be the right time to raise funds, build a war chest to tide against tough times and strengthen their balance sheets. Early stage investors, who navigated tough times with these companies are looking to cash in the current boom and take some profits off the table.

1. Pent up demand

India’s economy had been slowing down even before the pandemic hit us. This led to lackluster markets last calendar year with hardly any appetite for fresh equity. Hence, companies were waiting on the sidelines to raise money. As markets surged post April, 20 and continued climbing higher, companies saw this as a right opportunity to hit the primary market.

1. Boom Boom Markets!

A booming stock market is usually followed by slew of IPOs. General exuberance in markets often makes IPOs deliver stellar returns on the listing day and sometime thereafter. A word of caution though, this exuberance lasts only so long as markets remain buoyant and fizzles out thereafter.

1. Cheap money and liquidity

The world is flush with liquidity as global central banks have reduced rates in order to keep economies afloat in a pandemic-affected world. FII data sourced from website Moneycontrol also vindicates our claim – FIIs have been net sellers in equities only once between April, 2020 and January, 2021. Devoid of any returns in the developed world, markets such as India offer great returns to FIIs.

Source: Moneycontrol.com

Look out for these IPOs in 2021

Company	Tentative IPO date	Tentative IPO Size (Rs. Cr.)
LIC	Sometime in FY22	70,000
Nykaa	Sometime in FY22	NA
Kalyan Jewellers	Jan-Mar’2021	1,750
Bajaj Energy	2021	5,450
Studds Accessories	Feb’2021	450
Barbeque Nation	2021	1,000 -1,200
Suryoday Small Finance Bank	2021	400
ESAF Small Finance Bank	2021	1,000
Laxmi Organic Industries	2021	800
Craftsman Automation	2021	150 – 180
Apeejay Surendra Park Hotels	2021	1,000
RailTel Corporation of India	2021	700
SAMHI Hotels	2021	2,000
Shyam Steel	2021	500
Annai Infra Developers	2021	200 – 225

Source: Groww.in, Moneycontrol.com. Please note that this is not an exhaustive list but indicative.

Let the dust settle, let things get clearer

I don’t want to sound like a party-spoiler, but this incessant appetite for every other IPO investment is unsustainable. When the dust settles, when markets return to normalcy, we’ll be able to separate the wheat from the chaff. This is not to say that the recently listed companies are bad, but the rally is simply too swift.

History has shown that not-so-good IPOs that get listed at a premium and surge thereafter can slump to much lower than listing price or even issue price once quarterly performance starts coming in. Once again, there’s no alternative to fundamental analysis in the long term. Enjoy the party while it’s there. After it’s over, come and meet us and we’ll chart out a long term sustainable wealth creation plan for you.

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Read more:  How Long-term investing helps create life-changing wealth – TOI.