India’s market regulator had one of its busiest months in August as a record 29 companies filed draft prospectuses for public listing, highlighting India Inc.’s current frenzy for exploit an uncontrollable rally in the stock markets.
This is the highest single month count in the past 17 years, for which time this data is available from the Securities and Exchange Board of India (Sebi).
While the straight line for Initial Public Offerings (IPOs) reflects the current dynamism of the primary market, fueled by excess liquidity and an appetite for new sectors, past records of such highs are revealing.
Since June 2004, the previous record of filing of draft IPO documents by companies with Sebi in a single month was 22. This number was recorded three times: in February and December 2006, and in September 2010. These periods, however, saw strong corrections in the benchmark BSE Sensex following such spikes in IPO filing projects.
After September 2010, the Sensex fell 17% over a 12-month period and the number of IPO filings fell to three. The monthly average of deposits is 6.2 over the 17-year period from June 2004 to August 2021.
In comparison, 2006 was different, as a healthy IPO pipeline stretched longer. During the 30-month period from August 2005 to January 2008, 24 of those months saw 10 or more filings of IPO documents. However, during the 12 month period that followed, the value of BSE Sensex halved and the number of deposits dropped.
Granted, record deposits in August have capped a steady increase in deposits in recent months. In three of the past four months, a period in which the Sensex has jumped 18%, the number of such deposits has been in double digits.
A new factor seen this time is the entry of Internet businesses. Given their high capital requirements and loss-making nature, Internet businesses have traditionally been served by private capital. But, lately, this trend is changing.
This change was encouraged by the relaxation of entry standards for online businesses by Sebi. This saw Zomato, MobiKwik, Paytm, and Policybazaar file draft IPO documents. A resounding response to Zomato’s IPO and a profitable listing in July encouraged other online businesses to follow suit, including Cartrade, Nykaa and Ixigo. In addition to raising new capital, these potential IPOs also have a good component of existing investors looking to sell part or all of their shares.
Keen to profit from the current market dynamics, companies in a range of industries other than e-commerce companies have also expressed a desire to sell shares to the public in August. The list includes MapMyIndia (mapping solutions), Fino Payments Bank (fintech), Latent View Analytics (data analytics), Tracxn Technologies (data and information services) and Emcure Pharmaceuticals (pharma).
Since the primary and secondary markets tend to move in tandem, the number of such companies that transition from filing IPO documents to completing an IPO will depend on whether the show of force continues. of the secondary market. The same factor will determine the pipeline of companies approaching the markets in the coming months.
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