What Is Driving the IPO Craze in 2020–2021?
It is natural to wonder why the market is thronged with IPOs even as the pandemic continues to impact the economy. It may seem unreal but there are justifications to this paradox. Collectively, companies raised ~$4.6 bn. via initial public offerings in 2020. With more initial share sales expected to hit the market later this year, experts suggest that 2021 is sprinting towards breaking the previous records!
Let’s look at what is driving the IPO craze in 2020-2021.
Excellent performance in the secondary market
The secondary market has been bullish, witnessing overwhelming activity amid the pandemic. Stocks have been hitting 52-week and all-time highs, major indices–Nifty and Sensex–have also been breaking records! This conducive environment in the secondary markets has had a rub-off effect on the primary markets as well. That is why many companies went public this year and more are looking to make a debut in the market.
Novice investors at the forefront
Given the pandemic and the resultant lockdowns, many citizens were forced to stay at home. With no other distraction and entertainment, many novice investors ventured into the market. A report by the State Bank of India (SBI) revealed that there was an influx of over 14.2 mn. new individual investors in 2020-21.
The reason? Back-to-back cuts in the repo rate have reduced the interest rate on fixed deposits (FD) and investors have been diverting their funds to equity.
High liquidity garnering increased fund inflow
With economies across the globe suffering due to the pandemic, policymakers loosened their credit policies to aid business growth. Back home, the government has assured several times that it would maintain an easy money policy till the economy recovers. This has resulted in high liquidity, which has encouraged investors both big and small to bet on IPOs.
Companies looking to tidy balance sheets
Multiple lockdowns and curfews at national, state, and regional levels either halted or slowed down commercial activities. Owing to this, many businesses incurred huge losses, which reflected badly on their financial statements. Encouraged by the increasing retail investor participation, companies are looking to raise funds via IPO to shore up their balance sheets.
Promoters and big investors diluting their stakes
If you have been actively analysing IPOs, you may have noticed that the share sale of several companies was purely offer for sale (OFS). If you are not familiar, OFS is a way through which promoters of a company sell their shares to the public. In addition to the promoters, private equity players of many companies also took the opportunity of a thriving market to monetise their investments.
Performance of IPOs so far
Of all the IPOs issued so far, many companies including MTAR Technologies, Mrs Bector’s, and Nazara Technologies were oversubscribed by more than 150 times. Such commendable success of the recent initial public offerings boosted the sentiment in the primary market.
While most IPOs listed at a premium to their issue price, a few companies including CarTrade Tech, Macrotech Developers, and Nuvoco Vistas listed at discount.
Talking of the post-issue performance, many IPOs have generated handsome returns for investors. However, a few of them are trading below their issue price. Below are two examples.
Nazara Technologies
Issued in March this year, Nazara Tech is trading at 15.50% higher than the issue price.
CarTrade Tech Ltd
Issued in August this year, CarTrade is trading at -2.11% lower than the issue price.
Finally, investors are also enthusiastic about the mix of sector-specific companies such as speciality chemicals, manufacturing, fintech, and e-commerce eyeing IPOs. In the next 2 yrs, around 18 unicorns including Byju’s, Flipkart, Paytm, and Ola are set to hit the market with total initial public offerings worth $11-12 bn.
For More Info Visit TAXAJ
Posted By :- Anuj (Team Taxaj)
Related Articles
Paytm IPO: Should you subscribe or not?
IPO Synopsis The One97 Communications subsidiary, Paytm IPO has opened for subscription from 8 November to 11 November with an aim of raising Rs.18,300 crore. This IPO is set to be 22% bigger than the largest IPO till date- Coal India, which raised ...How is a Stock Market Regulated & Managed?
What is the stock market? Investing in equities is an important investment that we make to generate inflation-beating returns. This was the conclusion we drew from the previous chapter. Having said that, how do we go about investing in equities? ...How to Make a Winning Long-Term Stock Pick
Many investors are confused when it comes to the stock market; they have trouble figuring out which stocks are good long-term buys and which ones aren't. To invest for the long term, not only do you have to look at certain indicators, but you also ...Real Estate Investment Trust Explained Here
Everything You Need to Know About Real Estate Investment Trusts (REITs) The American satirist and author Mark Twain once famously said “Buy land, they’re not making it anymore”. While he might have intended the statement as a joke, in India, land, ...Avoid these mistakes while Investing in mutual funds
Sharp correction of March 2020 and subsequent quicker recovery has attracted many investors to the equity market. The majority of them are investing through mutual funds. I wish to warn these new investors against the novice's mistakes while ...