The year 2021 is becoming a record-setting year for those interested in the stock market. Be it tech firms, start-ups, restaurant chains, or chemical manufacturing companies, and all are in a race to introduce their IPOs this year in the domestic stock markets. What makes this more interesting is, all the companies are bringing in their IPOs just after the covid 19 surges.
If records are to be believed, approximately 30 companies have filed their IPO papers to raise an approximate amount of Rs. 55,000 crore this year. Moreover, at least a dozen companies are in the process of filing papers to bring out their IPO to raise an amount of approximately Rs. 25,000 crores.
This surely must have raised your eyebrows. Since we know that this year, all those associated with the stock market will have an IPO rush, we all want to know the exact reason for this sudden IPO rush in 2021.
However, before we dig into the reason why there is a sudden hike in the IPOs this year, let us first understand more about an IPO.
What is an IPO?
Initial Public Offering or an IPO is a process through which a private firm makes its shares open to the public in an attempt to raise funds from investors. After bringing in an IPO, a private company becomes a publicly listed company.
Mostly, Unicorn companies mean that they have crossed a turnover of $1 billion- apply for an IPO. Though, there are no strong fundamentals about the same. Even those companies who have strong fundamentals and are running profitable businesses can also apply for an IPO.
Why does a company go public?
Listing an IPO is a major breakthrough for any company as it can raise a huge amount from Foreign Institutional Investment (FII), retail investors, Qualified Institutional Buyers (QIB), Domestic Institutional Investors (DII), among many others. These funds are used to carry out a wide range of activities by a company like clearing debts, expanding businesses, corporate expenses, etc.
Why this IPO rush in 2021?
Now that we know what an IPO is and its benefits for a company, let us understand the reason for this sudden rise in IPO’s in 2021.
Reports have said that in the last financial year, companies have raised up to $ 4.6 billion just by launching their IPOs. If investment bankers are to be believed, they have predicted that this figure will be easily surpassed with such an IPO rush in 2021. Also, data suggested that earlier (before the pandemic), only 2 % of the country’s population was active in the stock market. However, during lockdowns, the percentage has risen to approximately 4 %.
Reasons for IPO rush
Impact of Covid 19
Many sectors, especially entertainment and hospitality, faced huge losses due to the lockdowns imposed during the SARS - 2 Covid 19 pandemic. While some faced losses, the companies that dealt with the fintech or medical sectors have made huge profits.
Those who bore losses are bringing up their IPOs to cover up the debts and have a successful running capital. The ones who gained profits are bringing in their IPOs so that they can expand and make their businesses bigger catering to a large audience.
Attempt to boost the economy
Analysts have suggested that more companies are going to bring in their IPOs this year because of the favorable policies by the Government. Also, post the lockdowns imposed by the pandemic, the government is now drafting favorable policies to support startups and companies from various sectors. This is done in an attempt to boost the country’s economy.
Also, during the lockdowns, the stock market in the country was badly affected and saw a drastic dip, creating economic havoc. The market is now gaining momentum after the norms have been relaxed.
Also, Morgan Stanley had proposed that the stock markets would see a good high by the end of this year. He predicted that the Sensex would hit 61,000 by December 2021.
Good performance of stocks by new IPOs
The IPOs that were launched in 2020 did exceptionally well. They gave a stellar performance which has attracted more and more investors to invest in new IPOs. A high retail investor interest coupled with liquidity has given them a perfect platform which has increased the demand for new IPOs in the stock market.
The above are a few reasons why there has been an IPO rush in 2021.
Which stocks are likely to rule the roost?
Well, after Coal India, Indian fintech PayTM is touted to bring its biggest IPO later this year. Coal India brought its IPO in 2010 with a value of Rs. 15,200 crore. PayTM has claimed that in 2021 it may bring its IPO with the value of Rs. 16 600 crores.
Another IPO that is much talked about is Zomato, which made a grand entry in the IPO and was considered as one of the most talked-about IPOs during its launch on 23 July 2021.
Also, the LIC, a public sector company, has also got clearance from the Union Cabinet. If sources are to be believed, LIC is planning to bring its record-breaking biggest IPO of value Rs. 70,000 crore.
Before making an investment in any new IPO, you can go through the Draft Red Herring Prospectus (DRHP) which gives a detailed account of where the company's money is going to be invested.
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