The August IPO Boom Could Signal Something Deeper

This was the highest one-month tally in the last 17 years, the period for which such data is available from the Securities and Exchange Board of India (SEBI).

While the start of an initial public offering (IPO) reflects the current boom in the primary market, driven by a glut of liquidity and an appetite for new sectors, the previous record of such highs is a warning one.

Since June 2004, the previous record of companies filing draft IPO documents with SEBI was 22 in a month. It was recorded three times – in February and December 2006, and in September 2010. However, those periods saw a sharp improvement. The benchmark BSE Sensex followed such peaks in the draft IPO filing.

After September 2010, the Sensex fell 17% in a 12-month period, and the number of IPO filings dropped to three. The monthly average of filings is 6.2 over the 17-year period from June 2004 to August 2021.

Comparatively, the 2006 period was different, as a healthy IPO pipeline was stretched. During the 30-month period from August 2005 to January 2008, 24 of those months saw 10 or more filings of IPO documents. However, in the subsequent 12-month period, the value of the BSE Sensex halved, and the number of filings decreased.

To be sure, record filings in August led to a steady increase in filings over the past few months. In three of the last four months, the period during which the Sensex jumped 18%, the number of such filings has been in double digits.

A new factor seen this time is the penetration of Internet businesses. Given their high capital needs and money-losing nature, Internet businesses have traditionally been serviced by private capital. But, recently, this trend is changing.

This change was encouraged by SEBI’s easing of entry norms for online businesses. This saw Zomato, MobiKwik, Paytm and Policybazaar drafting IPO documents. The overwhelming response to Zomato’s IPO and a profitable listing in July have encouraged other online businesses including Cartrade, Nykaa and Ixigo to follow suit. Apart from raising fresh capital, these potential IPOs also have a healthy component of existing investors who are looking to sell their shares in part or in full.

Eager to drive the current market momentum, businesses in several sectors beyond e-commerce firms have also expressed their willingness to sell shares to the public in August. The list includes MapmyIndia (mapping solutions), Fino Payments Bank (fintech), LatentView Analytics (data analytics), Traxon Technologies (data and information services) and Emcure Pharmaceuticals (pharma).

Given that both the primary and secondary markets move together, how many of these companies will move from filing an IPO document to completing an IPO, depending on whether the secondary market continues to demonstrate its strength. These same factors will determine the pipeline of companies entering the markets in the coming months.