Start-Ups are planning massive IPOs including the PayTm IPO (Largest Indian IPO). 30 companies have already filed the IPO papers raising a whopping 55,000 Crores and 10-15 more companies are in the process and by the end of this year, they will sum up with more than 80,000 Crores money just by going public.
There are various aspects and opinions related to this situation but before all that we need to understand what an IPO really is. Initial Public Offering is when the company wants the general public to be a part of the company directly, They do this by listing their shares on the stock market. There is a lot of paperwork and norms to follow for listing an IPO. It is a long process and has strong requirements from the companies. They are managed by the SEBI. IPOs have a lot of merits and demerits attached to them thus it is a well planned step for any company to move forward with.
Now, if we talk about this IPO season, this isn't just limited to the new age Start Ups but companies like LIC, Go First (Go Air), Aditya Birla Sun Life AMC, etc. are also contributing to this spike. Various reasons can be connected to this situation. The most prominent of those is the inflow of money in the market. The Reserve Bank of India is pushing a lot of money for easy and fluid liquidity because of the pandemic. The money enters the banks and eventually in the finance sector. Amplifying this effect, the 2021 season saw the largest spike in the opening of new Demat accounts in India. There was a record breaking 22.5% growth in the segment. Until 2019, we had 3.59 crore Demat accounts, 4.08 Crore by 2020 and currently 2021 we have 6.9 crore Demat accounts. Considering this situation where the pandemic continues to bring chaos in the economy, the stock market has not been affected much by this. Instead Sensex and Nifty are performing way better than the previous years. That's massive growth for any sector in these tough times.
People have lost their work in this pandemic but it is benefiting them with the spare time to explore other fields and the stock market is an area where anyone can earn quick bucks with decent financial knowledge. This has brought the financial sector to boom. Accounting all this, the companies are pretty confident about generating a considerable amount of money.
Another theory that applies to this situation is that the service providing companies and insurance companies including PayTm, Zomato, LIC and most of the IPO targeting companies this year made a huge profit in this pandemic. They have acquired a lot of new customers which resulted in an increase in their stability and grip on the market as a new company. Their growth has reached its local peak thus a good time for making profits and gaining investments. Also accompanying the conditions, SEBI has loosened up the paperwork and pre-conditions for companies if they want to go for an IPO, as the market situation in general is not that great. Considering the growth in the Stock market, this was a very good step taken for the betterment of the economy.
An IPO is done for other reasons as well like Improving the credibility of the company, Raising capital, Increase liquidity for the shareholders and many more. Therefore companies having a loss or the companies with no money left for growth also saw this as the perfect time for listing their companies in the market. Businesses like Glenmark life science, Devyani International, Chemplast sanmar which are some of the biggest names in their respective markets are also opting for this solution as well.
The last time we saw such a spike in the market was after the 1991 economic policy changes where the Indian economy became liberal. But such a situation has a negative impact on the economy as well because it results in a local maximum in the share prices, that is it generates a situation of temporary inflation. When the share prices come back to normal, it creates a very bad situation for the investors and causes a lot of turmoil in the market. This is very much possible in 2021 as well so the investors should be cautious and invest with proper knowledge and limit.
Well in general, these companies would have gone for an IPO anyways as they have been thinking about it for a long time and as the situations are perfectly sitting in the right places thus we are seeing this sudden rise and urge in the companies for going public.
The timing is perfect for the company, government and the investors as the economy requires a strong push because of the pandemic and these IPOs are helping boost it.