IPO frenzy propels newly listed stocks to beat Nifty

Propelled by the IPO rush this year, stocks that have been listed recently have been outshining the benchmark index by the most margin over the past seven years, according to news reports.

Data cited in media reports note that companies that have listed over the last two years have beaten the Nifty 50 this year by over 40 percentage points. The last time this happened was in 2014, reportedly. Among the stocks that have had a recent debut is food delivery platform Zomato, which has risen 77 per cent in the past month. In fact, the food delivery app became the first unicorn in India to take the public route. It set the stage for many other unicorns to tread the same path, including digital payments app Paytm which is eyeing a Rs 16,600-crore IPO in the latter part of the current year. Fashion and cosmetics platform Nykaa too has filed a draft prospectus for an IPO worth Rs 4,000 crore.

Tech startups eyeing IPOs

Several new-age firms are eyeing IPOs in a year that has seen a rush among companies to go public. The year 2021 has in the first seven months seen 28 companies that have completed their IPOs, raising more than Rs 42,000 crore. Another 34 companies have filed their documents and are awaiting SEBI’s nod. New age and tech firms are looking to tap into this IPO frenzy. Tech startups have raised $8.8 billion thus far in 2021, according to data cited in the media.

Reports show that out of 26 companies that have been listed in this calendar year, six have traded with over 100 per cent gains, while 12 have traded with 40 to 100 per cent gains. Only three companies have traded below the offer price. Till August 2021, the Indian startup world has seen 23 new additions to the unicorn club ($1 billion valuation). With the pandemic highlighting the importance of digital and online platforms, more tech companies are taking the fund-raising route through IPOs to ensure they grow and stay competitive to meet demand.

Factors that have aided the IPO frenzy

Experts note that unlisted unicorns may grow two-fold in the next three to five years. Even if a quarter of them were to go public, it would add to market capitalisation substantially. It may be noted that market regulator SEBI has earlier this year relaxed listing and eligibility norms on the Innovators Growth Platform (IGP), an exchange platform for tech start-ups. This would further encourage more startups to go public, it is expected. Companies will be able to list on the IGP if its 25 per cent of pre-issue capital is held for one year by an institutional or other large investor. Earlier, the holding period was two years.

Also, SEBI has permitted firms with superior voting rights to list on the platform. The market regulator has further eased norms for companies to migrate to the NSE or BSE or delist. More recently, SEBI has also considered changing rules to vest more accountability in stakeholder control rather than regulate promoters/founders. Many private equity/venture capital funded firms have institutional or diversified shareholdings. The new rules will come as a shot in the arm for startups and new-age firms.

The bull run in the stock market and liquidity have led to an IPO rush, with retail investors also looking to tap into the same. The BSE Sensex, which in March 2020, crashed to 25k levels, has now breached the 55k mark. Further, new retail investors have been making a beeline for the markets, with data from depositories showing that 14.2 million new investors were added to the market for the fiscal year ending March 31, 2021.

Conclusion

India is seeing an IPO rush this year, with many tech firms and unicorns joining in to go public. Many Indian stocks that listed recently have beaten the benchmark by the most margin over the last seven years.

FAQs

How much have tech startups raised through the IPO route in calendar year 2021?

Tech startups have reportedly raised $8.8 billion in IPOs so far in 2021.

How much has India Inc raised through IPOs in the calendar year 2021?

For the first seven months of 2021, Indian companies have raised more than Rs 42,000 crore in 28 IPOs.

What are unicorns in the startup world?

A unicorn is a company that has a valuation of more than $1 billion. Some examples include Zomato and Paytm.