ECONOMY
A mere spark of bad news is likely to burn down big gains in the IPO market to ashes
- IBJ Bureau
- Oct 02, 2024
The bulls are on a relentless rampage. Equity benchmark indices Sensex and Nifty are scaling new highs quite too frequently in the past few months. The exuberance in the secondary market seems to have deeply infected the primary market too. A boom in initial public offers (IPOs) seen in 2023 has continued through 2024 so far. A similar frenzy is visible in the small and medium enterprise (SME) IPO market too.
Up to September 2024, 62 companies have raised over Rs 64,000 crore through public issues, the highest fund-raising activity in the past three years. Moreover, around 75 companies are set to mop up over Rs 1,50,000 crore via IPOs in the next few months. Of the 75, 22 companies have already received the SEBI’s go-ahead and are set to tap the market to raise over Rs 60,000 crore. The remaining 53 companies are awaiting the market regulator’s nod to collect around Rs 95,000 crore, reveals Prime Database, the country’s leading data provider of capital market.
So, what is driving this stock market euphoria? A confluence of factors is fuelling the bull run. The surge in both primary and secondary markets is driven by seemingly-strong macroeconomic fundamentals, a massive public investment in infrastructure and a steady consumer spending. India’s continuous record as the fastest-growing major economy of the world is further boosting the equity market. Besides, abundant liquidity in the system and foreign investors increasingly looking at India as a favourable, alternative investment destination to China seem to be sustaining this long-lasting bull run.
Retail investors have never had it so good for such a long time in India. In fact, a new breed of retail investors – the millennials with deep pockets and huge risk appetite – have been calling the shots since the COVID lockdowns. No wonder then that these young investors are a major force behind the big upsurge in number of dematerialised (demat) accounts. A record 3.20 crore demat accounts were opened in FY24, taking the total number of such accounts to more than 15.40 crore. Many of these retail investors have entered the market through the systematic investment plans (SIPs) of mutual funds, while a sizeable number of retail investors are also trading directly in the market.
A virtuous cycle rolling on in the market has helped sustain the IPO rally for a long time. By a sheer dint of luck, about 80 per cent of IPOs have closed above their respective listing prices even after a week of listing, wooing investors in large numbers to try their fortunes.
A basic tenet of the stock market is that big gains are made and sustained in long-term investing. But unfortunately, an ever-growing number of investors seem to have little patience for this long-term story. Market regulator SEBI’s research for the period between April 2023 and December 2024 shows that 54 per cent of investors, excluding anchor investors, sold their shares allotted in the IPO in the very first week. Among the investors who exited in the first week, a whopping 23 per cent of them offloaded their allotted shares despite incurring loss.
The market regulator’s somewhat damning research result reveals that a large section of investors sees the IPO market as a money-spinning casino. This is quite a dangerous trend. As long as the going gets good, the rush to enter the market will keep continuing. But once the fortune reverses with a mere spark of bad news, the exit of investors can lead to a bloodbath on the bourses. And there is no dearth of bad news lurking around the corner.
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