India’s markets regulator faced one of its busiest months in August as a record 29 companies filed draft prospectuses for public listings, underscoring the ongoing frenzy in India Inc. to exploit a runaway rally in equity markets.

This was the highest tally in a single month in the past 17 years, the period for which such data is available from the Securities and Exchange Board of India (Sebi).

While the beeline for initial public offerings (IPOs) reflects the current buoyancy in the primary market, fuelled by a surfeit of liquidity and an appetite for new sectors, past record of such heights hold out cautionary tales.

Primary  peaks and troughs

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Primary  peaks and troughs

Since June 2004, the previous record for filings of draft IPO documents by companies with Sebi in a single month was 22. This was recorded three times—in February and December 2006, and in September 2010. Those periods, however, saw sharp corrections in the benchmark BSE Sensex in the aftermath of such peaks in draft IPO filings.

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

By comparison, the 2006 period was different, as a healthy IPO pipeline stretched longer. 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 BSE Sensex halved in value, and the number of filings plunged to a trickle.

To be sure, the record filings in August capped a steady rise in filings over the past few months. In three of the past four months, a 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 entry of internet businesses. Given their high capital needs and money-losing nature, internet businesses have been traditionally serviced by private capital. But, of late, this trend is changing.

The shift was encouraged by Sebi easing entry norms for online businesses. This saw Zomato, MobiKwik, Paytm and Policybazaar file draft IPO documents. A thumping response to Zomato’s IPO, and a profitable listing in July has emboldened other online businesses to follow suit, including Cartrade, Nykaa and Ixigo. In addition to raising new capital, these prospective IPOs also have a healthy component of existing investors seeking to sell their shares either partly or wholly.

Keen to ride the current market momentum, businesses from a range of sectors beyond e-commerce firms have also expressed a desire to sell shares to the public in August. The list includes MapMyIndia (mapping solutions), Fino Payments Bank (fintech), Latent View Analytics (data analytics), Tracxn Technologies (data and information services) and Emcure Pharmaceuticals (pharma).

Given both the primary and secondary markets tend to move in tandem, how many of these companies will move from filing IPO documents to completing an IPO will depend on whether the secondary market continues its show of strength. The same factor will determine the pipeline of companies approaching the markets in the coming months.

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