Why Did Many Companies Choose the Second Half of 2021 for IPOs in India?

The period of 2021 witnessed a surge in Initial Public Offerings (IPOs) in India. But why did so many companies choose to launch their IPOs in the latter half of the year? The answer to this question can be decoded by understanding the adage 'make hay while the sun shines.'

Challenges in Raising Capital

Raising funds from the markets is not a simple endeavor. It involves extensive legal, administrative, and marketing efforts well before the IPO is approved and ready to open. Most of this groundwork, including regulatory compliance, financial disclosures, and marketing strategies, needs to be meticulously executed long before the IPO is put on a particular calendar date.

The final step, which involves subscription by investors, is critical. If an IPO does not meet its minimum subscription criteria, it can put significant strain on the company, its promoters, underwriters, lead managers, and stockbrokers. Therefore, companies go to great lengths to ensure they meet these requirements. They aim to align their efforts with the market sentiments and conditions that are most favorable to their offerings.

Market Conditions and Risk Appetite

The key to successful IPOs often lies in the willingness of investors to take risks with stock market investments. During bull markets, when the overall sentiment is positive, there is greater appetite for such investments. Given the high stakes involved, companies prefer to launch their IPOs during these periods.

In a bull market, investors are more willing to invest in new companies, seeing potential for growth and future profitability. Companies planning an IPO need to ensure that the launch timing aligns with the scarcity of opportunity. This is because once a company goes public, it enters a new realm of scrutiny and market dynamics. Therefore, it is critical that the IPO is launched under ideal market conditions to ensure a smooth transition and success in the long run.

Sales Strategy Aspect of IPOs

The decision to launch an IPO is more akin to a sales strategy than a mere financial decision. Just as mutual funds come out with new ideas when the underlying assets are performing well, companies plan their IPOs based on market conditions. An IPO launch during a strong economic period can significantly enhance its chances of being a success. If the market is bullish, it's easier to attract investors, and the overall conditions are more favorable for the company.

For instance, the pharmaceutical sector performed exceptionally well in the second half of 2021, leading mutual funds to launch pharma-focused funds. Similarly, when the stock market saw a surge in gold investments, ETFs relating to gold saw increased demand and launches. The same holds true for large-cap funds and sectoral index funds. Companies often time their IPOs to align with periods of high market performance, ensuring a better reception and greater investor engagement.

Conclusion

The timing of an IPO is a critical factor determining its success. Just like companies choose specific market conditions for launching mutual funds and other financial products, they also align their IPOs with favorable market conditions. The second half of 2021 saw a noticeable spike in IPO activity, driven by the bull market conditions and the supportive investor sentiment. Understanding these dynamics can provide valuable insights for both investors and companies planning to go public.

Overall, the decision to launch an IPO is a strategic move that reflects the company's confidence in its future prospects and the market's ability to absorb new investments. Timing the IPO at the right moment can significantly influence the success of the venture, making it a critical aspect of the overall business strategy.