Why India Needs More Strict and Tighter Norms for Startup IPO
According to a report by the global accounting company EY, the first quarter of 2022 saw a dramatic downturn after record-breaking IPO activity levels in 2021 due to unstable market circumstances. In recent months, there has been a lot of discussion about how new technology businesses have performed on the stock market.
According to a report by the global accounting company EY, the first quarter of 2022 saw a dramatic downturn after record-breaking IPO activity levels in 2021 due to unstable market circumstances. In recent months, there has been a lot of discussion about how new technology businesses have performed in the stock market.
In Q1 2022, 16 new IPOs were launched in the Indian market, raising $995 million through three main market IPOs. This compares to 23 IPOs during the same period last year, which raised $2.57 billion, reflecting a decline of 60% in capital raised and an increase of 82% in the number of deals.
The report identifies several factors, including stock market volatility, geopolitical tensions, price corrections in overvalued stocks from recent IPOs, growing worries about an increase in commodity and energy prices, COVID-19-induced lockdown, and the effects of inflation and potential interest rate hikes, as causes of the reversal.
Besides, the initial public offerings (IPO) of new-age digital businesses were labeled as a big bubble by some market pundits. Investors have harshly criticised Cartrade, Zomato, Policybazaar, Paytm, and Fino Payments after tech stocks plunged on exchanges in line with the wider market trend.
The main criticism was that founders and promoters were dumping their stakes on public shareholders in order to make a fortune while pushing their loss-making businesses to market.
The main criticism was that founders and promoters were “dumping their stakes on public shareholders in order to make a fortune while pushing their loss-making businesses to market.”
Retail investors who made large bets on cutting-edge tech businesses are now regretting their choice because many of them are trading below their initial public offering price.
Following losses, the excessive valuation of startups for private placement at the pre-IPO and IPO stages, as well as the issue pricing, were closely examined. Because startups were not the same for retail investors as established companies from the perspective of standard metrics, concerns for stronger regulatory and disclosure norms were also voiced.
It may be mentioned that in November of last year, experts had no doubts that India was on the verge of the IPO revolution, just before any firm in the country issued its first initial public offering (IPO).
Startups were lining up for initial public offerings, and many of them were working on drafting red-herring prospectuses to get SEBI’s permission for IPOs.
Institutional investors began urging their portfolio businesses to go public after witnessing the success of the Zomato and Nykaa initial public offerings. Within a few days of the IPO’s launch, retail investors were excited about the 100% returns, after which all the anticipation among Indian companies for their IPO began to fade.
Institutional investors began urging their portfolio businesses to go public after witnessing the success of the Zomato and Nykaa initial public offerings. Within a few days of the IPO’s launch, retail investors were excited about the 100% returns, after which all the anticipation among Indian companies for their IPO began to fade.
For instance, the Paytm IPO, which received a poor market response, was the worst setback. Nevertheless, despite fund managers’ warnings, it was able to draw in a sizable number of investors who invested heavily in anticipation of a significant listing gain.
In February, Paytm was trading at a record low and was down by more than 60% of the issue size, making investors accumulate huge losses.
Meanwhile, even while the primary market is starting to show signs of improvement, the full IPO season is still some way off. Data indicates that a number of companies are either delaying their issuance or withdrawing their IPO documents, and although some of the firms have Sebi observations that are about to expire, they haven’t yet made an announcement about their initial public offerings.
According to Dalal Street experts,weak financials, rising volatility, and a muted response to companies throughout the bidding process and upon debut are major factors affecting the sentiments of businesses wanting to raise new capital.
The final conclusion is that Paytm, Zomato, and Nykaa launched their IPOs despite being loss-making companies since they were founded, and we all know the results. They all tanked in the share market.
The final conclusion is that Paytm, Zomato, and Nykaa launched their IPOs despite being loss-making companies since they were founded, and we all know the results. They all tanked in the share market.
If we talk about Paytm, the share listed on the exchange was 2050 and today the share value is only 600. The ultimate loss was suffered only by the public, who were the retail investors. Investors like Alibaba also exited after taking profits.
The founder of Paytm, Vijay Shekhar Shama, is also withdrawing a salary of Rs. 6 crore annually and today he drives the Jaguar Land Rover, which he even rammed into the car of a Delhi police officer, DCP Benita Mary Jaiker.
Well, that is another story, but the point here is that Vijay Shekhar Sharma, 15 years back, was withdrawing a salary of Rs.10,000. What magical happened? How did he manage to withdraw a salary of Rs. 6 crore from Rs. 10,000 from a loss-making company?
Well, the game seems to be very simple here. Launch any venture with a dumb idea, take funding, inflate the valuation, launch an IPO with an inflated valuation, pass your losses to the public acting as retail investors, give exit to investors with 10-20 times the return, and boom, raise your own salary by 300-400 times.
Then finally, after launching the IPO and passing your losses to retail investors, shut down the venture and abscond, then launch another venture after a few months.
It was no different with Flipkart. We know Flipkart was acquired by Walmart, and at the time of the sale, the company was suffering from a loss of more than Rs. 8,000 crores.
It was no different with Flipkart. We know Flipkart was acquired by Walmart, and at the time of the sale, the company was suffering from a loss of more than Rs. 8,000 crores.
Today, Sachin Bansal and Binny Bansal have become so-called investors, making investments in each other’s ventures, which is ironic.
The duo, who had been seeking funds to run their own venture 4 years back, has now become investors with the money they made after selling their loss-making startup.
Amid all the above market frenzy, it is necessary that India needs more strict and tighter norms for startup Initial Public Offerings (IPOs)
edited and proofread by nikita sharma
