The exponential expansion of initial public offerings in the Asian market has made the market appealing to a variety of start-ups. This IPO boom may be linked to a flow of money, ultra-low interest rates, and surging stock markets, among other things. Traditionally, only large corporations would choose to go public. However, as times have changed, consumers’ and enterprises’ purchasing and selling procedures have been redefined, and as a result, start-up enterprises are poised to enter the market via an initial public offering (IPO).
These start-up IPOs are capable of acting as a catalyst and spur things to a new level as it has also evidently enhanced the confidence of giants like Flipkart to finally head for an IPO. Indeed, the market is becoming a thriving platform for IPOs. Nonetheless, the bubble may burst when the demand is not at its peak. The path hereafter could be arduous for start-ups looking to go public as success would not be defined depending on the number or the projections demonstrated, but the decisions shall be made factoring in the robust market and business fundamentals.
The same was also witnessed in Uber’s case where the stock went public at $41.57 per share and surged as high as $46.38 on 28.06.19, but then began to struggle and reached a low of $21.33 on 20.03.20, thereon, it eventually recovered. Nevertheless, it can be observed that anyone who purchased the shares while it opened, is currently sitting on a loss of approximately 25% over a space of just 14 months.
Moreover, similar to the housing scheme boom in the USA back in the early 2000s, the rise of IPOs also has an equal chance of fading. Thus, multiple start-ups are still sitting on the fence on their decision of listing IPO’s due to this very reason. In the light of the same, it can be observed that the guidelines implemented by the Security and Exchange Board of India (SEBI) under prerequisites preceding listing have taken some stringent measures to protect companies and their shareholders from bearing the brunt of a probable failure. Under the rules, it mandatorily requires definite disclosures on field-tested strategies, dangers, benefits, and where cash will be spent.
This is in terms of the fact that an IPO is considered as a way for ordinary people to participate in a company’s growth narrative, as opposed to well-heeled funds and financial organizations, which have complete access. Moreover, the regulator has prohibited retail investors to participate in more than 10% of the IPO’s issue size which is primarily because most of the new IPOs are more often than not bleeding losses. Therefore, the data shown by companies must be far more tangible and cannot be based on mere valuations of accepted accounting standards.
Even if the boom bubble collapses, the regulatory board’s safeguards ensure that damage control will be relatively painless. Apart from that, it’s also likely that having a larger perspective and focusing on the larger picture can help. Institutional investors will be among the first to jump on board the new wave. Inevitably, the future lies in the hand of technology, and with the rising interest of retail investors. Internet start-ups can formulate a better development for themselves.
Thus, the future of IPO seems optimistic, but the regulatory board will have to continue being a watchdog, as the surge is in contrast to the present economy. In the light of the same, the RBI has time and again
warned the public of its fatal repercussions.