India’s IPO Frenzy: Small Firms Steal The Show With Impressive Offerings Upto Sub-$100 Million In 2023

(CTN NEWS) – Amidst a remarkable five-month market rally, investors in India are displaying a notable inclination towards smaller firms’ initial public offerings (IPOs).

Despite some recent disappointments from high-profile IPOs such as Paytm and Life Insurance Corporation of India, data compiled by Bloomberg uncovers India as the world leader in IPOs this year, boasting an impressive 92 listings with up to USD 100 million in stock sales.

The burgeoning popularity of small firms’ IPOs can be attributed to the surge in interest rates, prompting these companies to seek financing through public offerings.

Although certain concerns about poor trading liquidity and lax disclosure rules loom over these listings, retail investors remain undeterred, placing bids that exceed 100 times the available shares for some IPOs.

Amidst a Bull Run: Small IPOs Gain Favour in India’s Vibrant Market

Abhishek Sharma, the esteemed managing director at GYR Capital Advisors, attributes the upsurge in IPOs to the prevailing bull run in the stock market and the amplified participation from both retail and institutional investors, providing a favorable tailwind for these companies.

Despite major equity benchmarks in India soaring to record levels, apprehensions linger about the inherent risk associated with small IPOs. Nevertheless, investors are eagerly embracing smaller enterprises, perceiving them as potential catalysts for the nation’s vibrant economy.

Recent IPOs from small and medium-sized enterprises have garnered considerable enthusiasm, with many of them being heavily oversubscribed.

For instance, the IPO of Dronemaker ideaForge Technology received a staggering 106 times more bids than sought, while Utkarsh Small Finance Bank was greeted with bids as high as 102 times.

This mounting interest in small firms’ IPOs is a result of the lackluster performance of larger players like Paytm and Life Insurance Corporation of India, whose share prices are currently languishing far below their IPO offer prices.

Retail investors are fervently adding small companies to their investment portfolios, allured by the promising growth potential they offer.

While the benchmark Nifty 50 has registered a commendable 9 per cent gain this year, the SME IPO index has outperformed it by surging an impressive 26 per cent.

Balancing Potential and Risk: BSE’s Pledge to Boost Small Firm Listings Amidst Governance Concerns

BSE, in response to inquiries, has expressed its commitment to closely collaborate with governments and industry bodies to foster potential listings from small firms and further stimulate India’s economic growth.

However, concerns about corporate governance and the dearth of research on small IPOs persist. Companies listed on the two SME exchanges exhibit minimal institutional ownership and attract limited attention from brokerages.

This lack of oversight raises potential risks for investors.

Despite the alluring prospects of higher returns from small IPOs, some cautionary tales serve as reminders.

For example, stocks like Ashapura Intimates Fashion witnessed a phenomenal 800 per cent surge before being suspended in 2020 and ultimately filing for liquidation.

Similarly, Nureca, a wellness products provider, enjoyed significant gains during its debut but has since plummeted by over 80 per cent from its peak.

While the appeal of SME IPOs remains strong, experts emphasize the inherent risks arising from the lack of research, minimal institutional ownership, and the absence of foreign investors and mutual funds in this segment.

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