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Friday, December 03, 2021

Explained: What’s behind the recent startup IPO push?

What is the emerging the trend on IPOs in India, and how has the regulatory framework been changed to enable easier listing for tech startups?

Written by Karunjit Singh , Pranav Mukul , Edited by Explained Desk | New Delhi |
Updated: November 16, 2021 7:46:20 am
A worker adjusts a hoarding of Paytm, a digital payments firm, in Ahmedabad (Reuters)

India’s startup sector has seen a flurry of IPOs in 2021, including that of One97 Communications (Paytm) which recently closed its offering with an issue size of Rs 18,300 crore making it the largest ever IPO of an Indian company. Other major IPOs announced in 2021 include those of Food aggregator Zomato, online insurance broker Policy Bazaar, online pharmacy PharmEasy and fashion retail company Nykaa.

What is the emerging the trend on IPOs in India, and how has the regulatory framework been changed to enable easier listing for tech startups?

Why are so many tech startups going for IPOs?

A key reason for Indian firms going for IPOs is the perception of a large appetite for investment in India’s tech firms among global institutional investors. Paytm CEO Vijay Shekhar Sharma said in a recent press conference that international investors are looking to invest in Indian startups through both public offerings and private investments. Companies are also looking to leverage stock markets that are bullish about a strong recovery from the pandemic to secure enough capital for expansion plans for a longer timeframe preferring IPOs to further investments from existing shareholders. The Sensex, which closed at 60,687 on Friday, crossed the 61,000 mark for the first time in October and is trading at 40 per cent over year-ago levels.

List of Indian tech startup IPOs announced in 2021

How has the response been to public offerings of tech companies this year?

Among the recent offerings, while Paytm’s IPO was subscribed 1.89 times, that of FSN E-Commerce Ventures (the company behind Nykaa) was subscribed more than 82 times at the end of its final day of bidding. The profit-making cosmetics company listed on the bourses at a 79.4% premium to the IPO price of Rs 1,125. Insurance-tech company Policybazaar’s parent firm PB Fintech saw its offering being oversubscribed by 16.6 times on the final day of bidding on November 3.

How should investors assess the IPOs on offer?

Research analysts say that each startup should be seen as a separate business and investors should not see them as belonging to one basket. “Tech companies or startups have to be seen from the larger perspective of how wide their business opportunity is and what they can do in future,” said the research head of a leading brokerage firm. Investment experts also say that investors should carefully evaluate fintech companies going for IPOs as banks have also enhanced their digital presence and have done technology upgrades. “For companies that have not been able to clearly define their business model and keep changing their focus, investors need to practice caution,” said a senior official with a financial services firm.

How has the regulatory environment encouraged startups to go for IPOs?

The Securities and Exchange Board of India (SEBI) has relaxed a number of norms to make it easier for startups to get listed on Indian exchanges. Earlier this year, SEBI reduced the time that early stage investors need to hold 25 per cent of the pre-issue capital to one years from two years earlier. SEBI also amended regulations which previously barred startups that are going public from making discretionary allotments to allow startups to allocate up to 60% of the issue size of the IPO to an eligible investor subject to a lock-in period of 30 days on such shares.

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