Reason to continue 'IPO 'IPO Hurray!

The continuing boom in initial public offerings - as seen on Tuesday, with Lenskart and Groww raising nearly ₹14,000 cr, along with eyebrows - is decoupling the primary market from the secondary one. Typically, the IPO pipeline strengthens in a rallying market. But headline indices have been struggling this year, even as the market is expected to set a record in listings. Issuers have been aggressive with IPO pricing, squeezing listing-day gains for retail investors. But they continue to drive sentiment in the IPO market, although more discerning institutional investor interest is also being felt. Most retail investors sell their shares within a week of listing, which feeds issuers' ambitions and raises the chances of losing money in issues that form the tail of an IPO boom. Those risks are mounting as the primary market approaches a third consecutive record-setting year.

Sober voices are emerging in this frenzy on demand and supply sides of IPOs. Institutional investors are seeking bigger allotments, which should improve the market's ability to filter issues based on business prospects. Some companies have trimmed valuations before the issue, leaving more for investors. The primary market is not as efficient in determining value as the secondary one because of information asymmetry. So, it's in everyone's interest that IPOs are priced fairly. This would smooth out the IPO cycle and leave enough value in the pot to keep sentiment bubbling but not boiling over.

There is a natural cycle to capital-raising, beyond which the IPO market settles down to a steady state. From the looks of it, we are not yet approaching that point. Investor fatigue will eventually have to set in as listing gains evaporate, and the supply response will adjust accordingly. There is, however, a strong appetite for good-quality paper in the Indian capital market, which will continue to find takers irrespective of the state of the IPO market.