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The Indian stock market has been on fire recently, with September emerging as one of the busiest months for initial public offerings (IPOs) in the past 14 years. According to the data released by the Reserve Bank of India (RBI) on September 20, IPO activity in the country has reached an all-time high, highlighting a significant resurgence of interest in public listings. This surge is not limited to large companies; it encompasses both the mainboard and the small and medium enterprise (SME) segments, showing a diverse appetite for investment opportunities across different market sectors.

September alone witnessed over 28 companies making their debut on Dalal Street, split between the mainboard and the SME segments. This number is remarkable, as such an IPO surge has not been seen in over a decade. The sudden resurgence indicates a renewed sense of confidence and eagerness among both companies and investors to participate in the capital markets. It seems that investors are increasingly seeing IPOs as a strategic entry point into a market that is scaling new highs, despite the risks associated with such investments.

On the global front, India’s recent IPO activity stands out impressively. The RBI report highlights that India accounted for the highest number of public listings worldwide, capturing a striking 27% share of all IPOs during the first half of the 2023-24 fiscal year.

The Role of SME IPOs in driving the surge

The surge in IPOs has been significantly fueled by the SME segment. The massive oversubscriptions of SME IPOs have attracted considerable attention, turning them into a focal point of the ongoing IPO frenzy. SMEs are increasingly capitalising on investor enthusiasm, with many small businesses using public listings as a way to secure capital for expansion and growth. The enthusiasm seen in the SME space speaks volumes about the expanding scope of opportunities available to retail and institutional investors alike.

However, the enthusiasm is not without its risks. The RBI’s report pointed out a potentially concerning trend wherein promoters, particularly in the SME segment, have been using favourable conditions in the primary market to offload their stakes at inflated prices. While this may represent a smart exit strategy for existing shareholders, it raises questions about the long-term value for new investors, especially when the market is already at elevated levels. The risk of overvaluation looms large, with some IPOs potentially being priced higher than what fundamentals would suggest, leading to an overheated market scenario.

IPO Strategy: A Double-Edged Sword for Investors

The current IPO frenzy is both an opportunity and a cautionary tale for investors. On one hand, IPOs provide a unique chance to get in on the ground floor of promising companies and participate in the economic growth of the country. On the other hand, the possibility of overvaluation and promoters cashing out at high prices can lead to significant losses for new investors if the broader market experiences a correction.

For investors considering entering through IPOs, it is critical to evaluate the fundamentals of the companies going public and not get swept up in the hype. The broader market may be at a high, but a sound strategy—focused on due diligence, risk assessment, and a long-term perspective—can help navigate the opportunities and pitfalls of this burgeoning IPO landscape.