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The IPO Flood: Why are so many companies going public?

IPO refers to Initial Public Offering. When a Private Company converts into a public company by listing its shares on the stock market it is known as Initial Public Offering. While it allows the company to raise funds from the public but going public is a time-consuming and challenging process.

But if raising an IPO is such a challenging process then why are big companies like Paytm, Zomato, and other firms going public?

A private company transforming into a public company in which shares of the company are sold to institutional investors or individual retail investors to monetize the investment of equity shareholders is known as going public or floating. Companies offering IPO diversify their portfolio of equity base and raise capital at cheaper rates. Going Public allows the company to raise capital from the public for expansion, diversification, to pay off old debt, etc. It also increases the public awareness of the company and hence establishes a brand image of their products by making them known to potential customers. More than thirty companies have already filed an IPO to raise capital of more than Rs 55,000. This year companies have already raised the highest amount from IPO over a decade. Many companies have opted to go public in the year 2020 due to the impact of the Covid 19 pandemic in the country which impacted many businesses. Paytm observed up to 3.5x growth in transactions amid the global pandemic, whereas Zomato faced losses at the initial stage of pandemic due to the imposed lockdown. While the Global pandemic affected the entire economy, the domestic stock market has not been affected. With the increased number of individual investors which are over 14.2 million, the Sensex and Nifty 50 have gone higher. The major IPOs lined up this year include Life Insurance Corporation (LIC), Paytm and Zomato which are expected to raise Rs 70,000 crore, Rs 17,000 crore and Rs 9,375 crore respectively. There are several other companies which are expected to go public including Flipkart, MobiKwik, Bajaj Energy, ChemplastSanmar, Samhi Hotels, Arohan Financial Services, Glenmark Life Sciences, Utkarsh Small Finance Bank, Puranik Builders and Shriram Properties. The process of going public is time-consuming and expensive as it requires the approval of SEBI. Moreover, it also leads to loss of management control over its operations and dissemination of confidential information, but in order to grow and expand companies have to go public.


Kashika, Vriti


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