Paramjit Singh Vohra
Nineteen out of sixty three issues that came up in the year 2021-22 were listed below their issue price. That is, thirty percent of the issue could not even get the investors their cost on the very first day itself. This is nothing short of a big dent on the interests of the investors.
The strength of the stock market is a sign of a positive growth trend in the economy. If the stock market constantly touches new heights, then it is also a great way to attract foreign investors. In the last few years, the trend of common investors has also increased in this direction. Small investors are feeling that now the reins of the economy will be in the hands of the private sector, so they have started dreaming of a secure future by investing their savings in the stock market.
This is the reason why the number of small investors in India has increased rapidly in the last few years. According to the Economic Survey 2022, the number of individual investors in the Indian stock market has increased by about six percent compared to the year 2019 and it was about forty five percent in the financial year 2021-22. During the same period, there was an astonishing increase in the demat account opening figures, which were more than twenty six lakhs per month in the last financial year.
The priority of the common investor remains to invest in mutual funds and new issuances (IPOs) of companies. There are some reasons for this. Firstly, the common investor wants to avoid unexpected volatility in the stock market. The second reason is that he does not want to be tied to any one investment option. Third, before investing in an IPO, he wants to invest only on the basis of analysis about the company’s activities and future.
The last financial year (2021-22) was particularly important for IPOs. During this, a total of sixty three IPOs came in the market, which can be called a big figure in itself. Till the year 2021, three years ago, more issues had come in 2021 alone than the total number of issues. There were twenty five issues in the year 2018, sixteen in the year 2019 and eighteen in the year 2020.
In this way, in the three years before 2021, there were only sixty nine issues. In this context, it is also important to understand that in the stock market both the primary market and the secondary market are affected by each other’s movement. If the secondary market is touching new highs on a day-to-day basis, then a flood of IPOs starts in the primary market.
On the other hand, if the primary market remains bullish, then the secondary market also remains bullish. We can see this with great clarity in the year 2021-22. While the Bombay Stock Market Index closed at 50029 on April 1, 2021, by April 1, 2022, it had crossed the sixty-nine thousand mark with an increase of 9247 points.
During the whole year at the bottom level it was around forty seven thousand, while the maximum height was also seen around 61700. In this context, if we look at the growth rate of new issuances in the last financial year, it was at a record level. That is to say, the secondary market grew by ten thousand points and that is why a large number of new issuances came into the market.
No matter how much investors analyze the stock market movements, they still get cheated. The economic analysis of the large number of fresh issuances in the last financial year also revealed that the Indian economy is on the path of growth as companies are raising a lot of capital. But in the midst of all this, whether a common investor benefited from the stock market, this question has also made its place.
And the answer is – not at all. It is to be noted in this context that out of sixty three issues that came up in the year 2021-22, nineteen were listed below their issue price. That is, thirty percent of the issue could not even get the investors their cost on the very first day itself. This is nothing short of a big dent on the interests of the investors.
Apart from this, till the present time, a total of twenty four companies are trading in the secondary market of the stock market below their issue price. That is, thirty-eight percent of the issuances that came up in 2021-22 are currently below their cost. Some of these companies are such that even the listing took place below cost and till date they are trading below cost in the secondary market. It is clear from this that the investors of these companies have no chance to recover their costs, let alone profits.
In such a situation, the question arises whether ordinary investors should also avoid investing in IPOs? Isn’t all this a huge loss for an ordinary investor? In reality, the common investor wants to give priority to the IPO, because he understands by studying the activities of the company, but in spite of all this, if he has to bear the loss then who is responsible behind it? In the last financial year, when a well-known startup entered the capital market with an IPO, there was a lot of enthusiasm among the investors.
But on the day of listing itself, the stock suffered a loss of twenty eight per cent and is currently trading at seventy four per cent below its issue price. It is clear from this that the money of the person who would have invested in that company is equal to twenty six percent today. Investors get scared by such investments.
The question is, don’t such economic losses break the confidence of investors? Even if the economy is booming or the stock market is also running at new heights, will the investor who has suffered such a beating want to return to the stock market? Bank interest rates have been declining continuously for the past few years. In such a situation, the expectations of common investors are from the stock market. But when investors get hurt in the market, then the question arises that what are the investment options for them? In this context, it has to be understood that most of these foreign investors will also be apprehensive and will shy away from investing.
This is the era of innovative industries (startups). The future success of such industries rests on the capital market. But what will these industries do if new issuances continue to fail like this? It is natural for this to put a damper on the efforts to promote entrepreneurship. In the age of technology, new models of business are being developed, in which financial forecasting and calculation of profits are different from the prevailing methods of old times. Goods are sold at discounted rates to attract customers.
Well-known personalities make their immediate capital requirements strong by making their personal investments in them, but all this is constantly failing in the stock market to benefit the common investor. In order to protect the interests of common investors in the stock market, there is a need to develop more control and transparent system. All this is also important for attracting foreign investors. Otherwise, it will become a common discussion that the coming of sixty three IPOs simultaneously in the stock market was a huge loss deal for the year 2021-22.