IPO Boom: From the Roaring ’90s to Swinging ’20s, Will Retail Investors Emerge Unscathed?
When it comes to initial public offerings (IPOs), the roaring 1990s seem set to come back as the swinging 2020s, only much bigger. The IPO boom is coinciding with the entry of a horde of brash, young first-time investors into the stock market. The outcome will not be pleasant.
After the IPO mania of the mid-1990s, investors vanished from the stock market in millions. The primary market for new issues was dead for years and investors even shunned mutual funds for a long time. After stagnating at 20 million investors for decades, India’s investor population has exploded by over 15 million since the pandemic.
According to a recent release by the National Stock Exchange (NSE), 5.13 million investors were added in just four months—1st April to 25 July 2021. Most are first-time investors who have never seen a serious market decline, forget about a prolonged bear phase. And yet, many are into algo trading at the retail level and excited about flipping stocks in IPOs. Their immaturity is evident in the eruption of panic and anger on social media, each time a sudden decline inflicts losses on them.
What has also coincided with this is a sympathetic portrayal of Harshad Mehta in the wildly popular series Scam 92. Many seriously believe that India would have been a superpower if the discredited scamster Harshad Mehta had been allowed to continue rigging up stock prices for the past three decades.
Let’s look at the booming primary market which is again showing all signs of repeating the manic days of the mid-1990s. This month, some 30 issues are set to open for subscription. Many are from loss-making companies; but since we use their services frequently (Zomato or restaurant chains like Barbeque Nation and Burger King), they seem familiar and no one wants to examine them closely.
Unlike the IPO mania of the past, when people fell prey to a dubious nexus of bankers, investment bankers, brokers, underwriters, mutual funds and the media (which earned big money on advertisements), investors have multiple sources of information today, especially on social media. Almost every sane voice has been warning investors to guard against the growing madness. Are investors listening? One thing is sure this time. Nobody can claim that she wasn’t warned. The best way forward is to understand the past. History has a nasty habit of repeating itself. 
Flashback to the 1990s
Debashis Basu has captured the IPO mania of the 1990s with key data in his recently re-released book (on Kindle), Facevalue: Creation and Destruction of Shareholder Value (https://www.amazon.in/dp/B097YJYW32) in the chapter titled “Capital Addiction”. He writes about the GDR (global depository receipt) boom in 1993-94, when foreign investment bankers trawled India “for companies with balance sheets that could provide even a makeshift platform for a fund-raising idea,” or not even that.
“I have heard an owner laugh derisively at foreign investors and market intermediaries, after having successfully rigged his share price to dizzy heights and then made a GDR issue. He said: ‘Oh! We have now seen these goras (white folks) too. They are no better. They are equally dumb and greedy.’ His stock price shrank by 95% over the next three years! The whole process was so intoxicating that companies that had nothing to do with the capital market for decades rushed to raise money overseas.”
The IPO mania began towards the end of the 1994 and peaked in February 1995 after what is known as the MS Shoes scam. In January 1995, 145 equity issues opened for subscription including ‘mega issues’ by Reliance Capital, Essar Oil, Jindal Vijaynagar, Hindustan Petroleum, etc. “In one frenzied week in February 1995, 78 companies went public, crowning a financial year of 1400 issues,” he writes.
All these companies went public at a peak of economic cycle and most of them collapsed. For a decade after that, retail investors abandoned the stock market. Companies struggled to raise any money from the public and even the few good ones that managed to raise funds, found few subscribers for their ‘retail investors’ and employees' quotas. In a nice about-turn, we are now tagged in emails and tweets asking Moneylife Foundation to push for ‘bigger’ retail quota. Entitled, first-time investors believe they should be given first preference in public issues.
Admittedly, there is a big difference between the current crop of IPOs and those of the mid-1990s. Then, investment bankers actively helped hole-in-the wall operators raise funds and even sold readymade project templates. As many as 3,000 companies vanished with the loot and cannot be traced. Virendra Jain of the Midas Touch Investors Association approached the Allahabad High Court with a public interest litigation (PIL) and won a favourable order. But, despite a court-ordered joint co-ordination and monitoring committee (CMC) and seven task forces to trace these companies, there was no serious commitment to bring these looters to book.
In the aftermath, retail investors stayed out of the stock market. With little chance of raising fresh public money, many listed companies wanted to get rid of retail investors and burdensome compliances required by the market regulator and stock exchanges. So, many large companies, who did not ‘vanish’, went private instead – they bought back shares and often forced retail investors out of the market. The Essar group of Ruias was one such group, and Vedanta, which has been working at delisting its shares now, have second thoughts.
The re-listing game has begun in earnest. Some are returning directly and some indirectly. Last week, Chemplast Sanmar, which had delisted its shares a decade ago, raised funds at Rs540 a share, a substantial multiple to its earnings as well as its adjusted delisting price. In effect, it did what DLF Holdings, Triveni Engineering, Bharti Tele, Precot Mills of the Elgi Group had done about 15 years ago.
The DLF story is a great example of how little one can expect from regulators. SEBI permitted DLF to go ahead with its public issue in 2007 and, after a seven-year investigation, barred  it from accessing the capital market in 2014, only to have the order overturned by the Securities Appellate Tribunal (SAT) in 2015 and move to the Supreme Court. Karshanbhai Patel, who delisted Nirma nearly a decade ago, is now in the IPO market. Nuvoco Vistas Corporation Ltd, India’s fifth largest cement company, is from the Nirma stable.
Loss Leaders 
If bogus hole-in-the-wall operators dressed up as legitimate companies in the 1990s, the dotcom bubble that went bust in 2000-01 saw a bunch of hollow companies posing as tech and telecom ventures being ramped up by scamster Ketan Parekh (DSQ Software, Silverline, Software Solutions, Aftek Infosys, Pentamedia, Global Tele and Himachal Futuristic, among others).
The difference this time is tech-start-ups or ‘unicorns’—with billion dollar valuations and with large and visible operations but no profits—are out to pick up public money and give an exit to private equity investors who funded their journey to high valuations.
Every finance expert worth his salt has tweeted to warn retail investors about rushing into these IPOs; but the thumping success of Zomato’s fund-raising suggests that people have their sights on some distant horizon when it will turn into a Google, Facebook or an Amazon.
Well-known fund manager Samir Arora, of Helios Capital Management, had the best possible description for the new-age tech IPOs. He said in a recent interview, if you visualise a sugarcane machine, the first time the cane is crushed you get the best juice which is taken by the insiders (including private equity funds). Then it is passed through the crusher a second time and offered to the IPO investors (at an inflated price). Then it is squeezed a third time after bunching the pre-extracted cane and that is what investors, who missed on the IPO, get when they buy the stock at 20%-30% higher prices after it is listed!
It is important to remember that for every Amazon, Facebook or Google that may emerge, there will be plenty that raise funds at extreme valuations and fade away. The price at which people buy stock is crucial for their own returns.
Nobody can protect a brash and ignorant investor from losing money and there is no point blaming the regulator later. The real worry is for those who invest through mutual funds and expect skilled fund managers to take the right decision—one for which they earn a fat fee. People should start studying their mutual fund portfolios carefully and vote with their feet if they see bad decisions or lodge a protest with the trustees of those asset management companies right now, instead of waiting until the inevitable happens. Only the foolish would depend on regulators to act in time or protect them .

12 months ago
Kamal Garg
Replied to us9381 comment 12 months ago
These all information are contained contained in the DRHP which no body reads.
Rating system for IPOs is not there; however the same was there I think some two decades back, which was also abolished. But rating system is also prone to all kinds of wrongs, failures and frauds, like, what happened in case of DHFL bonds/debentures ratings.
12 months ago
look like adani power stock is under manipulation on the downside.sector peers and adani group other stocks are not falling like adani power.always retail investors are helpless under pricerigging and artificial pricefall induced by speculators and manipulators.
12 months ago
Brilliant article as usual, but alas there are very few takers for your free advice, wait for some time, the same people will be after moneylife foundation and other NGO to do something about their doomed investment.
12 months ago
The new crop of investors seem to be compratively well off compared to those investors of the 1990s thanks to ever widening gap between the rich and poor. Further, unlike in the past , people get used to the frauds and loots which are becoming a routine for reasons not so far fathomed out.Frauds in banks have become a business model and loot through insurance business is becoming a way of life. Unlike in the past , the meticulous approach to save, calculate , be prudent with expenditures etc are fast disappearing thanks to invasion of technology and planned / unplanned erosion of values coupled with lack of accountability. People feel helpless but prefer to suffer silently seem to be the only way out to have peace and be free from hassles. JANE DO attitude is widely prevalent and the acceptance of loss of money as part of modern living and minimising risk of loss is becoming a philosophy. The next bigger scam after the Harshad Mehta and NSE scam , in line would be general Insurance in general and Life Insurance in particular, closely followed by IPOs loot and vanishing of companies . Stock market boom is a proof of growing inequality and despite sane alerts from knowledgeable quarters , fresh investors get attracted is a reality indicated by ever increasing no of D mat accounts. All said some right thinking wise people and perhaps some old generation and aged people have some worries about all these but how far they are heard is a big question mark.
12 months ago
Brilliant article and people who have seen these cycles earlier can relate well and can see what is coming. A lot of people had exited earlier with decent gains but are unable to re-enter and waiting for a correction. First time investors who see the markets testing a new high every week are lured by the returns will want to keep buying at these levels. It will be interesting to see how this unfolds...
1 year ago
Watch Bill Rodgers interview on ET now - he is afraid that once the bubble bursts in late 2021 or early 2022 every market in the world - due to catastrophic borrowings by all Governments - be it equity, bonds, real estate, et. all will enter a bear phase which he says he has not seen in his lifetime. Scarry.
Kamal Garg
1 year ago
And even first time investors will lose their real hard earned money. And on top of that, markets bust when there is economic doom making a scar into a deep cut wound.
Kamal Garg
1 year ago
Absolutely correct.
For every Amazon, Facebook or Google, there are not hundreds but thousands of companies making no where and ending with unpardonable sins and losses for common and ever zealous FOMO investors.
1 year ago
With ALL people working from home & dreaming of becoming Millionaire's with such DIZZY Stock Markets, the Bloodbath is very near ????????
Replied to shrikrishnayprabhu comment 1 year ago
Markets can remain irrational longer than you can remain solvent.
Monkey Singh
1 year ago
All thanks to SEBI taking hafta from benami prop desks. All terrorists in the world are funded by black money because they deal in various things such as drug trafficking, arranging agents to help fugitives etc. And with this amount of black money playing rounds in Indian stock market and exiting India, SEBI is effectively helping terrorists. It is high time that CIA declares SEBI as a terror funding organisation and the UN should ask India to encounter all of SEBI executives.
1 year ago
If we don't allow a child to fall she will not learn to walk. If retail investors or anyone else wants to learn a new skill at their cost it is caveat emptor. Loss is a possible outcome of any business venture. or we can go back to so called socialism that avoided the "bigger they are the harder they fall" by keeping everyone small.
1 year ago
Problem is a vast majority are financially illiterate. Even professionals in the finance field do not have time to go through details, or MF portfolios or they are so dressed up like Rei Agro of one era that it is difficult not to fall for the price momentum trending through SM. Every one wants to make quick money, because someone known to him has made. I get requests from financially illiterate to suggest stocks that go up soon. I have NO CLUE. I can only give examples of Harshad, Ketan or a Bill Hwang who lost a huge amount of money.
1 year ago
penny stocks movedup minimum 5 times and maximum of 50 times with price rigging and manipulation.this time no different.definitely history going to repeat sooner not later
1 year ago
In case of zomato its not 20 -30 % its a premium of more than 70% which is ridiculous when you consider the zero profit model they have till now. Amazon had the patience to wait 6 years to make an profit however they were very efficiently run with Bezos cutting corners everywhere possible. For the valuation this new age startups make it would take tremendous amount of sustainable growth year in year out for them to make money. It would be interesting to see how this startups turn out as out of this 40 companies 3-5 will make it at the end. No one knows which 3 - 5 companies that will be.
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