The IPO for a company, commonly called as ‘going public’, means it has become successful enough to require a lot more capital to continue to grow. It’s often the only way for the company to get enough cash to fund a massive expansion. The funds allow the company to invest in new capital equipment and infrastructure. It may also pay off debt. If the company wants to acquire another business, it can offer shares as a form of payment. The IPO also allows the company to attract top talent because it can offer stock options. They will enable the company to pay its executives fairly low wages upfront. In return, they have the promise that they can cash out later with the IPO.
The number of IPOs being issued is usually a sign of the stock market’s and the economy’s health. During a recession, IPOs drop because they aren’t worth the hassle when share prices are depressed. When the number of IPOs increase, it usually means the economy is getting back on its feet again.
In general, India should continue its IPO boom due to the resilient nature of the economy, strong domestic liquidity and a strong pipeline of DRHPs filed with SEBI. But, certain factors have an impact on the investor’s sentiment. Pre-IPO companies should analyze these factors and make the right decision. The factors include geopolitical tension, oil prices, interest rate hikes, elections, currency, political instability, regulatory changes, short-term volatility.
In a survey conducted between PE and non-PE firms at the start of 2019, it is found that a brighter earnings outlook is the primary driver for investment confidence for both sets of respondents along with higher investor appetite. This is perhaps understandable as solid projections form the basis of an attractive and investible company. While PE respondents consider stabilization in equity markets as the second most important factor, non-PE respondents are more concerned about the macroeconomic conditions. When coming to the most financial factors while evaluating an IPO, both PE and non-PE firms cash flow, POE and other earning factors are the three main factors. Whereas in the case of non-financial factors, brand strength, market position and management experience are the factors that were commonly considered by PE and non-PE firms. In terms of the company’s infrastructure, corporate governance and compliance is an essential requirement for companies looking to go public. Venue was also an important part of making the decision. Both PE and non-PE firms agreed that good companies with the right pricing and right timing are the key success factors for an IPO.
Looking at the negative factors, a company having bad management and overpricing of stocks are the biggest concerns for the firms. On top of that, the IPO process requires a lot of work. It can distract the company leaders from their business. That can hurt profits. So, hiring a good investment firms may be the right option.