A Study on Issue Objectives of IPOs: Indian Evidence

Out of the many strategic decisions affecting the future of a company, decision to ‘go public’or to launch Initial Public Offering (IPO) is one of the important decisions. Basic question inthis regard is ‘why do companies go public?’ Immediate answer for this question appears tobe raising capital when companies have greater growth opportunities. However, researchersacross countries have found a number of many other reasons other than merely raising capitalfor companies’ decisions to go for IPOs. Some of these notable reasons as to why companiesgo public include enhancing company reputation, motive to use IPO proceeds to acquire otherbusinesses, market timing or cashing the ‘windows of opportunity’, desire of the promoters tobecome rich by divesting their stake at a time when their company is overvalued, to improvethe cash position of the company, increased ability for the company to raise additional capitalin future by enhancing liquidity for the retail investors, to use listed security as a currency tobuy other businesses in future, and to use the decision to go public as a marketing toolthrough enhanced publicity after getting the company listed on the stock exchange.The present study focuses on the issue objectives of the 76 IPOs that went public in Indiaduring the 2021 calendar year. The issue objectives in IPOs can be studied based on whattype of shares are offered in the IPO – Fresh Issue (FI) or Offer for Sale (OFS). Fresh issue ofshares is also called primary shares where the issue proceeds get added to the existing capitalof the company. Offer for sale is called issue of secondary shares where proceeds from theissue of such shares do not get added to the existing share capital of the company; it will betaken away by some of the existing shareholders or promoters as part of disinvestmentstrategy. The present study found that out of 76 IPOs that went public during 2021, 17 IPOsconsists of FI only, 14 IPOs consist of OFS only, and the remaining 45 IPOs consist of acombination of both FI and OFS. The total capital raised by these 76 IPOs amounted toRs.1,30,300.58 crores; of these, Rs.52,111.56 crores was fresh issue, while Rs.78,189.02crores was offer for sale.