Surge in IPOs, Sebi fast-tracks approvals

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Investor interest in the stock market is rapidly increasing, particularly among retail investors whose numbers are steadily rising. There is a significant craze for IPOs (Initial Public Offerings) among retail investors. Many big IPOs, like those from Hyundai Motor India and Reliance Jio, are to be launched soon. This is because the market regulator SEBI is maintaining a fast pace in approving IPOs. What steps SEBI is taking to expedite the IPO approval process? What benefits investors can expect from it? Let’s explore.

SEBI has continued to expedite approvals for IPOs, considering the buzz in the primary market. According to data from the primary market tracking firm Prime Database, SEBI took an average of 107 days to approve IPOs filed in the financial year 2023-24. This is a 17% decrease from the 129 days it took in the financial year 2022-23 for similar tasks.

Reason behind IPO surge?

A report in Financial Express, citing investment bankers, reveals that there are several reasons behind the increased speed in SEBI’s approval process for IPOs. These include an increase in the number of SEBI employees, the use of artificial intelligence, and self-certification by merchant bankers.

In some cases, it has taken less than two months for IPOs to receive approval. Looking at the past few years, public issues from companies like Ideaforge Technologies, Aadhar Housing Finance, Brainbees Solutions, Bharti Hexacom, Cello World, and Indian Renewable Energy Development Agency (IREDA) received regulatory approval in less than two months.

Elara Capital’s President of Investment Banking, Ramneesh Kochgwe, explained that the time taken for IPO approval depends on the quality of the documents submitted in the DRHP (Draft Red Herring Prospectus). Typically, good bankers and lawyers take care to meet SEBI’s criteria before filing the DRHP. This makes SEBI’s comments more favorable when reviewing the documents. The quality of the documents has significantly improved over time, which plays a crucial role in the approval process.

To speed up the IPO approval process, SEBI has recently asked lead managers to provide additional details while submitting the DRHP. The additional disclosures required by SEBI include pre-IPO placements, shareholder information, prior agreements, and details of ESOP (Employee Stock Option Plan) allocations.

A June news report that was based on Prime Database’s figures, recieved over 45 applications since January this year and only 9 were approved. The average approval time was of 87 days. Around half a dozen applications were either withdrawn or canceled.

In recent years, SEBI has been reducing the time required for IPO approvals. With SEBI fast-track steps to speed up the approval process, IPOs are likely to enter the primary market faster. This will provide more opportunities for investors to earn returns. IPOs like Bharti Hexacom, IREDA, and Tata Technologies have yielded substantial returns for investors. Before investing in an IPO, it is advisable to consult experts.