Why a large number of IPOs hitting the stock market is a warning sign

Relative Performance from IPOs starts deteriorating with the total collection. For example, the BSE IPO index started underperforming the Sensex after huge IPO collections during 2017-18. A bigger worry is a bigger collection may threaten the secondary market rally too. “Primary market activity is linked to secondary market rally and a large number of IPOs comes during the late stage of the bull market,” says Mayank Khemka, CIO-India, Deutsche Bank.

Hasit Pandya, Director, HPMG Shares & Securities concurs with this view. “If you look at the history, you will notice that there will be reversal in broader market after large number of IPOs coupled with large issues (above Rs 10,000 crore) hit the market,” he says. In addition to dubious companies hitting the market during an IPO rush, large primary offerings also suck the liquidity from the secondary market.