In the Indian primary market, there is a salient tendency of several companies, having been granted regulatory clearance for their initial public offering, now being at risk of the same expiring. Based on the statistics on current market filings, initial public offering requirements of about ₹6,540 crore are due to expire within the next few months, as companies are reluctant to introduce their listing.

With the current regulating system that has been instituted by the Securities and Exchange Board of India, a firm is mandated to issue its public offer not later than one year after the receipt of the final observation letter. Otherwise, the approval will expire, and the firm will have to repeat the whole procedure of filing and reviewing the filing material in case they want to access the markets later.

Market volatility and the financial burden of re-filing

The main cause of such a build-up of pending approvals is the caution adopted by corporate boards and promoters against the changing market conditions. The overall indices might be resilient, but the individual appetite for new issuances can be highly variable depending on sector sentiment and macroeconomic conditions on a global basis.

Several firms that were given their approvals at high optimism times now struggle to reach the valuations they had set out to achieve. The resultant effect has been that companies are willing to wait till they get a better window and not take a chance of a somewhat mixed reception or undersold issue, even at the cost of letting their current regulatory window run out.

This reluctance is especially pronounced in the case of the medium-sized companies that lack the institutional support of bigger conglomerates. In the case of these entities, the price of the failure of the IPO is prohibitively high, as it is not only a loss of money but also a major negative publicity about the brand.

Other companies are opting to allow their hard-earned approvals to lapse, preferring to check the secondary market performance of their competitors before they are committed to a particular launch date. Such a risk-averse behavior is a sign of a change in the market where quality and pricing are increasingly being looked at more carefully by both retail and institutional investors.

The lapse of time of an IPO is not a simple procedural setback but also a huge financial and administrative liability of the respective companies. Any lapse of an approval requires all the effort that has been made on the Draft Red Herring Prospectus to be re-read and updated with financial audit, legal due diligence, and merchant banking valuation.

This is a process that entails high recurring expenses of professional fees given to auditors, legal advisors, and investment bankers. To the companies that are part of the ₹6,540 crore overall at risk, delay is a calculated gamble since the cost of re-filing will be less than the potential cost of having an untimed market entry.

The re-filing necessity also implies that the financials of the company should be revised to the new quarter, which can be a two-edged sword. The new filing may present a less appealing growth narrative, which could result in even lower valuations or additional waiting, in case the performance of a company has dropped during the waiting period.

The regulatory clock exerts a lot of pressure on the management teams, like ensuring that they match the business performance to market cycles, which has been getting more and more challenging in the present volatile environment. This has led to a bottleneck where the pipeline of approved issues is full, though the flow of listing is still constrained.

Delay and merchant bankers

The implication of such delays on the larger investment ecosystem, especially regarding institutional investors, is that they invest particular portions of their portfolio in primary market issuances. Failing to materialize large masses of approved IPOs distorts the capital allocation plans of mutual funds and insurance companies.

At the retail level, the absence of fresh quality problems may bring interest into a recession in the main market. The ₹6,540 crore is a considerable liquidity locked up figure waiting for the correct combination of regulatory compliance and market excitement.

Merchant bankers are now involved with these companies in order to establish whether a last-minute launch could be done prior to the end of the one-year deadline. Companies in other cases are considering pre-IPO placements as a means of raising money and testing their valuation before taking the big step of going public.

To most of them, the difference between their expectations and what the market can offer is wide, and within the time they have left to allow their approval. This dislocation is an indication that even though there are not enough companies desiring to go public, the conditions of engagement have become significantly stricter.

Conclusion

An expiry of ₹6,540 crore of IPO approvals is an excellent reminder of the difficulties associated with timing the public markets. Although the Securities and Exchange Board of India offers a generous period of up to twelve months in which companies can respond to their approvals, valuation mismatches, as well as the macroeconomic uncertainty, have forced most companies to find that period inadequate.

With these approvals expiring, there might be a temporary flattening of the major market followed by a flood of new filings as the companies reconsider their plans toward the next fiscal year. The IPO market will be healthy when these companies can adjust their own internal developmental paths to the external realities of investor demand and market stability.