The IPO Mania

Amar Pandit , CFA , CFP

Webster defines Mania as excitement manifested by mental and physical hyperactivity, disorganization of behavior, and elevation of the mind.  The word is thus mostly associated with hyperactivity when it comes to investing. Remember Tulip mania –   the period during the Dutch golden age when the prices of tulips reached insane levels (one could even buy mansions with tulips) or the more recent Crypto mania.

While this is not an era of tulips, the last year certainly was a crazy one for IPOs. During 2021’s IPO mania, we saw a record $316 billion raised in IPOs (in the US stock markets). This number was the highest ever.

Just to give you a context (at the current exchange rate of $1 = Rs.82), this translates to Rs.25.92 Lakh Crore. Compare this to the size of the equity assets of the entire Indian Asset Management industry. According to the latest AMFI report (30th September 2022), that number is Rs.19.8 Lakh Crore.

Isn’t the 2021 IPO issuance number mind-boggling?

What do you think the number is this year (2022)?

Take a guess.

The number so far is $19 billion. It’s down 94%.

Just as the mania was on the upside last year, it’s on the panic side this year.

While there are several reasons, the key driving force behind these numbers is the US money supply. The years 2020, as well as 2021, saw a massive increase in the US money supply, which contributed majorly to the IPO mania. However, in 2022, the money supply declined for the first time in the last 18 years, and it brought a drought in IPO issuance.

Well, this madness is bound to return back again at some point in time (in the future). Whenever it happens, I hope you will remember this lesson and avoid getting sucked into this madness.