The years of the pandemic are the most gruesome years for the global economies. During this period, the global economy contracted 4-6% with most emerging markets contracting more than 10% from their previous GDPs. It was largely evident that all the economies in the world were going to suffer from a jammer crisis. However, just after the market crash which was caused by a pandemic, stock markets reached an all-time high amid the covid crisis.
In 2021, $49.3 billion was raised through IPOs in Asian markets, globally, IPOs raised were $215 billion. It was clear that the stock markets were following a mind of their own. In India, the average IPO in 2021 is oversubscribed almost 59 times. The question deﬁnitely arises that in such tumultuous times, where is the stock market getting so many funds from?
Ever since the lockdown in April 2020, the number of DEMAT accounts have increased drastically. From April 2020 to January 2021, they rose to an all-time high. There are more than 10.7 million DEMAT accounts in the Indian stock market. This has caused a sudden burst of fresh funds in the market. This explains why the SENSEX is forming all-time highs and the completely bizarre results of IPOs.
Because of the unemployment in the economy, employees that have lost their jobs have shifted to stock market investment to cover up for some possible income. Jobs lost from other occupations have shifted to self-employment by investing in the stock market. A large reason for this shift is possible income and the current wave on social media that is very pro-investment.
However, market leaders have different opinions. According to Ajay Menon, Managing Director and CEO at Motilal Oswal Financial Services, the growth is mostly due to “The most common reason being people having more disposable income, as well as free time to trade as most of them, were working from home. Markets were volatile and at low points during the start of FY21 because of which ﬁrst-time investors and millennials have been grabbing the opportunity for short-term gains and an alternative source of income”, he claims. He also says that e-brokerage companies (such as Zerodha) are streamlining this process, by providing quick and online access to stock markets. E-brokerage has started to facilitate smooth transactions in real-time.
Another set of investors believe that there is a huge inﬂow of foreign money coming into India. India is currently speculated to attract most companies that are leaving China. This has caused large amounts of FDI to come to India. India received $30 billion within the ﬁrst half of FY20-21 which is 15% more than last year(during the same period). However, this impact is also limited because Reliance Industries pulled around 33% of the total FDI.
In conclusion, many factors have led to an increase in IPO subscriptions since the start of the year. Most feel that the majority of these inﬂows in the stock market are from increased liquidity, as more retail investors joined the stock market. Some other analysts feel that the additional cash ﬂow is because of a rapid increase in FDI.