The primary market is slowly becoming more discerning about who it lets in, with investors not hesitating to turn their backs on companies they think don’t make the cut.

Since 2011-12, of the 132 IPO applications approved by the Securities and Exchange Board of India (SEBI), 67 lapsed. In the three months from April to June this year, of the 13 companies that SEBI cleared to launch their IPOs, seven didn’t come to the market.

This is much higher than in the whole of FY15, when four out of 16 IPOs failed to make it.

A merchant banker, who did not wish to be quoted, said there is more “investor pushback now because they disagree about a company’s valuations or business fundamentals”.

In some cases, the company fails to enthuse institutional investors during the roadshows and publicity programmes to attract investors. If institutions don’t show adequate interest, the IPO is mothballed before retail investors even hear about it.

In other cases, the timing has gone wrong or the market environment may have changed since receiving SEBI’s clearance. For instance, the Catholic Syrian Bank public offer was delayed as the market’s appetite for banks declined and asset quality concerns surfaced. (The bank’s IPO clearance will lapse on June 22.)

More companies may be turned away now as investors are biased towards large IPOs. “When a company is seen to be raising a lot more money,” another banker said, “it gives the impression of being more liquid, less volatile. So now, if there is a ₹300-crore IPO by a company in the infrastructure space, there aren’t going to be many takers for it.”

Public offer process

When a company wants to make a public offer for its shares, it hires a merchant banker to draft an offer document — which lays out details about the company, its business and the share offer. This document, called a draft red herring prospectus, is submitted to SEBI. The capital market regulator gives the IPO the green signal after it examines the document and is convinced that the offer is genuine. This clearance is valid for 12 months, within which time the company must complete the entire offer process.

Most companies try to complete the process within three to six months of getting the go-ahead.

For example, SEBI clearances for four companies issued in April-June 2015 — AGS Transact Technologies, SMC Global Securities, Shree Shubham Logistics Ltd and Amar Ujala Publications — have expired. Together, they would have raised about ₹1,800 crore in fresh equity. Catholic Syrian Bank’s public offer period ends in a fortnight; it had planned to raise ₹400 crore. Two other companies — SSIPL Retail Ltd and Dilip Buildcon — have since filed revised documents with SEBI after their first clearances lapsed.

(The companies named here and their merchant bankers either did not respond to emailed questions or declined to go on record about their IPO plans.)

On the bright side, in FY16, 22 companies raised a total of ₹16,565 crore through IPOs, the highest in the past five years, according to data with Prime Database.

The ones left behind are naturally filtered out by investors, the first banker said. “They might choose to come back when the timing is better.”

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