Five initial public offerings (IPOs) have opened for subscription this week alone, making it one of the busiest weeks for public issues since 2007-08. In that year, on average, seven companies had launched their IPOs each month.

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While benchmarks Sensex and Nifty have struggled so far in 2021, the appetite for new issues seem to have only gotten stronger. Numerous market veterans feel the flurry of IPOs and the huge demand from retail investors could well be a sign of an impending crash.

And yet, the ongoing frenzy for new issues seems nothing compared to the madness seen in the mid-90s after the economy and stock market were liberalised.

According to data by Primedatabase.com, 1,216 IPOs were launched in 1994-95 and 1,334 in the following year. That is an average of 105 IPOs per month, or around 25 IPOs every week – in just two years.

(Source: Primedatabase.com)

Interestingly, despite the Securities Scam being exposed in April 1992 and the market downturn that ensued, initial public offerings found plenty of takers.

The catalyst for that was the abolition of the Capital Controller of Issue (CCI), which until then was the authority for deciding the pricing of IPOs. Under CCI, the price of the IPO was based on the company's book value and not earnings. As a result, companies that came out with IPOs in the CCI era, more often than not, ended up underpricing their IPOs. This worked to the advantage of investors if the company in picture had a good track record of consistent earnings growth.

In place of CCI came the newly formed market regulator Securities Exchange Board of India (SEBI), and the freedom for companies to price their offerings as they chose. SEBI was entrusted with vetting the prospectuses of companies wanting to go public.

With a major change in the pricing rule, 448 companies went public that year, more than thrice the number of companies that had launched IPOs the previous year.

However, the formation of SEBI did little to improve disclosure standards of IPO-bound companies. Also, given the flood of companies looking to go public, SEBI simply did not have the resources to vet each prospectus thoroughly.

A typical prospectus would be a full page of a broadsheet newspaper. Most of the details in the prospectus would be statutory information, and there was no way for regulators or investors to verify or dispute the financial information and the claims advertised by a company.

Just about anybody with anything that passed for a business, could raise money.

Only to be expected, many fly-by-night operators posing as entrepreneurs saw it as a golden opportunity to make a fast buck.

In February 1995 alone, 184 companies launched IPOs, a record for a single month.

A growing economy and booming stock market resulted in most of the IPOs delivering good returns for a while. Besides, even if you lost money in some IPOs, there were plenty others to help recoup losses.

But like every other mania in the stock market, this one too had to end. As the economy began losing steam in 1996-97, corporate earnings came under pressure.

Still, 660 companies raised money in 1996-97 at an average of more than two IPOs a day.

Soon it surfaced that most of the companies that had raised money in the previous two or three years were bogus. These would later be collectively called the 'vanishing companies' with promoters disappearing without a trace, leaving millions of investors holding worthless paper in the form of share certificates.