Thursday 03 / October / 2024
India’s Initial Public Offering (IPO) market has witnessed a remarkable resurgence in recent years, with numerous companies across diverse sectors raising significant capital through public listings.
This boom has garnered widespread attention from investors, industry experts, and market watchers globally.
While India's secondary market continues to soar, with benchmark indices hitting new highs daily, the primary markets are also experiencing a wave of activity.
India's primary market, which was once dominated by institutional players, is now seeing a significant increase in retail investor participation, driven by the potential for higher returns and easier access to financial markets.
In September alone, 47 companies made their debut in the secondary market, raising a total of Rs 16,152 crore, according to media reports.
The momentum is clearly visible, with India’s IPO market tripling in the first eight months of 2024.
During this period, 227 IPOs raised a combined USD 12.2 billion—nearly three times the USD 4.3 billion raised in the same period in 2023, according to GlobalData, a London-based data analytics and consulting company.
India has become a standout player in the Asia-Pacific (APAC) region, which saw 575 IPO listings in the first eight months of 2024, raising USD 23.7 billion—a 15.6 percent increase compared to the same period in 2023.
Meanwhile, a wave of IPOs is set to hit the Indian stock market, with 13 companies submitting preliminary filings to market regulator the Securities and Exchange Board of India (SEBI) in a single day.
These 13 firms are expected to collectively raise at least Rs 8,000 crore, according to their draft papers filed on September 30.
So far, 62 companies have already raised about Rs 64,000 crore in 2024 through mainboard IPOs, a 29 percent increase compared to the Rs 49,436 crore mobilized by 57 firms in all of 2023, as per reports.
The surge is not just a reflection of the strength of India’s stock markets, but also a testament to the confidence investors have in the country's long-term economic growth.
As India positions itself as a global economic power, the IPO market plays a crucial role in channeling investment into high-potential industries.
The dynamics behind the IPO boom:
Several interconnected factors have contributed to the recent explosion of IPO activity in India.
These factors reflect the evolving economic environment, growing investor interest, and a supportive regulatory framework that has enabled businesses to tap into capital markets more efficiently.
Post-pandemic economic revival: One of the primary drivers behind the IPO boom is the post-pandemic recovery of the Indian economy.
After the sharp contraction experienced in 2020 due to Covid-19, India has rebounded strongly, aided by government stimulus measures, robust vaccination drives, and economic reforms.
As the economy stabilized, businesses that had shelved their IPO plans during the uncertainty of the pandemic began re-entering the market.
For many companies, going public became an attractive option to raise capital, reduce debt, and fund expansion plans.
The improving economic environment boosted investor sentiment, providing fertile ground for IPOs to flourish.
Tech startups going public: A significant feature of India’s IPO boom has been the rise of tech-driven companies, especially startups, opting to go public.
Firms such as Zomato, Nykaa, Paytm, and PolicyBazaar, which dominate the digital economy, made headlines with their public listings, attracting immense interest from both domestic and international investors.
These companies represent India’s new-age economy, driven by technology, innovation, and a rapidly growing digital consumer base.
The pandemic further accelerated the adoption of digital services, making these tech startups even more appealing.
The success of some of these IPOs has created a ripple effect, encouraging more tech companies to explore public listings as a means to unlock value and scale their operations.
Retail investor participation: The rise of retail investor participation is another critical factor fueling India’s IPO market boom.
Aided by easy access to online trading platforms and mobile applications, retail investors have entered the stock market in droves.
The widespread use of smartphones, affordable internet access, and the growing popularity of investment platforms have democratized access to financial markets.
Furthermore, as traditional savings instruments like fixed deposits and bonds have offered lower returns in the past few years due to low-interest rates, Indian retail investors have increasingly turned to equities as a means to grow their wealth.
IPOs, in particular, have attracted significant retail interest due to the potential for quick returns and the allure of owning shares in high-profile companies.
Global liquidity and foreign investor interest: India’s IPO boom is also supported by the global liquidity environment.
Major central banks, especially in developed economies, have pursued expansionary monetary policies to counter the economic fallout of the pandemic.
This created a liquidity glut, with institutional investors looking for high-growth opportunities in emerging markets like India.
Foreign Institutional Investors (FIIs) have been particularly active in India’s IPO market, attracted by the country’s long-term growth potential and favourable demographics.
With a growing middle class, a burgeoning consumer market, and a tech-savvy population, India presents a compelling investment opportunity.
As a result, FIIs have injected substantial capital into IPOs, further driving demand for new listings.
Regulatory support and reforms: India’s market regulator SEBI has played a pivotal role in fostering the IPO boom.
SEBI has implemented various reforms aimed at making the IPO process more efficient, transparent, and investor-friendly.
These measures include simplifying the regulatory filing process, shortening the timeline for IPO approvals, and enhancing disclosure requirements.
Additionally, SEBI has strengthened investor protection mechanisms, ensuring that retail investors have access to reliable information and are better shielded from risks.
These regulatory improvements have helped build investor confidence, making IPOs a more attractive investment vehicle.
Government's push for privatization: The Government of India's ongoing efforts to privatize public sector enterprises (PSEs) have also contributed to the surge in IPOs.
The government has been actively pursuing divestment in state-owned companies to reduce its fiscal burden and meet its divestment targets.
Notably, the highly anticipated IPO of the Life Insurance Corporation of India (LIC), the country’s largest insurer, has been a landmark event in India’s IPO market.
This push for privatization has not only brought high-profile public listings to the market but has also attracted significant attention from global investors, further bolstering the IPO market’s momentum.
Impact of the IPO boom:
The recent boom in IPOs has had wide-ranging effects on India’s capital markets, businesses, and investors.
While the increased number of listings has deepened market participation, it has also raised questions about valuations, sustainability, and long-term prospects for both companies and investors.
The influx of new IPOs has broadened the Indian stock market’s depth and provided investors with a more diverse range of investment opportunities.
With companies from sectors such as technology, healthcare, financial services, and consumer goods listing on the exchanges, investors can now access a more comprehensive array of industries.
This diversification helps reduce market risk and increases the overall robustness of the stock market.
The IPO boom has created significant wealth for promoters, early-stage investors, and retail participants who successfully invested in high-growth companies.
Several IPOs have delivered substantial returns post-listing, further fueling retail enthusiasm and driving more investors to participate in future offerings.
Despite the overall success of the IPO market, concerns around overvaluation have emerged.
Some companies, particularly tech startups, have gone public with high valuations relative to their earnings.
In several cases, these companies have yet to demonstrate consistent profitability, which has raised questions about their long-term sustainability.
As a result, some newly listed companies have seen their stock prices decline post-IPO, reflecting investor concerns over whether the lofty valuations were justified.
This has prompted calls for greater due diligence and caution, particularly in the face of market exuberance.
Future prospects of India's IPO boom:
The outlook for India’s IPO market remains bright, with a robust pipeline of companies planning to go public in the coming years.
India’s fast-growing economy, strong capital markets, and evolving regulatory framework provide a conducive environment for more IPOs to flourish.
However, the future trajectory of the IPO market will depend on several factors, including global economic conditions, interest rate trends, and market sentiment.
While investor enthusiasm is currently high, macroeconomic shocks or tighter liquidity conditions could dampen the IPO market’s momentum.
India’s IPO market boom reflects the country’s evolving economic landscape and the growing confidence of investors in its long-term growth potential.
The convergence of tech-driven innovation, retail investor participation, regulatory support, and foreign capital inflows has fueled the surge in public listings.
As India continues to position itself as a global economic powerhouse, the IPO market has been playing a critical role in channeling capital into high-growth industries, fostering wealth creation, and driving the country’s economic transformation.
