ipo: India’s IPO Boom: A sign of vibrant markets and growing investor confidence

Post the 2020 Covid crash, Rossari Biotech initiated the wave of IPOs, witnessing overwhelming subscription and listing success. This event paved the way for numerous IPOs, demonstrating the robustness of Indian equity markets and attracting investments from various segments, including fervent participation from HNIs and retail investors.

Over the past three years, the main board IPOs have displayed remarkable strength. In 2021, 63 companies went public, raising Rs 1.2 lakh crore. Despite global market challenges, 2022 witnessed 40 IPOs, accumulating Rs 60,000 crore. As of November in 2023, 48 companies have already gone public, raising more than Rs 45,000 crore.

This IPO surge extends to the SME space as well, with 2023 breaking records with 156 IPOs, raising more than Rs 4,200 crore. The increasing average ticket size in SME IPOs, from Rs 13 crores in 2021 to Rs 18 crore in 2022 and Rs 25 crore in 2023, indicates that promoters are seeking larger capital to fuel their growth ambitions, and investors are responding positively to these opportunities.

The active participation of retail investors has been a key driver of this IPO boom, often resulting in massive oversubscriptions. This reflects a growing appetite for equities among retail investors and a heightened confidence in the Indian economy.

Notably, almost 50% of IPOs have been primary tranche issuances, signaling that companies are raising fresh capital to expand their businesses or pay off debt. This demonstrates promoters’ confidence in the future prospects of their companies and their belief in the ability of the Indian market to fund their growth aspirations.

SEBI’s strategic move to reduce IPO listing timelines from T+6 to T+3 days is a significant step towards streamlining the IPO process, making it more attractive for both issuers and investors. By expediting the listing process, issuers can access capital more quickly, bolster market sentiment, mitigate pricing risks, and streamline administrative operations. For investors, it means gaining early access to shares, reducing holding period risk, improving liquidity, and fostering confidence in the Indian capital markets.Furthermore, SEBI has introduced several measures for the primary market space in the last couple of years, such as increasing lock-in periods for anchor investors and further segmenting the NII tranche for big and relatively smaller ticket sizes. These measures aim to enhance transparency and avoid sharp swings in market prices.

Looking ahead, with India projected to surpass $4,000 per capita income by 2030, the growth potential for listed companies, both large and small, is immense. This growth will be driven by a surge in consumer spending, fueled by rising purchasing power and the digitization of the economy.

Investors participating in this growth story can benefit in the long run by adopting a systematic portfolio approach diversified across different equity categories, including large cap, midcap, smallcap, and SMEs. Currently, only 3% of India’s population invests in the market, but with rising disposable incomes, a substantial influx of capital into the equity markets is anticipated. This influx will further fuel the growth of the Indian equity market and provide immense opportunities for businesses and investors alike.

Recent highlights include India’s largest life insurer, LIC, raising capital and becoming the largest IPO ever, with 73.38 lakh applications. This record was surpassed last week when Tata Technologies, a Tata Group company, launched its IPO, garnering a massive 73.58 lakh applications and listing with 140% gains.

The last week witnessed the launch of five main board IPOs, a scenario previously seen only in March 2021. ?2.2 trillion was blocked in these IPOs, constituting around 6.5% of the nation’s currency in circulation. IREDA Ltd surged 88% on the listing day, becoming the second-highest opening by a PSU IPO after IRCTC. Gandhar Oil Refinery opened at 76% up.

The IPO landscape has witnessed a notable shift in the types of companies going public in the last few years. Tech-focused IPOs have dominated the primary markets, with companies like Zomato, PolicyBazaar, Paytm, Nykaa, Nazara, Delhivery, Honasa, etc., making their mark. This trend highlights the growing acceptance of new-age sectors by Indian markets and the willingness of investors to embrace innovation.

Recently, even PhonePe’s decision to relocate its base from Singapore to India last year after paying a huge tax in doing so showcases the faith in Indian primary markets. Now, several other unicorn tech startups are also considering shifting their base to India and looking to gain the regulator’s confidence and go public soon. This notable shift underscores the evolving dynamics of the Indian IPO landscape and change in view of Indian investors towards new-age sectors.

In conclusion, India’s IPO market is poised for continued growth, driven by a combination of factors, including a resilient economy, investor confidence, a supportive regulatory environment, and the rise of tech-focused companies. As India’s financial markets mature and its economy expands, the IPO market will play an increasingly crucial role in fueling the nation’s growth and creating wealth for investors.

(The author, Vaibhav Jain, is Head of Content and Education, Share.Market)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)