The Indian IPO Market: A Promising Upswing Ahead of 2025

The Indian Initial Public Offering (IPO) market is on the brink of a significant transformation as it gears up for an exciting 2025. With a remarkable 149% increase in IPO value in 2024, reaching $18.4 billion, the stage is set for a wave of companies looking to go public. Notable names such as Swiggy, Ather Energy, Reliance Jio, OfBusiness, Hexaware Technologies, and AI startup Fractal are among the frontrunners in this burgeoning landscape. The Bombay Stock Exchange (BSE) is optimistic about maintaining this momentum, anticipating a record-breaking year ahead.

A Surge in IPO Activity

The BSE has reported that over 90 companies have filed their draft prospectuses, collectively aiming to raise an estimated INR 1 trillion (approximately $11.65 billion). Of these, around 34 companies have already initiated their fundraising efforts or are in the process of doing so. This influx of activity reflects a growing confidence among investors and a robust appetite for new investment opportunities.

Investor sentiment has been buoyed by the BSE’s share price, which has doubled over the past year. Additionally, the trend of smaller, city-based companies entering the stock market is expected to gain traction in 2025, further diversifying the IPO landscape.

Domestic Funds Leading the Charge

One of the primary drivers behind this IPO boom is the expanding retail investor base in India. Increased disposable incomes and improved financial literacy have led to a surge in participation in equity markets. The rise of fintech platforms like Zerodha and Groww, along with enhanced digital infrastructure, has made it easier for a broader audience to engage in IPOs.

Mahavir Lunawat, chairman of the Association of Investment Bankers of India, highlighted a significant shift in the market dynamics. He noted that while Indian firms once sought to raise funds abroad, foreign companies are now eager to tap into the Indian market. Lunawat’s insights reveal that approximately 851 IPOs have entered the market over the past six years, with projections suggesting that around 1,000 companies will go public in the next two fiscal years.

Data from 2024 indicates that holding IPO stocks for at least six months tends to yield better returns, underscoring the importance of thorough research and strategic investment planning. Krishnan V R, a quantitative research specialist at Marcellus Investment Managers, emphasized that this is an opportune time for companies with solid business models to consider going public.

Factors Influencing the IPO Landscape

The dominance of domestic mutual funds and retail investors has characterized the IPO market in recent years, particularly as foreign institutional investors (FIIs) have reduced their allocations to Indian equities. This trend is reflected in the recent depreciation of the Indian rupee, which can negatively impact FII investments. However, experts believe that strong domestic mutual fund flows will continue to support IPO demand.

Krishnan noted that if newly listed companies, particularly AI startups, serve international clients with dollar-denominated revenues, they could benefit from a weaker rupee. Akash Aggarwal, managing director of investment banking at Motilal Oswal Financial Services, echoed this sentiment, stating that despite market fluctuations, IPOs are witnessing robust subscriptions from Indian investors.

The surge in retail investment is particularly noteworthy. The average number of applications for IPOs has risen significantly, with expectations of around 30-40 lakh applications compared to the previous year’s average of 15-20 lakh. This increase is indicative of a growing interest in equity markets among the general populace.

The Importance of a Strong Business Model

While the IPO landscape is vibrant, not every startup is ready to take the plunge. Aggarwal cautioned that investors are increasingly looking for companies that demonstrate sustainable cash flows and profitability. Many startups, particularly in the AI sector, may not yet be prepared for public scrutiny and should consider raising funds from private investors instead.

He emphasized that companies must reach a certain level of maturity before contemplating an IPO, as premature listings could lead to disappointing valuations. The past few years have seen several young, yet-to-be-profitable companies successfully listed, but the competition in certain sectors remains fierce. Therefore, it is crucial for companies to focus on long-term growth strategies rather than chasing short-term market trends.

Conclusion

The Indian IPO market is poised for an exciting year ahead, with a diverse lineup of companies preparing to go public in 2025. The combination of a growing retail investor base, strong domestic mutual fund inflows, and a favorable market environment sets the stage for a record-breaking year. However, as the landscape evolves, companies must prioritize solid business models and sustainable growth to attract investors and thrive in the competitive market. With the right strategies in place, the future of the Indian IPO market looks bright, promising new opportunities for both companies and investors alike.