The Resurgence of the Indian Equity Market: A Deep Dive into the IPO Boom
In recent years, the Indian equity market has experienced an extraordinary surge in Initial Public Offerings (IPOs), defying global economic uncertainties and showcasing the resilience of the Indian economy. This remarkable trend began post the 2020 Covid crash, with Rossari Biotech leading the charge and setting a precedent for subsequent IPOs. The overwhelming subscription and successful listings that followed demonstrated the robustness of Indian equity markets, attracting investments from various segments, including enthusiastic participation from High Net-worth Individuals (HNIs) and retail investors.
A Record-Breaking IPO Landscape
Over the past three years, the main board IPOs have shown remarkable strength. In 2021, 63 companies went public, raising an impressive ₹1.2 lakh crore. Despite facing global market challenges, 2022 saw 40 IPOs that accumulated ₹60,000 crore. As of November 2023, 48 companies have already gone public, raising over ₹45,000 crore. This trend is not limited to the main board; the Small and Medium Enterprises (SME) sector has also witnessed a record-breaking year in 2023, with 156 IPOs raising more than ₹4,200 crore. The increasing average ticket size in SME IPOs—from ₹13 crore in 2021 to ₹25 crore in 2023—indicates that promoters are seeking larger capital to fuel their growth ambitions, and investors are responding positively to these opportunities.
Retail Investors: The Driving Force
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 heightened confidence in the Indian economy. Notably, nearly 50% of IPOs have been primary tranche issuances, signaling that companies are raising fresh capital to expand their businesses or pay off debt. This trend demonstrates promoters’ confidence in their companies’ future prospects and their belief in the Indian market’s ability to fund their growth aspirations.
Regulatory Enhancements: Streamlining the IPO Process
The Securities and Exchange Board of India (SEBI) has made significant strides to enhance the IPO landscape. One of the most notable changes is the reduction of IPO listing timelines from T+6 to T+3 days. This strategic move streamlines 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, and mitigate pricing risks. For investors, this means early access to shares, reduced holding period risk, and improved liquidity.
Additionally, SEBI has introduced measures such as increasing lock-in periods for anchor investors and segmenting the Non-Institutional Investor (NII) tranche for larger and smaller ticket sizes. These initiatives aim to enhance transparency and avoid sharp swings in market prices, further instilling confidence in the market.
Future Growth Potential
Looking ahead, India is projected to surpass $4,000 per capita income by 2030, presenting immense growth potential for listed companies, both large and small. 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 various equity categories, including large-cap, mid-cap, small-cap, and SMEs.
Currently, only 3% of India’s population invests in the market. However, 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, providing immense opportunities for businesses and investors alike.
Recent Highlights and Trends
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 recently surpassed by Tata Technologies, a Tata Group company, which launched its IPO, garnering a massive 73.58 lakh applications and listing with 140% gains. The last week also witnessed the launch of five main board IPOs, a scenario previously seen only in March 2021. A staggering ₹2.2 trillion was blocked in these IPOs, constituting around 6.5% of the nation’s currency in circulation.
The IPO landscape has also seen a notable shift in the types of companies going public. Tech-focused IPOs have dominated the primary markets, with companies like Zomato, PolicyBazaar, Paytm, Nykaa, Nazara, and Delhivery making their mark. This trend highlights the growing acceptance of new-age sectors by Indian markets and the willingness of investors to embrace innovation.
The Shift of Unicorns to Indian Markets
Recently, PhonePe’s decision to relocate its base from Singapore to India after paying a hefty tax underscores the faith in Indian primary markets. Several other unicorn tech startups are also considering shifting their base to India, aiming to gain the regulator’s confidence and go public soon. This notable shift underscores the evolving dynamics of the Indian IPO landscape and the changing perceptions of Indian investors towards new-age sectors.
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 future looks bright for the Indian equity market, and those who engage with it can expect to be part of an exciting growth story.