Last Updated on Nov 14, 2022 by Gayathri Ravi
The year 2021 saw a blockbuster run of IPOs in India. Primary markets witnessed an all-time high number, where 64 companies raised Rs. 1.19 lakh cr. through Initial Public Offering (IPO). However, the pace has slowed down ever since. Will we see companies going for IPOs anytime soon? Is this the right time to invest in IPOs? We’ll try to answer all your questions in this article.
Before jumping into any statistics, let’s discuss the macroeconomic situation over the last ten months. The economy has witnessed a roller coaster ride of events, from the Russia-Ukraine War to skyrocketing inflation; markets have seen it all. High commodity prices have hit companies’ margins all over the world. Central Banks around the globe have been increasing interest rates to curb inflation. Such news has impacted the markets negatively. While everyone around us is hearing big negative words like recession and hyperinflation, there is still a ray of hope.
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The current state of Indian markets
Let’s have a look at India now. Market indices have been through high volatility. FPIs, a major factor contributing to movements in the markets, withdrew above Rs. 2 lakh cr., between January to June this year, mainly due to the hike in interest rates. But there is an interesting insight here. Though there has been a high outflow of funds by FIIs, DIIs inflows, on the other side, remained competitive. So, can we conclude that gone are the days when Indian markets used to be highly impacted by FPI activities? Maybe. Another interesting thing is that the average Demat accounts being opened in India monthly has reached a whopping 3 mn. This very well reflects the retail investors’ enthusiasm and confidence in the market.
Indian retail was underpenetrated till now, and it still is to some extent. But the above data reflects the increased appetite of investors. According to the latest data released by the Association of Mutual Funds in India, SIP inflows have surged to almost Rs. 15,000 cr., per month. Healthy growth in such indicators coupled with international organisations like IMF predicting the highest GDP growth for India amongst the large economies augurs well for the national economy. Amidst this, it would be great if we have a look at primary markets too to get a better understanding of the current economic situation.
Primary markets in India
Primary market activities slowed this year, mainly due to the reasons mentioned earlier. But this long hiatus is expected to end soon. India has been seeing a new era of entrepreneurship mindset. There is a huge demand and appetite for new-age businesses. Also, SME businesses, which have been gaining market share, are seeing active investor interest. With around 7000 listed companies, India is still way under penetrated when it comes to companies approaching the capital markets for raising capital.
When such businesses want to raise capital, they have three options, i.e., to either go for debt (public or private) or raise through equity (public-IPO or private). The cost of debt has been rising while the Indian markets continue to attract capital from retail investors, domestic institutions, and foreign institutions. So, raising capital through an IPO stands as a viable option.
If we look at the IPOs, despite the volatile conditions in the broader markets, recently launched IPOs like Dreamfolk Services and Syrma SGS Technologies gave investors a premium of 46% and 42%, respectively, in the form of listing gains. Not to forget that the companies have been leaving more money on the table for IPO investors as this is still the early days for the primary markets to have a dream run.
There are over 50 companies which have applied for IPO and are waiting for the right time to go public, hence a tailwind of the pipeline. Some prominent names in the pipeline are Oyo (Oravel Stays), ESDS, Ixigo, and Five Star business, amongst others.
The SME IPO pipeline is very strong, and we have seen a good appetite for even higher valuations in the market. There is a huge demand for such IPOs; we are witnessing over subscriptions, the post-listing gains are looking strong, while we are seeing the lead managers being busy getting such SME companies listed. There are around 70 SME IPOs which have already launched since the beginning of this financial year.
Conclusion
The bottom line is that the appetite for IPOs is showing a healthy sign of recovery. Not only primary markets but FIs are also finding India the most investable region in the world. The abundance of capital and feasible government policies have made India a good investment destination.
New-age businesses and SMEs are rapidly moving to the growth stage with greater shifts in profitability and outlook along with business differentiation. The economy is thriving, and we are hopeful that India will witness more unicorns in the coming years. We’re truly on the path to becoming self-reliant in terms of production and investments. After all, India is expected to become the third-largest economy soon; there is no doubt why we would not be.
This article is written by Divam Sharma, founder, and CEO of Green Portfolio and a former analyst at CitiBank, IMGC, and Kotak Mahindra Bank. Check out Green Portfolio’s smallcases.
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