India has been a hotbed for initial public offerings (IPOs) in recent years, as more and more businesses look to the public markets for development and growth. This tendency is not exclusive to well-established businesses; startups and unicorns aiming to expand also follow this pattern. Every kind of business that wants to go public has different goals, traits, and approaches for using the public markets to expand and add value for investors. When deciding whether to go public, a firm must carefully weigh its long-term strategic objectives, investor opinion, legal requirements, and market conditions.

Comprehending the IPO Journey

Any firm that wants to go from private ownership to public listing on stock markets must undergo an initial public offering (IPO). The Securities and Exchange Board of India (SEBI) oversees the procedure in India, which calls for careful preparation, adherence to legal requirements, and strategic decision-making. The journey often begins months, if not years, in advance of the official listing date. 

In general, companies that undergo an Initial Public Offering (IPO) can be classified into three main groups according to their financial health and development stage: 

Early-stage development Companies: Usually startups or young businesses, these have seen rapid development and are seeking funding to continue expanding. Features: Possibility for rapid expansion with cutting-edge goods and services. With a short operational history, the market is showing promise. Frequently looking for funding to grow operations, make R&D investments, or access new markets. 

Mature Companies: These are well-established companies with a track record of steady operations and profitability. Features: Reliable revenue sources and an established market presence. profitability that has been proven or a clear route to profitability. The money from an initial public offering (IPO) may be used to pay off debt, buy out rival companies, or diversify product offerings. 

Companies for Special Purpose Acquisitions (SPACs): SPACs are organizations set up expressly to raise money through an initial public offering (IPO) in order to buy out or combine with an already-existing business. 

Features: Frequently created by seasoned investors or business leaders (sponsors) focusing on certain markets or sectors. The funds from the IPO are kept in a trust until a qualified acquisition target is found. In contrast to typical IPOs, strive to offer a quicker path to going public.

September 2024 to be India's Biggest Month for IPOs in 14 Years

The Reserve Bank of India (RBI) stated in its bulletin that September 2024 will be the biggest month for initial public offerings (IPOs) in 14 years. This includes both mainboard and small and medium enterprises (SME) IPOs. 

According to the bulletin dated September 20, 2024, more than 28 firms have joined the market thus far, and 54% of IPO shares were sold within a week after listing.  The RBI ascribed this situation to a spike in demand, including from domestic mutual funds, for SME initial public offerings (IPOs), which were characterized by significant oversubscriptions. 

This record is not limited to domestic use. In the first half of 2023–2024, India accounted for 27% of all IPOs worldwide, with SMEs leading the way. Additionally, India contributed 9% of the worldwide IPO profits. The RBI did, however, issue a warning, citing concerns that the IPO frenzy in India may allow promoters to take advantage of the opportunity to sell their assets at inflated or high prices, especially for SME shares. 

What actions have been made in response to these worries? 

The change from a proportionality-based to a lottery-based allocation mechanism, as well as other regulatory measures like the NBFC IPO funding cap, have assisted in containing the significant oversubscription rates that were observed in earlier mainboard IPOs, according to the RBI. 

Fostering the Fundamentals 

A number of advantageous fundamentals support the optimistic prognosis for IPO activity in India.  India is the G-20 country with the fastest-growing economy due to investments in infrastructure, industry expansion, and consistent consumer spending. Ratings company Moody's has projected a GDP growth of little less than 7% for 2024. 

As investors reacted to China's slowing economy by diversifying their Asia-Pacific portfolios, India has also benefited from rising inflows of foreign cash. Over the past year, foreign investors have poured historic amounts of capital into India. 

Meanwhile, significant expansion in digital infrastructure has boosted civilian investing in Indian stocks, with the country's share trading accounts reaching a record high of about 140 million. As a result, India's mutual fund business is thriving, with mutual fund assets under management expected to increase by over 20% by 2023, encouraging a burgeoning middle class that is investing in stock markets. 

India to Become the Biggest IPO Market in the World

An estimated $6 billion worth of initial public offerings (IPOs) occurred in 2023. The figure is predicted to double by $12 billion by the end of 2024. 

Well-known businesses have previously gone public, including Ixigo, Bajaj Housing Finance, Afcons Infrastructure, and Swiggy. Strong macroeconomic conditions in India are what is driving this momentum, which is encouraging a high level of retail IPO participation. 

With all of these elements in place, India is well-positioned to see significant retail engagement and significant development potential.