The Indian equities market is seeing a tidal wave of initial public offerings (IPOs), with companies keen to ride the wave of investor optimism and a strong economy. According to the EY Global IPO Trends Report (Q3 2023), the third quarter of the fiscal year 2023 alone saw over 34 mainboard IPOs, excluding smaller SME listings. This uptick is being driven by a mix of tech behemoths, established giants, and intriguing start-ups.
The Indian stock market is experiencing a frenzy, but not from ecstatic regular investors, but from firms eager to capitalize on investor euphoria. According to market experts, corporates, promoters, and private equity firms are attempting to capitalize on the favorable sentiment and a robust short-term outlook by going public. The rush to the public stage isn't just about raising funds; it's also about high values fuelled by good mood, which has everyone swooning, from seasoned industrialists to quick-footed private equity giants.
"High market valuations entice promoters and early investors to cash out their holdings - fully or partially." Investors, on the other hand, are pleased by IPOS's recent track record of listing at a significant premium to the issue price. Companies see this as an opportunity to collect cash even if they do not need them in the near future', said Deepak Jasani, HDFC Securities' Head of Retail Research.
"Corporates, promoters, and PE players are taking advantage of buoyant market sentiments and a healthy short to medium-term equity market outlook to mobilize equity capital from the public," said Sunny Agrawal, Head of Fundamental stock Research at SBI Securities Ltd.
As per Agrawal, another plausible explanation might be the topping of inflation and interest rates in the US economy, as well as three rate cuts totaling 75 basis points in 2024. This will cause global capital to flee safe havens like US bonds in search of riskier investments like commodities.
A similar pattern was seen in fiscal year 2021-22, when about 76 IPOs were conducted, raising nearly 1.3 lakh crore in total, said Atul Parakh, CEO of Bigul. "As of December 1, 2023, the momentum is still going strong, with 77 companies preparing to go public. 29 of these have already gained regulatory approval, while others are in the process of being approved."
Experts anticipate a market rally before the 2024 general elections, and it is normal for the market to provide favorable conditions for companies to list. "Historically, IPO markets have had periods of much higher activity." However, these stages tend to fade closer to general elections. "The timing of the current hyperactivity is an anomaly to that extent," said Yatin Singh, Head of Investment Banking at Emkay Global Financial Services.
However, similar incidents have occurred in the past, resulting in financial losses for investors who purchased assets at excessive prices, said Aditya Sesh, Founder and Managing Director of Basiz Fund Service Private Limited.
The current euphoric feeling and elevated stock prices in the market, according to Hemant Sood, Founder of Findoc, created an ideal climate for companies to go public. Businesses are carefully utilizing these favorable valuation trends to raise cash through IPOs, taking advantage of the market's robust conditions.
Several recent IPOs are examples of this surge:
Tata Technologies Limited: With an offer price of 500 and a closing price of 1314.25, this IPO had a listing day gain of 162.85% in November 2023. IdeaForge Technology Limited: Listed in July 2023, it gained 92.78% on the first day of trading, rising from an offer price of 672 to 1295.5.
Utkarsh Small Finance Bank Limited: This IPO gained 91.76% in July 2023, opening at 25 and finished at 47.94. Indian Renewable Energy Development Agency Ltd: It opened at 32 and ended at 59.99 in November 2023, with a listing day gain of 87.47%.
What effect will market volatility have on the IPO market?
The benchmark stock market had a significant reversal in the December 20 trading session, with the S&P BSE Sensex and NSE Nifty 50 suffering a massacre. The rapid drop could be due to a rise of COVID-19 cases in India, the United States, the United Kingdom, and other Asian countries. This is a tiny jerk in the IPO market, according to Agrawal.
"Sentiments are unlikely to suffer until the market corrects significantly and breaches key support levels." With a sufficient liquidity cushion in the market, solid businesses with healthy development prospects can continue to raise funds via the IPO route. In the event of a major downturn in market emotions, only enterprises that are loss-making with little profit visibility may postpone the launch of an IPO," he said.
