Trending Ipo Market In India

The capital market of a given country is its core economic indicator that reflects the economy’s state. The Initial Public Offering (IPO) provides an opportunity for companies to access more funds for growth and outlines an exit route for some early-stage investors. For a successful IPO, companies first need to demonstrate strong fundamentals and profitability potential, which creates interest among the investment community.

In 2020-21, India witnessed a significant rise in start-ups and established private companies joining the IPO league. The recent Global IPO trends by EY reveals that IPO volumes increased 163% in H1 2021, while its proceeds grew 245% YoY. The new wave of pandemic in India has slowed down the IPO activity in Q2 2021 over Q1 2021. In June 2021, there were four large, completed IPOs and more large IPOs are expected in Q3 2021. The report also highlights various factors that spark investor interest in Indian IPOs such as huge dry powder investments, strong performance by Indian corporates, evolving regulatory reforms, attractive business models, effective corporate governance, strong management teams and fair valuations.

Another report by EY provides insights on the Indian IPO momentum. It highlights that Indian stock exchanges ranked 12^th in the world in terms of the number of IPOs in YTD 2021, with 22 IPOs in Q1 2021 versus 1 IPO in Q1 2020 and 10 IPOs in Q4 2020. In 2021, major IPOs in India are those into consumer products and retail, diversified industrial products and automotive and transportation. About 12 firms have raised a whopping Rs. 27,000 crore (US$ 3.64 billion) through the IPO route in the first four months of 2021.

The following is the list of Indian IPO performance tracker for Q2 2021.

The recent blockbuster IPO for Zomato created frenzy in the Indian market, with the company exceeding anticipated applications—Zomato wanted to raise about Rs. 9,400 crore (US$ 1.27 billion), but ended up bucketing close to Rs. 3.5 lakh crore (US$ 47.13 billion) applications. A similar response was also received by Clean Science and Technology. The overwhelming response received by the recent IPOs reflect the change in investment patterns of retail investors—from bank and government FDs and real estate to the stock market and IPOs. This change is mostly driven by higher profit potential. For instance, over the last year (July 2020-July 2021), the Bombay Stock Exchange (BSE) market index increased by 13.58% and Nifty 200 grew by 18.50% YTD. Companies with strong fundamentals have also garnered significant interest in the IPO market. For instance, Tatva Chintan Pharma, the latest listing, doubled investor money in less than two weeks and Zomato achieved this in less than 10 days.

Several other factors such as increase in household disposable income and ease of opening Demat accounts have also pushed retail investors towards increased participation in the IPO and stock market. A Fitch report estimates that India's consumer spending will grow at 9.1% in H2 2021, after contracting by 9.3% in the previous year, surpassing the pre-COVID-19 levels. The number of investor accounts with the Central Depository Services Limited (CDSL) stood at 2.01 crore in January 2020, and this has doubled over the last 17 months to 3.96 crore accounts as of June 2021. The Securities and Exchange Board of India (SEBI) has also eased listing norms for start-ups, enabled minimum public offerings, thus easing the IPO mechanism.

In the first seven months of 2021, 28 companies launched their IPOs—raising over Rs. 42,000 crore (US$ 5.66 billion)—and 50 more companies are in the pipeline. Some of these are big names such as PhonePe, MobiKwik, Grofers, PolicyBazaar, Flipkart Internet and Delhivery. PayTM is expected to join the IPO league by October 2021, with its Rs. 16,600 crore (US$ 2.24 billion) listing, which is likely to be the biggest listing ever.

While the IPO wave continues in India, experts have advised investors to nurture a diversified portfolio and evaluate companies before investing. The risk appetite level varies by investors and they need to consider factors such as business growth, profitability, market share, business model viability and entry barriers before making an investment decision.

Mr. Mrinal Singh, CEO and CIO of InCred Asset Management, stated, “IPOs are money-raising tools and companies line up with their public issue when liquidity in the market is high. Bunching up IPOs when the liquidity is high leads to elevated price discovery, and historical trend shows that only 50% companies can deliver expectations that get built up from them. So, I would say that retail investors should be very cautious while investing in IPOs and valuation sanity is key.”