In today’s Finshots, we try to make sense of India’s IPO boom.

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The Story


That’s the number of IPOs launched in India this year. We’re talking about both big companies like Mankind Pharma and SMEs (Small and Medium Enterprises) like Madhusudhan Masala all tapping the public market this year. And you can bet more are on the way before 2023 comes to a close.

And guess what? This is actually a record. It’s the highest number of IPOs launched in a single year since at least 2014. So yeah, it’s quite a party right now.

But this got us thinking — what’s driving this IPO boom?

Well, there might be a few factors to it. So let’s start with the macro or the big picture.

When was the last time you saw a negative report by a global investment house on the India story? Go on, think hard. It’s tough to find one. Because India does seem to be the bright spot in a world of anaemic growth. We overtook the UK to become the fifth-largest economy in the world and we’re projected to enter the top three before the end of this decade. We’re growing faster than most countries. And not to forget the much-vaunted demographic dividend. By 2030 we’ll have just about 30% of people aged below 14 and over 65 years of age. If the population is young and employed, it could increase the potential for consumption and drive growth too. No wonder we have biggies like Morgan Stanley saying they’re “overweight” on India. Or put another way, India’s currently their number one spot for investing.

Then there’s the micro picture of structural reforms. The government is sprucing up the manufacturing sector with attractive schemes like Production Linked Incentives which reward firms for making their products in India. India’s airports have doubled in a decade. We’re building more freight corridors to reduce the logistics costs and make trade more competitive.

Put these together, and the sparkle attracts investors. They start pouring money into Indian markets. And when foreign investors show confidence, you can bet that domestic investors won’t be that far behind. Heck, even retail investors jump in — as of March 2023, the share of this retail class in the stock market rose to an all-time high of nearly 7.5%.

A bull market starts to take shape slowly. And this puts an idea in the mind of the folks who own and run companies. They might scratch their head and think, “Maybe this is a great time to cash out. Pocket a nice chunk of money for their years of hard work.”

But you could argue that this macro picture has been true for at least the past few years. So what’s different about 2023?

Well, maybe there are a couple of unique factors shaping the markets right now.

Firstly, there could be something around regulatory approvals.

Now if you’ve been a regular Finshots reader, you might remember a story from exactly a year ago. We called it “Where have the 'tech' IPOs gone?”. Back then, it seemed like the IPO well was drying up. Companies weren’t hitting the stock markets. And we pointed out to one thing that might have been a factor — it seemed like the Securities and Exchange Board of India (SEBI) had slammed the brakes on doling out IPO approvals. See once a company files their documents, SEBI takes some time to go through it all. They want to make sure that the issue doesn’t damage prospective investors. And it takes time to do this. In 2020 and 2021, SEBI took 75 days on average to grant approvals. But in 2022, companies were being made to wait for 115 days to know their fate. And the last time the regulator took that long to clear IPOs was way back in 2014.

So today, you might be seeing a situation where some of those backlogs are being cleared. And IPOs that might have been otherwise ready in 2022 itself have been pushed to this year. Maybe.

Secondly, don’t forget that in a few months, the country will be heading towards the general elections.

See, when ET crunched the numbers, it saw that 4 out of the last 5 election years have shown the markets inching upwards in the year before the elections. So it could be companies just riding the wave and getting their IPOs out of the way before the big day. Because you never know what could happen come result day. You’re not sure if the incumbents will be toppled or whether they’ll hold on to power. And Chris Wood, the global head of equity strategy at Jefferies, thinks that if the current government doesn’t continue to hold power, the markets could tumble by nearly 25%. We’ve seen it happen in 2004 when BJP, the then government in power, suffered a surprise defeat and the market tumbled by over 20%. Sure, the market bounced back quickly enough but it could dent investor confidence for a while and put any IPO plans in jeopardy.

So there’s only one thing left to ponder about now — Are we in an IPO bubble?

Well, bubbles are usually only identified in hindsight. So we can’t claim to have special powers to deduce what’s likely to happen right now. But we can tell you one thing. And it’s that the IPOs seem to have become more ‘appropriately sized’ these days. An article in CNBCTV18 puts this in perspective — out of the IPOs on the main stock exchange, only 10 out of the 40 IPOs tried to raise over ₹1,000 crores. On the other hand, in 2021, when the previous IPO boom was in full swing, 34 out of the 65 issues that year were sized above ₹1,000 crores.

Also, the valuations seem to be more palatable. Just look at the recent IPO of Mamaearth (Honasa Consumer Ltd). When the company announced its IPO plan at the start of the year, the estimate was that it would be anywhere in the range of ₹15,000-₹20,000 crores. Eventually, it came down to a valuation of ₹10,500 crores. In fact, the IPO valuation mirrored its last valuation during a private fundraise in January 2022. So they didn’t try to squeeze more out of retail investors.

And as Nilesh Shah, of Kotak Mahindra Mutual Fund puts it, it's great that the Indian market doesn't have large overvalued IPOs right now. But that isn't enough to tell if the market is at its peak and on the brink of another downward spiral.

So yeah, despite the boom, there does seem to be some sanity around it too. But if you think otherwise, do tell us. We’d love to know your thoughts too.

Until then…

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