The global equity market has experienced recurring periods of stagnation amidst geopolitical tensions. This volatility has led to increased caution in new offerings among global market players. In contrast, the Indian initial public offering (IPO) market has shown resilience, notwithstanding cyclical growth patterns. Consequently, it is now garnering increased attention from global investors seeking to diversify supply chains and mitigate market risks.
In recent times, the Indian IPO market has experienced significant growth, driven by robust economic activity, pre-election capital market opportunities, and positive domestic and foreign investor sentiment. During 2024 (January to September), approximately 870 IPOs were launched globally, raising around $77 billion. Of this, Indian issuances accounted for 30 per cent of the deal volume and 12 per cent of the deal value.
Despite a slow global quarter, India has been a front runner. The region has witnessed heightened listing activity. In the 2024 July-September quarter alone India launched about 100 IPOs, marking its highest level of public offerings in a single quarter over two decades. Moreover, the infrastructure sector is now assuming a bigger role.
Macroeconomic factors at play
Monetary policy changes can easily and significantly influence IPO listing trends. From 2022 to mid-2023, the Reserve Bank of India (RBI) implemented a series of interest rate hikes. This resulted in different outcomes for various industries. Sectors with lower sensitivity to these fluctuations such as infrastructure, especially the materials and energy segment, maintained stability in their public listing activity. However, capital-intensive sectors, which are more susceptible to increased borrowing costs, such as healthcare, real estate and financial services, experienced a notable decline in IPO listings. With the interest rates now beginning to fall, many of these sectors are experiencing a revival in IPO activity. This rebound will lead to a potential recalibration of strategies to capitalise on the current market.
The Indian economy has maintained its stability and status throughout 2023 and the first half of 2024. The GDP maintained a growth rate of around 7 per cent for the third consecutive year. The rupee remained steady, fixed investments grew, consumption levels rose, incomes increased and unicorn start-ups flourished. Additionally, GIFT City emerged as a significant financial hub, offering enhanced access to global capital pools, bolstered by Securities and Exchange Board of India (SEBI)-supported tax incentives.
With these factors aiding growth, investors are keen to invest in India’s solid growth story amid the prospects of policy continuity, pro-growth government measures and thrust on infrastructure development.
Sectoral dynamics
The Indian IPO market is broadening, with diverse sectors coming in and influencing available investor opportunities. This is particularly evident in the infrastructure sector, which is now emerging as a dominant force, challenging the traditional dominance of fintech, consumer and real estate offerings.
Moreover, there has been a surge of infrastructure companies filing preliminary IPO papers with SEBI. This signals a departure from the previously observed subdued infrastructure IPO activity.
As per India Infrastructure Research, the year 2022-23 saw a deal value of approximately Rs 40 billion, primarily driven by Delhivery’s public issue. This served as a pivotal moment for logistics companies in the IPO space. The following year, 2023-24 witnessed a surge in capital market activity, with many non-traditional IPO sectors gaining traction. Post Delhivery’s debut, niche logistics companies such as Oneclick Logistics India Limited and Committed Cargo Care Limited continued to come in, signalling market maturity driven by healthy valuations, increased investor appetite and growth in the e-commerce segment.
The year 2023-24 also marked several firsts, including the IPO of a natural gas distribution company, IRM Energy Limited, which raised approximately Rs 5.45 billion. The telecom sector, previously mostly muted in capital market activity, engaged in a public issue by SAR Televenture Limited, raising around Rs 0.25 billion. JSW Infrastructure’s issue, valued at Rs 28 billion, was the largest of the year. In total, over 20 infrastructure issuances raised more than Rs 95 billion.
Investor sentiment for 2024-25 remains buoyant, with the trend playing out as expected. In the first nine months of 2024, approximately 25 cross-sector infrastructure IPOs have raised around Rs 130 billion, excluding follow-on public offerings. Notably, Vodafone Idea Limited’s recent follow-on public offer of Rs 180 billion was oversubscribed seven times, reflecting strong investor confidence in the telecom sector.
The landscape has further diversified with the entry of waste and water companies, despite smaller issue sizes. Recent months have seen successful IPOs from companies such as Effwa Infra and Research Limited and Urban Enviro Waste Management Limited. The road sector, traditionally supported by strong budgetary allocations and infrastructure investment trusts (InvITs), also tapped into the IPO market, with Ceigall India raising approximately Rs 12 billion to enhance its business operations.
The energy sector is experiencing an equity awakening. The financing landscape for renewables has significantly improved, with medium-and large-sized players capitalising on the ongoing IPO boom. Interestingly, within the sector, the electric vehicle (EV) start-up frenzy is leading the activity. In 2024-25, Ola Electric’s IPO alone raised around Rs 62 billion.
Last year, Indian Renewable Energy Development Agency Limited’s Rs 21.5 billion IPO was oversubscribed by 38.8 times. Building on this momentum, NTPC Green Energy has filed its draft red herring prospectus (DRHP) to raise Rs 100 billion. Vikram Solar, Solar91 Cleantech and Regreen-Excel have followed in the same footsteps, while Waaree Energies and Matrix Gas and Renewables, among other companies, have announced IPO plans. Further, Premier Energies launched an IPO valued at Rs 28.3 billion, Matrix secured Rs 3.5 billion in pre-IPO round and Alpex Solar IPO achieved a 303 times subscription rate.
Bullish run ahead
Despite challenges posed by geopolitical tensions such as the Russia-Ukraine war and the global impact of the Covid-19 pandemic, the Indian IPO market’s underlying strength has enabled it to regain momentum, with no signs pointing towards a slowdown in IPO activity in the near future.
The core infrastructure sectors are witnessing a transformation in their financing approach, with companies adopting more agile financial strategies to adapt and thrive in a dynamic economy such as India’s. IPOs were once only pursued by large- and medium-sized enterprises. Now, every company wants to go public. This listing frenzy, in fact, is a testament to India’s financial market maturity, heightened regional investment appetite and overall economic potential.
The ongoing expansion of the manufacturing sector further makes India a good investment destination, with industries truly embracing the “Atmanirbhar” spirit. In line with this, the assets under management (AUM) by the mutual fund industry reached the Rs 50 trillion milestone during 2023. Further, both the infrastructure investment trust and real estate infrastructure trust spaces grew exponentially, with the total AUM amounting to approximately Rs 6.5 trillion. Considering this growth trajectory, domestic institutional investors may surpass foreign institutional investors in driving market trends going forward. Moreover, with SEBI’s recent amendment, which facilitates the creation of small and medium REITs, the number of IPOs by the real estate sector will increase, enabling smaller players to tap the market.
Market activity has further been bolstered by issuances from mature and stable companies in need of growth capital. Some of the IPO activity in the past few years has given way to secondary share sales, which are more expedient and provide holders with the opportunity to monetise their positions.
All things considered, the IPO market is now in the forefront. This does not seem to be a fleeting trend, with renewed market vigour expected to continue. Various IPOs are on the anvil, with companies constantly announcing their plans to go public and filing DRHPs with the market regulator. Larger deals may materialise in the near future and the upcoming unicorn EV IPOs will deepen capital market activity. Moreover, the current stable and optimistic stock market sentiment will continue to sustain the enthusiasm for Indian IPOs among companies and investors.
Harman Mangat