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Cover Feature

Published on: Jan. 19, 2024, 12:21 p.m.
IPOs: Trickle swells into a stream

By Lancelot Joseph. Executive Editor, Business India

As India progresses towards becoming the third largest economy in the world by 2030 (S&P Global report), corporate appetite for raising funds is intensifying. Equally building up is the enthusiasm of investors to apply for IPOs and prosper post-pandemic. There is a sense of urgency and a recognition of India’s potential as a vibrant growth hub.

The day 22 November 2023 was a defining moment in IPO history in India, when four IPOs – Tata Technologies, Flair Writing Instruments, Gandhar Oil and FedBank Financial Services – opened on one day, creating a new record in decades. Tata Technologies’ IPO created frenzy similar to what Nykaa IPO (28 October to 1 November 2021) and Zomato IPO (14-16 July 2021) witnessed, which captured the imagination of all investors, post-pandemic. No one wanted to be left out anymore!

Most IPOs listed at a premium and gave listing gains to investors. The IPOs in CY2023 added a market cap of about Rs4.8 lakh crore. Traditionally, some IPO investors apply for listing gains and then sell on listing day to move on to a new IPO. Now, regulatory norms and a robust financial framework created by key stakeholders, such as stock exchanges and registrars, ensure that companies list within three working days (six working days is mandatory). And that is sweet music to IPO investors.

Demat drive

Imagine a stupendous record-breaking 4.2 million demat accounts opening in December 2023 (and 2.8 million demat accounts added in November 2023), the last month of the calendar year. Traditionally, this was a month when IPO activity was supposed to subside because fund managers take a break for Christmas and New Year. But there was no such luck in December in the last three years (2021, 2022 and 2023), as IPO launches continued till the end of the year.

With close to 140 million demat accounts in India, dematerialisation has changed the financial ecosystem, made it transparent and trustworthy. Now many more Indians are feeling comfortable investing in IPOs as a financial instrument, as against the good old days when they considered it to be a gamble or lottery.

In 2023, IPOs got the mass appeal always enjoyed by films in India. Interestingly, the CY2023 IPO fund raising market (Rs53,000 crore or total public issue size) was roughly five times the Hindi film box office collection (Rs10,000 crore) and the overall subscription for IPOs (Rs14.7 lakh crore) attracted about 1,500 times the amount that films could attract. This is surprising, say many analysts, as 2023 was supposed to be a lean year due to impending general elections in 2024. 

UPI has given a much need fillip and push for IPO applications coming in huge numbers. Applying in IPO is now possible at the click of a few buttons or even digitally on mobile. And digital brokers such as Zerodha and Upstox led this drive among new-age retail applications in a ‘digital’ manner with which the applicants were comfortable with. Gone are the days of the ‘bakda’ where IPO forms used to be kept for retail investors to pick up and apply – now the ‘form’ is in their smartphone!

  • There are 5,000 odd companies waiting in the wings to go the IPO way in the near future

Investment bankers, private equity, venture capitalists, qualified institutional investors (QIBs) and mutual funds (who are labelled ‘smart money’) had to finally sit up and take notice of the average individual investors who started trading and applying for IPOs (who are often shoved under the Dumb Money umbrella in the US).

HNI huddle

India’s ultra-high-net-worth individuals worth over $30 million are estimated to rise by 58.4 per cent over the next five years, rising from 12,069 in 2022 to 19,119 individuals by 2027 (Knight Frank Wealth report 2023). Those with an asset value of $1 million and more, which was recorded at nearly 800,000 persons in 2022 will also rise to 1.65 million during this five-year period. UHNIs have to keep investing and rolling their money and IPOs are a good option for them.

The regulatory norms with respect to IPOs also changed from 1 April 2023, with margin funding beyond Rs1 crore was not allowed in IPOs. Subsequently, the ‘real’ rich (and serious investors) could apply in IPOs and get the requisite number of shares subject to oversubscription in the category. The neo-rich can apply anything between Rs2-10 lakh, while the UHNIs can apply more than Rs10 lakh. The highest number of HNI applications in any IPO was about 80,000.

Finally, the Indian markets are poised to witness initial public offerings (IPOs) worth $12-13 billion in 2024, especially if IPOs of new-age tech companies take off, informs V. Jayasankar, MD & board member, Kotak Investment Banking. “We expect India will be the fastest growing major economy in the next three years.”

According to S&P Global Credit Outlook 2024 report titled, ‘New Risks, New Playbook’, as India gallops towards becoming the top three economies in the world, fund raising appetite is reaching a crescendo. There are 5,000 odd companies waiting in the wings to go the IPO way in the near future. And at least 200,000 SMEs and start-ups aspiring to do the same. The number of IPOs are expected to grow exponentially in the next five years. The state election results declared on 3 December 2023 offered some comfort to the market in terms of continuity in governance. Now there is no stopping. As Nithin Kamath of Zerodha remarks: “What founders have to keep in mind is that an IPO is not the end but actually the beginning”.

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