In recent years, India has experienced a robust and persistent surge in Initial Public Offerings (IPOs), indicating a growing appetite for equities among investors. The IPO market has witnessed substantial expansion, with the number of issues nearly doubling over the last five years. A comprehensive analysis by the economics team of Bank of Baroda sheds light on the dynamics of this trend, exploring the factors contributing to the IPO boom and assessing the performance of the market.
An Impressive Growth Trajectory
The cumulative issue size in India’s IPO market has displayed an impressive growth trajectory, soaring from Rs 16,754 crore in 2018 to a substantial Rs 1,38,894 crore in 2021-22. This remarkable expansion underscores the increasing demand for equities and reflects the heightened confidence of investors in the financial market.
In the year 2023 alone, the IPO market continued to demonstrate robust performance, witnessing a cumulative issue size of Rs 37,768 crore. Over 200 companies from various industries participated in the IPOs, contributing to the market’s vibrancy. Industries such as pharmaceuticals, trading, port, hospital & healthcare services, and the retail sector emerged as significant contributors in terms of issue size.
Sectoral Contributions to the IPO Market
Examining the trends in recent years, the IPO market in India witnessed a cumulative issue size of Rs 55,638 crore in 2022. Noteworthy participation came from 151 companies representing diverse industries. Industries such as insurance, edible oil, courier service, and textiles emerged as major contributors to the issue size. An interesting observation was that out of the 93 firms with IPO listings in 2022, over 76 firms registered listing gains, while 16 were listed at a discount.
The pharmaceutical, insurance, healthcare, edible oil, and textile industries have consistently played significant roles in shaping the IPO landscape. Their contributions underscore the diverse sectors that investors find attractive, reflecting a broad-based interest in the primary market.
India’s Economic Landscape and Investor Confidence
Bank of Baroda attributes India’s IPO boom to the country’s robust economic growth, estimated to be 6.5-6.6%, substantially higher than the global average of 3%. The stable political climate and strong macroeconomic conditions make India an attractive destination for investors. Against the backdrop of global uncertainty and geopolitical tensions, investors find confidence in the Indian market.
Globally, the IPO market is experiencing a similar upswing, with an increasing number of IPOs listed across countries. In 2021, a total of 2,436 IPOs were listed globally, resulting in total proceeds of $460 billion. This global trend reflects investors’ growing demand for primary market opportunities.
Caution Amidst Euphoria
While acknowledging the remarkable growth in the IPO market, Bank of Baroda’s report urges caution in interpreting the euphoria. The sustainability of this trend remains uncertain, especially considering the upcoming election year. It prompts stakeholders to assess whether the current enthusiasm in the IPO market will persist or encounter fluctuations in the dynamic economic and political landscape.
Stellar Debuts and Market Sentiment
In the backdrop of the broader IPO landscape, Tata Technologies, a Tata group company, stands out with its remarkable debut on the stock exchanges. The stock, listed at ₹1,314, significantly surpassed its issue price of ₹500 per share, resulting in a market capitalization of ₹53,314 crore. The IPO garnered tremendous interest, being oversubscribed 69 times over.
Analysts attribute the overwhelming response to Tata Technologies to its well-established business model, coupled with the strong reputation of the Tata brand. The company’s focus on engineering Research and Development (R&D) further adds to its appeal.
The Landscape of IPO Debuts in 2023
Tata Technologies joins the ranks of companies with dream debuts in 2023, alongside IdeaForge Technology, Netweb Technologies, and others. The exceptional performance of these IPOs, with Tata Technologies delivering a staggering 162% listing gains, reflects the positive sentiment and demand for quality offerings in the market.
Several IPO listings in 2023 have witnessed substantial gains, with IdeaForge Technology recording a 94% increase, Netweb Technologies at 89%, and Aeroflex Industries at 83%. Notable debuts from Vishnu Prakash R Punglia, Utkarsh Small Finance Bank, and Cyient DLM have further contributed to the buzz in the IPO market.
The Path Ahead
As the IPO market in India continues to evolve, the strong economic fundamentals and favorable market conditions provide a foundation for sustained growth. The upward trajectory witnessed in recent years, coupled with stellar debuts, suggests a positive outlook for the primary market.
However, stakeholders must navigate cautiously, considering potential fluctuations in market dynamics. The cautionary note sounded by Bank of Baroda emphasizes the need for a nuanced understanding of the factors influencing the IPO market, especially in the context of an upcoming election year.