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With a record number of public listings in the first nine months of 2023, India’s IPO boom is hard to ignore. According to a report by Ernst & Young (EY), the period between July to September of 2023 (Q3) witnessed 21 Indian IPOs as against four in the same period last year.
During this timeframe, proceeds raised by IPOs surged 376% year-on-year to $1,770 mn. All in all, India saw a total of 149 new listings on the stock exchanges between January to September.
Meanwhile, the small and medium enterprises segment witnessed massive success as it raised $165.76 mn through 48 IPOs in Q3. Most of these companies belong to sectors like retail, technology, consumer products and diversified industrial products. RR Kable, Concord Biotech, and SAMHI Hotels were the top three listings in terms of proceeds for Q3, as per EY.
Besides, one of the top listings in 2023 so far is Cyient DLM, an integrated electronic manufacturing services provider. The IPO was subscribed over 67 times, and the shares were listed at a nearly 52% premium over the IPO price in July.
Another company that saw a dream IPO listing was Plaza Wires. Last month, Plaza Wires, a manufacturer and marketer of wires, aluminium cables, and fast-moving electrical goods (FMEG), debuted a 55.56% premium to issue price. The offer was subscribed 161 times.
Upbeat economic outlook, better regulatory environment encourage listings
A key reason behind the tremendous growth in the Indian IPO landscape is a mix of macro factors and structural reforms.
Adarsh Ranka from EY Global stated, “The IPO landscape is witnessing a surge in activity driven by both an urge to tap the capital markets pre-or-post Indian general elections and strong economic activity, positive domestic and foreign investor sentiment towards India. This momentum is expected to continue well into H2 2024.”
Morgan Stanley upgraded India’s ratings to “Overweight” and remains highly positive about its economic growth. It also projects that the country will emerge as the third-largest economy in the world, surpassing Germany and Japan by 2027.
Strong corporate earnings have also contributed to a booming primary market. James Cheo, CIO for Southeast Asia, Global Private Banking and Wealth at HSBC, affirmed that India’s earnings growth has been one of the strongest in Asia this year. He expects the same to continue next year.
The Indian IPO boom also came after the SEBI (Securities and Exchange Board of India) made several amendments in 2022 to enhance the capital markets’ transparency and practices. The introduction of pre-filing of draft offer documents, disclosure of key performance indicators, and the changes in the duties of the monitoring agency are few such reforms.
Have all IPOs been successful?
The IPO frenzy is likely to continue. Some of the upcoming Indian IPOs are Flair Writing Industries, Tata Technologies, Indian Renewable Energy Development Agency, and Gandhar Oil Refinery India. Even several start-ups are preparing for IPOs in the next few years. According to Redseer, India will probably have 40 IPO-ready startups by March 2025.
However, not all IPOs are successful. It is important to remember some of the big IPO failures that India has witnessed over the past two years. The performance of an IPO is evaluated by its price movements on the listing day. In 2022, Bhatia Colour Chem debuted nearly 47% below its listing price, while in 2023, Cosmic CRF started its journey at 24% lower than its issue price.
On that note, India-based Samco Securities advises, “Investors in startups need to be cautious and not overvalue companies based on intangible factors. Investors should instead focus on developing a realistic understanding of the company’s fundamentals, revenue potential, cost structure, and competitive positioning.”
