Analysis of Ballooning Indian IPO Pipeline in 2024 and Impacts across Industries and Retail Investors
Source and Citation: An Economic Times article discusses an expectation for over Rs 1 lakh crore to be raised via initial public offerings (IPOs) in India during 2024, more than double the Rs 49,434 crore raised in 2023 (ET Bureau, 2024).
Analysis for a Layman
An IPO or initial public offering is when a private company sells its shares to the public for the first time by listing on a stock exchange. In 2023, around 57 IPOs helped various Indian companies raise nearly Rs 50,000 crore from investors. But in 2024, over 60 companies are already planning IPOs aiming to raise over Rs 1 lakh crore in total based on initial estimates. The average IPO size is also set to double to Rs 2,000 crore, with tickets of $1 billion each likely from high-profile startups like Ola Electric, Swiggy, and Byju’s tutoring unit Aakash. Large IPOs can often pop on debut, allowing big listing gains. But high valuations raise risk of falls later. The surge follows a strong IPO market in 2021 when a record Rs 1.2 lakh crore was raised. But 2022 saw only Rs 59,000 crore garnered via fewer IPOs after initial euphoria tapered. The rebound in 2023 and 2024 pipeline comes as Indian secondary market sentiment improved.
Impact on Retail Investors
For retail investors, the IPO frenzy signals caution against getting swept up in hype-driven public listing euphoria. Hot IPOs with shiny cachet often debut to fanfare but struggle subsequently. Loss-making cash burners like Zomato and PayTM proved unable to sustain lofty valuations. Retail buyers left holding such bags suffer most. Beyond financial impacts, unrealistic expectations get shattered, sowing skepticism. Investors should focus on business fundamentals over promotion glitz. Secondly, large oversubscriptions typical of popular issues imply high chance of allotment failure. Yet, hopes of listing gains lead investors to overbid. Reviewing past allotment patterns aids bid decisions. Overall, selectivity and moderation help counterbalance the risks from headlines heralding an IPO bonanza.
Impact on Industries
The ballooning IPO pipeline has outsized influence on India’s capital markets ecosystem despite representing a sliver of wider listed universe. Bullish secondary market trends in part owe to the morale lift from anticipated mega offerings. However, mixed aftermarket performances of recent tourist show IPOs like PayTM and Delhivery highlight that floundering fundamentals eventually matter. Still, a vibrant IPO climate perceived to unlock startups’ pent-up listing demand feeds positive sentiment. Adjacent segments like legal, tax, and audit advisory witness sharp upticks in business from IPO aspirants. The media spotlight around trendy IPOs also benefits digital brands and youth advertisers despite fleeting consumer attention gains. For stock exchanges like NSE and BSE, growing overall turnover and user growth are clear positives. But retail participation spikes can strain infrastructure if demand surges cluster among certain securities. Among asset managers, IPO-focused funds unsurprisingly proliferate while investment bankers staff up emerging company coverage teams – though business remains fiercely competitive. Negatively, persisting regulatory delays despite fast-growing registration pipelines risk dimming the current momentum. But so long as risk appetites and liquidity conditions remain broadly supportive alongside index gains, India’s primary market offers abundant opportunities even if select excesses require monitoring. Both positive ripple effects and risks of excess seem unavoidable byproducts during such capital influx cycles.
Long Term Benefits & Negatives
Viewed on a multi-year scale, the cyclical upswings in India’s IPO activity indicate wider capital market evolution despite intermittent overheating. Periods resembling the present have historically presaged accelerated funding access and formalization for next-generation companies across technology, consumer and healthcare verticals. Beneficially, this aids productivity enhancement and global competitiveness as newer business models gather steam. From a social perspective, a vibrant IPO ecosystem creates aspirational investment opportunities that boost financial inclusion. Over time, beyond just the sheer capital injection, heightened public visibility and scrutiny also lift governance and formalization. However, lack of durable operating histories makes arriving at appropriate valuations challenging. Loose fiscal conditions risk overvaluations being fueled by excessive global liquidity seeking growth rather than underlying cash flow prospects. Consequently, retails investors buying into lofty IPO stories often suffer wealth erosion on late unwinding. Moderating earlier frenzies, regulators may also mandate additional compliance requirements on issuers even if well-intentioned restrictions carry their own innovation dampening effects long term. So while capital influxes aid expansion during upcycles, sustainable value creation hinges on nurturing organizations and sectors endowed with durable competitive strengths beyond temporary enthusiasm or funding trends.
Short Term Benefits & Negatives
Over 12-24 months, assuming liquidity conditions remain supportive, India’s IPO market offers a funding bonanza for private companies and their investors to realize paper gains. However, risks of post-issue stock underperformance could rise for companies lacking concrete roadmaps to grow into stretched debut valuations. For Indian exchanges, near-term revenues and user growth benefit from the listing pipeline buoyancy amid a positive psychological backdrop. Mainstream business media outlets stand to gain leveraging the public attention towards headline-grabbing IPOs of consumer internet unicorns and startups. But inherently hype-driven commentary requires thoughtful consumer discernment. Among ancillary segments, advertising, communications and professional services allied to candidates rushing for public market debuts before windows narrow witness sharp near term revenue upticks. Banks multiply lead roles on prestigious IPO mandates. On the flip side, blind pools like IPO-focused funds often chase popular themes late. Meanwhile, crowding among speculators hoping to flip hot IPOs for quick gains inevitably proves self-defeating when allocations spread thin. From a systemic view, epochs of easy money fueling the IPO ecosystem risk asset bubbles down the road. Guarding against reckless financing or dilution practices merits vigilance once capital becomes abundantly available for loss-making aspirants. But assuming disciplined regulation alongside selective investor discernment, India’s deep pipeline of promising ventures offers legitimate funding requirements that access to primary markets largely fulfills through enabling evolutionary growth.
Companies Impacted by Buoyant Indian IPO Market in 2024
Gaining:
Indian Companies:
- Large IPO Companies:
- Ola Electric: The first EV startup IPO could create excitement in the sector and attract further investment. Potential valuation bump through successful listing.
- Swiggy: Increased investor interest in food delivery space, potential valuation boost, access to capital for growth.
- Byju’s (Aakash Educational Services): Capital for expansion, improved brand image, potential valuation boost.
- Oravel Stays (Oyo): Access to capital for debt reduction and growth, improved liquidity.
- PayU: Increased brand recognition, access to capital for expansion and acquisitions.
- NSDL and Brainbees Solutions (FirstCry): Improved liquidity, access to capital for growth and innovation.
- Investment Banks: Booming IPO activity leads to increased fees and deal flow for investment banks involved in underwriting and managing these offerings.
- Secondary Market: Increased liquidity from IPO proceeds potentially boosts overall market sentiment and valuations.
Global Companies:
- Global Investment Firms: Access to potentially high-growth Indian companies through IPOs, diversification opportunities.
- Global Investment Banks: Similar to Indian banks, increased fees and deal flow for participating in IPOs.
Neutral:
- Existing Listed Companies in Similar Sectors: Potential short-term pressure on valuations if investor focus shifts towards new IPOs. However, strong long-term growth prospects remain.
Losing:
- None directly: The overall positive sentiment and increased capital flow should benefit most sectors indirectly.
Market Sentiment:
- Overall: Positive sentiment boosted by strong IPO pipeline, potential for high-growth companies to list, and robust investor interest.
- Specific Companies: Market will react to individual IPOs based on company fundamentals, valuation, and investor sentiment towards the sector.
Disclaimer: This analysis is based on the provided information and may not be exhaustive. I am not a financial advisor, and this information should not be considered as financial advice.