A Record-Breaking Year with 194 IPOs and Diverse Offerings
The Indian IPO landscape is experiencing an unprecedented surge, with a staggering 194 IPOs launched in the current year. This impressive figure encompasses a diverse range of companies, from industry giants like Mankind Pharma to Small and Medium Enterprises (SMEs) such as Madhusudhan Masala. The sheer volume of IPOs in 2023 sets a record, marking the highest number since at least 2014, creating a vibrant atmosphere in the market.
Several factors contribute to this IPO boom, both at the macro and micro levels. On the macro front, India stands out as a beacon of growth in a global environment marked by sluggish economic expansion. India recently surpassed the UK to become the fifth-largest economy globally and is projected to enter the top three by the end of the decade. The nation’s rapid growth, coupled with a favorable demographic profile, has attracted positive attention from global investment houses, with India earning the coveted status of being a preferred investment destination.
Structural reforms on the micro level further fuel this enthusiasm. Government initiatives, such as Production Linked Incentives, invigorate the manufacturing sector by rewarding firms for producing goods within India. Infrastructure developments, including the doubling of airports in a decade and the creation of additional freight corridors, aim to enhance trade competitiveness by reducing logistics costs.
These macro and micro factors contribute to increased investor confidence, with foreign investors leading the charge and domestic and retail investors following suit. As of March 2023, retail investors’ share in the stock market reached an all-time high of nearly 7.5%, indicating widespread participation.
While the macroeconomic backdrop has been favorable for a few years, some unique factors may be shaping the 2023 IPO landscape. Regulatory approvals, a potential bottleneck in the past, may be easing, with backlogs getting cleared, leading to a surge in IPOs that were possibly ready in 2022. Additionally, the looming general elections may be prompting companies to expedite their IPO plans before potential uncertainties arise.
Addressing concerns about a possible IPO bubble, the current market scenario suggests a more measured approach. IPOs appear to be more appropriately sized, with a significant number targeting amounts below ₹1,000 crores. This contrasts with the IPO boom in 2021, where a substantial portion of issues aimed to raise over ₹1,000 crores. Valuations also appear more reasonable, with recent IPOs demonstrating a pragmatic approach to pricing. For instance, Mamaearth’s IPO, initially estimated between ₹15,000-₹20,000 crores, eventually settled at ₹10,500 crores, aligning with its last private fundraise valuation in January 2022.
While the IPO landscape is undeniably booming, the market seems to be exhibiting a level of sanity and caution. Nilesh Shah of Kotak Mahindra Mutual Fund emphasizes the absence of large, overvalued IPOs in the current scenario. However, the question of whether the market is at its peak and potentially facing a downturn remains open-ended, as market dynamics are inherently unpredictable.
In conclusion, the great Indian IPO boom of 2023 is characterized by a record number of offerings, driven by a confluence of macroeconomic factors, structural reforms, and unique circumstances. While concerns about a potential bubble persist, the market appears to be navigating this boom with a degree of prudence, underscoring the dynamism and complexity of the Indian IPO landscape.