India's IPO market trends: All set for 'positive vibes'?

In a remarkable surge, the Indian main market witnessed unprecedented growth in initial public offerings (IPOs) during the third quarter of 2023. A staggering total of 21 IPOs took centre stage in Q3, a stark contrast to the meagre 4 IPOs during the same period in 2022. In 2023, a total of 57 IPOs were offered by companies across various sectors, such as finance, pharma, cables, and condoms. This was the second-highest number of IPOs in the decade, surpassed only by 2021, which saw 63 IPOs.

The financial landscape echoed this expansion, with proceeds skyrocketing to US$ 1,770 million—a remarkable surge of 376% when measured against the US$ 372 million reported in the third quarter of 2022. This dynamic shift underscores a robust momentum in India's IPO arena, indicative of an evolving investment landscape and heightened market enthusiasm.

India's current financial landscape

Indian indices have not outperformed investors’ expectations only for a quarter. In 2023, Indian stock indices ranked 6th globally with a three-year growth rate of 14.8% and 5th with a five-year growth rate of 13.2%. The average global growth rate over the past three years was 10.3%. This period saw the world transitioning from the initial phases of recovering from the pandemic and lockdowns in 2020.

Who's excited about IPOs?

The Indian stock market is currently buzzing with activity, but it's not individual investors getting excited - it is companies eager to benefit from positive investor feelings. Market experts say that businesses, owners, and private equity firms are trying to seize this opportunity by taking their companies public. It's not just about getting more funds; it's also about having high values, thanks to the “good vibes only” mood of the market. This trend has everyone, from experienced business owners to agile private equity giants, feeling enthusiastic.

The IPO market opening up is great news for PE (Private Equity) and VC (Venture Capital) investors. Even if they're not directly selling shares in an IPO, being involved with a publicly listed company allows them to trade their shares freely through block deals.

Mainboard IPOs in 2023

We are able to pin this large phenomenon onto something bigger than the country’s money. Politics.

2024 is expected to be the year of financial stability since Indian rupee is projected to strengthen against the dollar around or after the General Elections. Here are some ripple effects we can see coming:

1. Political Stability: A stable government after the elections can bring about confidence in the markets. Investor sentiment is bullish during periods of political stability, and a clear mandate after elections boosts the market like nothing else.
2. Policy Changes: Policies or bills proposed or implemented by the new government can significantly impact specific sectors and investments in these sectors subsequently. Investors will keenly watch for policy decisions that may favor or challenge certain industries, influencing stock prices accordingly. Also includes infrastructural plans, foreign affairs, etc. which impact certain sectors more than others.
3. Economic Reforms: The election outcome may shape economic reforms. Investors may anticipate changes in economic policies, taxation, and regulations, impacting businesses and, consequently, stock market performance.
4. Global Perception: The international perception of the election outcome and the stability of the new government can affect foreign investment. Positive global sentiment can attract foreign capital to the Indian stock market.
5. Currency Movement: Elections may influence the value of the Indian Rupee. A stable government is generally associated with a more robust currency, while uncertainty can lead to currency fluctuations that impact foreign investment.
6. Interest Rates: Government policies, especially related to fiscal and monetary matters, can influence interest rates. Interest rate changes can impact companies' borrowing costs and, consequently, their profitability. The Reserve Bank of India will likely cut rates in 2024 to maintain neutral real rates and prevent growth shock.

Next year, at least five companies in India, including Ola Electric, FirstCry, and Swiggy—all supported by SoftBank—aim to raise $500 million or more through listings. Additionally, over a dozen other companies covering various sectors like banking, pharmaceuticals, and technology, are getting ready for IPOs, especially after recent state election results. According to Mahesh Natarajan, the head of equity capital markets at Nomura India, companies are speeding up their plans to go public to take advantage of the current positive market vibe. Compared to last year, there's a significant increase in the number of companies getting ready for IPOs.

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