A red flag or a sign of robust investor confidence?

Ravi Agarwal describes the decision to list his company, Cellecor Gadgets, on India’s stock markets as a “monumental moment”.

For founder and managing director of the consumer electronics brand, the move not only reflected the rise of his company, but also India’s growth story.

New Delhi-based Cellecor made its debut on the National Stock Exchange SME index on September 28 and it is one of the companies that has contributed to India’s record-breaking year in terms of the number of initial public offerings.

“This year’s IPO boom in India is a testament to the nation’s economic resilience and dynamism,” says Mr Agarwal. “Factors such as robust fundamentals, a growing middle class, and an appetite for innovation are driving this surge.”

Like Cellecor, most of the listings in 2023 took place on SME – or small and medium-sized enterprise – exchanges.

India has emerged on top globally as well in terms of the IPO volumes so far this year, helped by the number of equity market deals during the third quarter, a report by global professional services firm EY said.

A total of 69 IPOs took place in India in the three months to the end of September, including 48 listings on SME exchanges and 21 in the main market. The volume of deals is up 425 per cent compared to the same period last year, EY’s figures show.

The value, however, is more modest this year when compared to the past couple of years. Data from Prime Database shows funds raised so far this year totalled $5.41 billion through more than 200 IPOs.

That compares to $7.34 billion in 2022 and a record high of $14.34 billion in 2021.

Still, analysts see the rise in the number of listings as a positive development.

IPOs launched this year include a broad range of companies. Among the companies that have gone public are Mankind Pharma, Tata Technologies and drone maker ideaForge.

The biggest listings in the third quarter included wire and cable manufacturer RR Kabel and biotechnology company Concord Biotech.

“The surge in retail investors’ participation, coupled with daily market highs, has infused newfound liquidity into the public market,” says Teja Ramineni, co-founder of Avenue Holdings, a financial services company.

“This influx of funds provides companies with a robust platform to access capital, serving as a pivotal driver behind the flourishing IPO landscape.”

This can be “attributed to a confluence of factors, including a robust stock market, favourable economic conditions, progressive regulatory reforms, and the rise of unicorn start-ups”, he says.

India’s economy grew by a robust 7.6 per cent in the September quarter from a year earlier, according to the official data.

The fact that listings are more modest in size on the main market is reflective of investors becoming more discerning about how they deploy their capital, Mr Ramineni explains.

In 2021, a number of high-profile start-ups went public, including Paytm and PolicyBazaar. However, these companies hit the markets at overvalued prices, leaving investors sitting on shares that are below their listing prices even today.

Last year, Life Insurance Corporation’s IPO was the biggest the country had ever seen, but its share price tumbled after the market debut and has yet to fully recover.

“There is a preference for profitable enterprises with established track records, and global market volatility has contributed to moderating IPO sizes.”

He believes the trend is much more sustainable and is indicative of “a robust IPO environment”.

This comes as India’s stock markets have hit multiple record highs following a slump in October. Last week, the benchmark S&P BSE Sensex and the NSE Nifty 50, posted their best weekly gain since July 2022.

The country’s equity markets have been rising for six consecutive weeks, helped by factors, including strong economic data, a decline in oil prices, and the ruling Bharatiya Janata Party’s victory in recent state elections.

These developments have fuelled both foreign fund inflows as well as strong domestic investor demand, strengthening optimism about a booming IPO market into the new year.

“The future of IPOs seems to be very promising, and it is expected that there will be a continued surge in the coming months, which will extend into the following year,” says Kulbhushan Parashar, founder and managing director, Corporate Capital Ventures, a capital markets advisory firm.

“This growth is driven by the expansion of businesses in India, which aligns with the country’s rapid economic development.”

Companies are trying to file for IPOs before the 2024 general elections in the country, expected to be held between April and May.