Two to Tango: Tata Capital and LG IPOs to siphon liquidity, starving secondary markets

Foreign investors add another layer to the equation. But their fire power isn’t much

India’s initial public offering (IPO) calendar is entering a record-setting week, with fundraises topping Rs 30,000 crore—the largest in a single week. Nearly 90 percent of that will come from just two offerings: Tata Capital’s Rs 15,511 crore issue and LG Electronics India’s Rs 11,607 crore offer-for-sale (OFS).

The sheer scale is set to strain secondary markets, where buying support could dry up.

Although equities closed higher for second straight sessions on Friday, experts caution the rally may stall. “Secondary markets will see some sluggishness due to a liquidity crunch,” said Pankaj Tibrewal, founder, Ikigai Investments. Thus, influencing how participation will be affected especially in the broader markets.

The math: The institutional portion of Tata Capital and LG alone—assuming the 50% QIB allocation—works out to around ₹13,559 crore. That’s well above the weekly liquidity available with mutual funds, which typically have about ₹8,000 crore at their disposal (based on net monthly inflows of ₹30,000–40,000 crore into equity funds this year on average and ₹33,400 crore in August). The two IPOs together will absorb a significant chunk of the average weekly firepower of around ₹33,000 crore available with all domestic institutions—mutual funds (across equity schemes), banks, insurers, and pension funds—based on this year’s weekly purchase trends.

Foreign investors add another layer to the equation. But their fire power isn’t much. They’ve sold nearly ₹2 lakh crore in secondary markets this year but pumped over ₹40,000 crore into IPOs.

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Apart from the two giant IPOs, this week beginning October 6 will also see a flurry of other IPOs: Rubicon Research’s Rs 1,377.5 crore IPO launches on October 9, alongside Canara Robeco AMC and Canara HSBC Life Insurance, with media reports pegging their sizes at Rs 3,000–5,000 crore each.

WeWork India’s Rs 3,000 crore issue, open until October 7, has so far drawn modest subscriptions, while a cluster of SME IPOs is also in the queue.

Big-name issues tend to crowd out secondary markets by pulling in retail investors as well. “Large private companies do create enthusiasm among investors. As listing approaches, they start understanding the risks tied to investor expectations,” said Umesh Agrawal, Fund Manager, 360 One WAM. Viral Shah of Nuvama Wealth agreed highlighting how some recent IPOs left capital on the table for retail investors to absorb. “And when there’s this kind of an IPO rush, the secondary market does feel some level of (even though short-term) pressure,” Shah added.

Ajay Vaswani, President & Chief Business Officer – Alternate Funds at The Investment Trust of India (ITI), said, “Equities continue to remain the default investment choice in an environment of subdued returns from deposits and bonds. That said, investors are now approaching IPOs with a sharper focus on valuations rather than just growth narratives. Pricing discipline and the extent of promoter exits are being scrutinized far more closely than before".

Still, analysts don’t see a steep slide ahead. “Listing gains facilitate liquidity rotation especially during a busy IPO period. But this rotation is happening in a measured way,” said Umesh Agrawal, Fund Manager, 360 One WAM. Sector-specific trends could soften the blow: “Across the market, these recent corrections in banks and IT have created pockets of opportunity, while festive demand and GST cuts are supporting consumer electronics,” Shah noted.

Yet the diversion of cash is expected to keep secondary market moves subdued in the near term. As Tibrewal summed up: “Money supply influences the secondary market. But if all new liquidity flows into IPOs, the listed market tends to temporarily lose steam.”