India's IPO market over-heated, upcoming 'K-pop' issues will drain liquidity, says Ramesh Damani

Ramesh Damani said he sees some 'froth' building up in the stock market as big public issues seem to be getting the valuations that they are seeking.

Veteran investor Ramesh Damani fears India's vibrant primary market may now be getting 'heated up', more so as a number of South Korean multi-nationals are now eyeing high valuations for the IPO of their local businesses.

Ramesh Damani, Member of BSE told CNBC-Awaaz in a conversation said the 'K-pop' IPOs - a phrase to capture popular and well-known South Korean brands - could suck up liquidity from the secondary market, hinting at a sign of 'caution' going ahead. Damani added that he sees some 'froth' building up as even bigger public issues seem to be getting the valuations that they are seeking. "At some point, we'll have the liquidity suck out from the market."

Ramesh Damani also said that after the strong run up in the markets, he finds valuations in the mid and smallcap space looking 'stretched', and has started to lighten up positions in this space and shift to large cap names.

These comments come in light of market regulator Sebi's approval for Hyundai Motor India's proposed $3 billion IPO that could open in October, and reports of LG Electronics India and Samsung India firming up plans to soon tap into the primary market. The Hyundai Motor India public issue is poised to be the largest IPO in India’s history.

Damani said the South Korean mutli-nationals believe they can command high valuations for their India businesses, and may end up raising a significant amount of capital.

The heightened activity in India's primary market has resulted in companies raising about $9 billion via IPOs in 2024, as per data from Bloomberg. The primary market frenzy is even luring major mutual funds too, with AMFI's August data showing large MFs loading up on newly-listed names like Brainbees, Ola Electric and Unicommerce.

At least three more public issues of over a billion dollar each could be in the pipeline, including Swiggy, apart from Indian businesses of LG Electronics and Hyundai Motor. Softbank-backed Swiggy recently upsized its IPO to $1.4 billion, amid intensifying competition in the grocery delivery space.

The intense demand for IPOs have led to massive oversubscription numbers for the public issues, and also resulted in average listing day gains of 30% for companies debuting in India, higher than the world average of 22%, showed Bloomberg data.