Dear Reader,
This is the last Pro Weekender before the year ends. How did the year fare for investors? The Nifty has gained by 9.7 percent in the year so far. With 1-year bank deposits easily giving 7 percent, the index did not do very well on a pre-tax, risk-adjusted basis, one could say. But mid- and small-cap indices fared much better while gold shone during the year.
But 2024 was truly the year that the IPO market bloomed but the past decades have seen many such booms go bust. But this time does seem different. Hopefully, these won’t be famous last words.
It’s not just about the money raised though it's sizeable for sure. A recent Motilal Oswal Strategy report noted that after raising Rs 1.3 lakh crore through IPOs in 2021, merchant bankers pushed the figure up to Rs 1.8 lakh crore in 2024. The contribution to market capitalisation by IPOs was 2.9 percent in 2024 versus 1.3 percent in 2023, but lower than in 2017 and 2021.
There’s a mood change that’s visible in the primary market. What better proof of that than a line-up of foreign-owned companies seeking to list. There was a time when several were trying every trick in the book to delist or pay more attention to their privately-held subsidiaries. Now, companies such as Hyundai (already listed), Samsung and even LG are going public.
People point to inflated valuations as a reason to list in India, because parent companies can benefit from their Indian-listed subsidiary’s valuation. There may be some truth to it. But this is not the first time that Indian markets have been overheated. These companies were leaders in their market years ago, and would have found takers then as well, even at steep valuations. Moreover, India's valuations have cooled in the last quarter of 2024, but the IPO queue does not seem to be thinning.
The biggest barrier for an IPO market is perhaps in the corporate mind, which is naturally tuned to resist listing. A number of reasons can be trotted out, such as: “Competitors will get our information. We will be held hostage to quarterly performance, long-term thinking will get corroded. We will have to waste time meeting investors and speaking to the financial media. Corporate governance norms are onerous, as are other compliances. Related party transactions will become difficult. SEBI will breathe down our neck, as will stock exchanges. Questions will need to be answered.”
There’s an element of truth in these concerns, but each one can be debunked. For instance, competitors won’t be waiting for January when the December quarter results are declared to know how competition fared in October-December. They will have those numbers with them every month, week or even day. But this debate can continue forever with both sides making good points. What’s important is that many companies have crossed the threshold of scepticism and in their wake, many are ready to follow suit.
In the near term, it’s all about the grey market premiums, subscription levels, the listing pop or fizzle and then tracking gains since listing. But in the longer run, these companies have entered a different league. There’s a commitment, not just to their IPO shareholders but also to investors that buy their shares in the secondary market, to run the company efficiently, grow earnings and deliver shareholder value. Unlike private markets where promises are made mainly during funding rounds, in the public market that promise is an everyday affair. It reshapes how companies think of their future.
The risks for investors too seem more balanced. Companies are coming from a diverse sector set rather than a few ones as seen in the past. This is unlike the feeding frenzy that takes place when a few sectors catch the market’s fancy, with the inevitable bust following the boom. The Motilal Oswal report pointed out that IPOs in 2024 were drawn from 23 sectors, with five sectors – e-commerce, auto, telecom, retail and capital goods—contributing to 59 percent of the issue size. In CY2020, 90 percent was from three sectors – BFSI, real estate and healthcare, 2021 was mainly e-commerce companies, and the years 2016 and 2017 were dominated by insurance stocks.
This diversity is not engineered by merchant bankers. Rather, whether to go public or not has perhaps become an active question in the boards of most privately held companies of some standing. That raises the prospect of more IPOs heading to the market in 2025 as well. Also, while the SME board has seen many cases of excesses, it's restricted to high net worth investors and the regulator is anyway clamping down on these sharp practices, so hopefully it will not blow up in everyone's face.
A deluge of listing means more supply of paper chasing the same equity inflows, which risks putting a lid on valuations. But in the longer term, the breadth and depth of India’s capital markets improving is a positive factor. Fund managers have bemoaned there being many listed companies in India but not enough that are worth investing in. This will become a thing of the past.
Foreign investors too will look at our markets differently as the investible pool goes up. Sometimes in markets, it is the supply that creates demand. This could be one of those. Sure, foreign investors will be guided in the near term by events like interest rates, geopolitics, valuations and therefore, their selling may not end very soon. But if India manages to tend to its economy and raise growth back to higher levels, then sooner rather than later they should find it an irresistible market to park their money in.
For investors, of course, caveat emptor holds. Investing is about knowing your goals and mapping your investments to those goals, while keeping in mind the risks. Therefore, whether to invest or not in IPOs should be part of a conscious financial plan, part of which involves deciding whether to invest in direct equities or not and then within that IPOs can find a place if they meet your investing objectives.
Wish you a very Happy and Prosperous New Year in 2025.
Cheers,
Ravi Ananthanarayanan
Your regular columnist Manas Chakravarty will be back next week.
In case you missed them, here are some of the stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:
Stocks IndusInd Bank MFI loan auction, Weekly Tactical Pick, BEL, HG Infra, RR Kabel, Sai Life Sciences, MAS Financial, India Shelter, Divi’s Labs, Unimech Aerospace IPO
Alpha Folios Portfolio Change MC Pro Affluent India Portfolio got its first tweak, read what has changed
Markets 2024 in review: MFs witness growth in 2024; SIPs, Thematic and Passive on the rise
Offshore funds lower concentration risks as top 10 holdings see significant fall in share
Trading in procyclical markets
Pro Market Outlook | Short-term recovery could be in sight
A transformative year lies ahead for crypto in 2025
Infrastructure, manufacturing sectors to drive growth in 2025
GuruSpeak | Puneet Sharma's trading journey: Mastering quantitative trading through data and algos
Nearly 100 firms set to end 2024 with valuation of over Rs 1 trillion
Financial Times
India roars ahead of China to top Asian IPO rankings
Why the mysteries of corporate longevity matter to investors
US Federal Reserve’s flip-flops risk undermining US exceptionalism
Companies and Sectors
How listed pharma companies are fighting against commoditisation of the market
Chart of the Day | Global steel output fell by 1.4 percent YoY in 2024 till November
Innovation, inclusivity, and infrastructure to drive India’s banks in 2025
Economy and Policy
Slower growth awaits India in 2025 as private capex slackens
Can India’s external sector keep calm for the rest of FY25?
GST Meeting: What's the cost of delayed decision-making?
MPC minutes point to pro-growth lobby gaining ground
Chart of the Day | How banks' CRR liability evolved in the flexible inflation targeting era The curious case of West Bengal in the national data sets
Pro Economic Tracker: Auto sales, consumer sentiment fall, power consumption increased
Is the RBI being overprotective of the rupee?
RBI’s forex interventions meant a CRR cut was inevitable
Will Q3 GDP data bring back smiles in the market?
Tech and Startups
Fintech NBFCs: Karma of unsecured lending bites in 2024; face rising NPAs, crumbling asset quality
What founders should know before approaching venture capital funds in 2025
Where are the rules? Tech policy in 2024 in a nutshell
Quick bites, quicker deliveries: The 15-minute food-delivery revolution is here to stay
Startup Street | Should failure rate of startups ring alarm bells?
Geopolitics
The Eastern Window: India-Sri Lanka relations soar but hurdles remain
India’s growing dependence on Chinese imports is a potential security issue
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