Ganesh Chaturthi 2024: The IPO Market Boom and Its Impact on Indian Equities
Ganesh Chaturthi marks the commencement of the festival season in 2024. What better timing could there be to reflect upon the Initial Public Offering market that is currently seeing traction in India?. IPOs have been the latest graffiti in the financial vocabulary for the last one year as far as record breaking performance of both Nifty 50 and BSE Sensex are concerned. While these indexes have been the talk of the town in the mainboard market, the number of SME IPOs that came to the market has also been one of the major attractions of 2024. But this unprecedented growth has a word of caution, as SEBI warned retail investors over frenzied activity in SME IPO market exchanges.
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SME IPOs Outshine Major Indexes
In the past one year, the S&P BSE SME IPO index has outperformed many key benchmarks like the Nifty 50 and BSE Sensex by a mile. Compared with the Nifty 50’s 26.73% gain and BSE Sensex’s rise by 23.23%, the S&P BSE SME IPO index rose as much as 169.42%. This is indicative of an increasing appetite among investors for IPOs in the SME segment, despite regulatory concerns and potential risks.
Market Stability and Increased IPO Activity
Arun Kejriwal, founder of Kejriwal Research and Investment Services views the upward momentum in the last 12 months in the Indian markets was because of the relative stable political and economic climate. As a matter of fact, he explains there is an increasing need for capital within India’s corporate fraternity, and corporations are looking to raise it via the capital markets through listings of shares rather than loans from banks and other financial institutions.
While this growing need for capital and encouraging momentum of the markets is likely to persist well into the coming months, Kejriwal said, “As long as the demand for capital exists and as long as the markets are moving forward, fundraising through IPOs would remain strong.”
Ganesh Chaturthi 2024 : A Month of Records in IPO Fundraising
August 2024 saw the highest ever IPO fundraising with ten companies collectively mobilising around ₹ 17,047 crore, followed by September, making this month the busiest period for IPOs since May 2022, according to data from an analysis by Pantomath Capital Advisors Private Ltd. The spate of IPOs, in turn, has been facilitated by changes in regulations, a buoyant domestic economy, frenetic retail investor participation, and pent-up demand after the pandemic-led slowdown.
Market experts attribute this stellar performance to reforms in regulatory policies and the stabilization of the Indian economy. Optimism in the IPO market is very high as the beginning of the festive season and more listings are expected in the coming months with much anticipation among investors.
Regulatory Reforms Give IPO Momentum
The main driving forces for the current IPO boom include favourable regulatory reforms. For instance, reformist regulatory bodies have introduced friendly reforms such as a shortened timeline for the listing of IPOs, an electronic IPO system that has really made the whole process way faster and far efficient. These reforms not only bring increased investor participation but also pave the way for smooth access to capital markets by companies for raising funds.
ITI Growth Opportunities Fund Managing Partner and CIO, Mohit Gulati, said these regulatory changes have considerably accelerated IPO activity. He said the strong domestic economy has been duly complemented by increased retail investor participation in driving the current momentum in IPOs.
Mainboard IPOs: A Success Story in 2023-2024
During the given period between September 2023 and September 2024, a total of 87 listings were done in the mainboard IPO market, with 81% of the stocks trading above their respective issue prices. Of these, 71 stocks reported positive returns, while 17 became multibaggers-stocks that have given returns manifold over their original value.
Some of the biggest gainers during this period were:
TBO Tek Ltd
J G Chemicals Ltd
Ratnaveer Precision Engineering Ltd
Jupiter Life Line Hospitals Ltd
Unicommerce eSolutions Ltd
Inox India Ltd
These companies saw fantastic subscription numbers and price appreciation ranging from 80% to 99%. All in all, the sentiment of the wider market was upbeat, reflected in the good performance of these IPOs.
Best Performers that Give Returns More than 200%
Multibagger Stocks
Out of the 17 multibagger stocks, six companies fell into the category of outperforming companies that gave more than 200% to 600% returns:
Indian Renewable Energy Development Agency Ltd: More than 600% returns
EMS Ltd: 285.1% returns
Signatureglobal (India) Ltd: 273.3% returns
Motisons Jewellers Ltd: 256.6% return
Jyoti CNC Automation Ltd: 250.1% return
DOMS Industries Ltd: 232.9% return
These stocks became the darlings of the market, giving handsome returns to investors who had subscribed to the IPOs in their initial stages. A word of caution, though: Not all IPOs passed with flying colors. Stocks such as Rishabh Instruments Ltd, Sai Silks (Kalamandir) Ltd, and Valiant Laboratories Ltd saw their prices fall in the range of 1-37% against their issue price.
Rise in Demat Accounts: IPO Fervor Prompts New Sign-ups
The boom in IPO has sculpted a new look for demat accounts in India. As different reports say, the back-to-back rush of IPOs is behind the recent spike in opening demat accounts. As per the latest numbers released by NSDL and CDSL, the demat account numbers crossed 17 crores in India at the end of August 2024.
As of August 31, 2024, India had 17.10 crore demat accounts. A good 42.3 lakh accounts were opened during the month of August. The growth was lower compared to 44.44 lakh accounts added in July 2024. However, it was a sharp rise compared to 31 lakh accounts which were opened during August 2023.
Will the IPO Frenzy Continue?
For the future, market gurus are once again optimistic about the prospects of the IPO market. However, such momentum in the IPO market will largely depend upon the sustainability based on various economic and market factors. According to Mohit Gulati, global economic conditions, the outcome of the upcoming U.S. elections, and continued economic growth in India would be some of the key factors affecting the continued strength in the IPO market.
He also pointed out the role of mainboard IPO activity, which he expects to remain strong for some foreseeable future. The access to capital market has allowed a lot of new companies to raise equity capital which have contributed to growth, private capital expenditure cycles and even created new jobs. Gulati said that he was hoping the euphoric activity on the SME exchange does not end up impacting the mainboard listings since that would have wider ramifications on the market.
Conclusion: Good prospects for IPOs in a cautious market
Indeed, the IPO market in India has been on a record-breaking spree, as a combination set of factors like regulatory reforms, strong domestic economy, increased retail investor participation, and pent-up demand post-pandemic have come together. Experts believe that while headline numbers look strong in the past few months, caution needs to be exercised more so in the SME IPO space, where increased activity could expose retail investors to heightened risks.
With Ganesh Chaturthi, the festival season has just begun, and investors are so far optimistic on the continuation of the trend in the IPO market. However, whether these factors-a decent subscription, reasonable pricing, and efficient use of proceeds-would sustain over a longer period remains to be seen against the background of global economic variables, regulatory vigilance, and sustained investor faith in India’s growth story.