In the past few years, we have seen many more companies raise funds from public markets than ever in the Indian IPO (Initial Public Offering) market. This explosion is attracting the attention of investors, policymakers, and analysts. However, a closer examination of the forces at play indicates that a mix of economic, regulatory and market factors are driving this boom. In this article, we want to analyse the reason for the increase in the number of IPOs in India, which goes further than the trends and is also objective.
Economic Growth and Recovery Post-COVID
India’s economic recovery and pandemic have fueled one of the strongest drivers of the IPO market in India. While the coronavirus-induced slowdown had stymied economic activity, the deluge of recovery efforts revived business confidence. The economy of India showed pent-up growth as the country ramped up fiscal and monetary policy to buffer through.
This recovery forged a conducive atmosphere for the companies to grow and attract investors. Companies that had been waiting to go public during the uncertainty of the pandemic rushed to do so, attempting to take advantage of improved economic sentiment. Additionally, sectors such as technology, healthcare, and e-commerce experienced rapid growth during the pandemic, setting the stage for favourable IPO environments.
Favourable Market Sentiments
Wealthy investor sentiment was stoked by hype and then d∩e∩p-∩dashed by expectations, making November much worse than it would have been otherwise. Driven by informed investor optimism, India’s benchmark indices, Sensex and Nifty, unleashed record books. Such optimism was driven, among others, by the healthy inflow of FDI, strong earnings, and a benign global economic environment. Retail investors have also been at the centre of the construction of the IPO market. With the rise of online trading or ‘retail’ trading platforms and increased financial literacy, we are witnessing an influx of the public entering the stock market. By IPO, additional investment interest is generated; the sheer number of new listing opportunities attracts many of these investors, who see IPOs as a low-risk, high-reward opportunity to obtain early exposure to successful companies.
Regulatory and Policy Support
Reforms in regulations and policy have underpinned the IPO boom in India. As the country’s capital market regulator, the Securities and Exchange Board of India (SEBI) has undertaken a series of steps towards improving the IPO process with better transparency. To illustrate, the time for issuing to be listed reduced from 6 days to 3 days by SEBI has made the process much more appealing/efficient for both issuers and investors.
Moreover, policies that lure startups and SMEs onto stock market exchanges have yielded results. Frameworks like the Innovators Growth Platform (IGP) have made capital markets relatively accessible for technology-led and innovative businesses. These reforms have increased the number of IPOs and bread diversity in the firm’s profile and market entry.
Boom of Technology and Startups
India’s nascent startup ecosystem has notably fueled the IPO market boom. A steady stream of unicorns — startups valued at more than $1 billion — that have gone public has cemented the country’s reputation as a global centre for technology and innovation. With high-profile listings like Zomato, Paytm, Nykaa and Policybazaar, a new era is underway in India’s IPO landscape.
Both these IPOs raised a significant amount of capital and represented the maturity of the Indian startup ecosystem. For startups, going public is a chance to raise money, reward early investors , and generate buzz. The listings provide investors an additional way to invest in rapidly growing companies that have demonstrably proven themselves in private markets.
The very low global liquidity environment has also played an important role in this boom. Along with many other central banks globally, the Reserve Bank of India (RBI) has kept monetary policy accommodative, both during and after the pandemic. Low interest rates and ample liquidity pushed investors toward equities to pursue higher returns, including IPOs. Also, foreign portfolio investment (FPI) flowed into Indian equities to boost the IPO market. A major driver for participation in the IPOs was the appeal of India’s growth potential and relatively stable macroeconomic fundamentals, which global investors have keyed into.
Challenges and Concerns
The IPO boom has presented an opportunity for celebration but has also been accompanied by challenges. Nostalgia, however, has drawn strong trading related to its overvaluation. Some issues have received negative commentary for their high pricing, resulting in subsequent listing corrections and disillusionment among investors. This has led to concerns regarding the pace of IPOs and the value they provide in the long run.
The push to go public has raised worries about the quality of some Cession candidates. However, critics say not all companies joining the market are fundamentally sound, and some may be taking advantage of the bullish sentiment to raise money without much of a growth strategy.
Another risk is the possibility of market volatility. Potential IPO activity may be tempered or encouraged by prevailing geopolitical tensions, inflationary pressures and global economic uncertainties, which tend to impact investor sentiment. Market stability will be key to sustaining the momentum of the IPO boom.
The Road Ahead
Economic growth, regulatory changes and global market conditions will all play a role in shaping the future of the IPO market. The momentum is good, but the challenge ahead will require a careful approach that ensures investors are protected and the market stays credible.
From a policy point of view, ongoing work to streamline the IPO process and promote transparency will be important. A wider SME and startup base capable of accessing capital markets could further broaden the base of IPO activity . Simultaneously, educating investors about IPO investment risks and rewards will be critical for accurate decision-making. For companies, emphasising long-term value would be the centrepiece of rebuilding investor trust. Candidates who show sustainable growth, profitability and strong governance practices will be successful IPOs.
Conclusion
India’s IPO boom is a testament to its economic vibrancy and increasingly sophisticated capital markets. Economic recovery, regulatory support and the rise of the startup ecosystem are among the factors driving the boom, which opened new opportunities for companies and investors alike. Nevertheless, through the ups and downs brought on by high valuations, market volatility, and the challenges of quality, dealing with these challenges will be key to maintaining that growth.
With India being the darling of the global economy, the capital markets, particularly the IPO market, will be the road ahead. With trust, innovation, and inclusivity, India can share the seeds of that boom over the IPO very widely and contribute to the country’s long-term development.
