India's initial public offering (IPO) market has demonstrated impressive growth and activity in the current financial year, marking several milestones with blockbuster listings, but recent trends suggest that the market may be facing a slowdown. Despite a promising start to the year, with some high-profile IPOs setting records, the recent performance of IPOs and the drop in subscription numbers have raised concerns about whether the IPO market can maintain its momentum.
2024 saw some of the largest IPOs in India's history. The highlight of the year was Hyundai Motors India's monumental Rs 28,756 crore IPO, which became the largest-ever public offering in the country. Swiggy’s Rs 11,327 crore listing added another significant achievement to the year’s IPO calendar, making it the second-largest IPO of the year. These massive IPOs generated considerable interest and excitement, positioning India’s IPO market as one of the most active in Asia.
Looking ahead, NTPC Green Energy, a subsidiary of NTPC Ltd, is preparing to raise Rs 10,000 crore through its upcoming public offering, which is expected to become the third-largest IPO of 2024. Earlier in the year, Bajaj Housing Finance’s IPO had already demonstrated strong market confidence, with a whopping Rs 3.2 lakh crore worth of bids. This robust initial interest had suggested that the market was poised for continued success.
However, in recent months, there have been noticeable changes in investor sentiment, leading to a dip in both the number of IPOs and their subscription rates. The slowing down of the IPO market is attributed to a combination of factors, including rising global economic uncertainty, higher interest rates, and tighter liquidity conditions. These factors have resulted in a more cautious approach from investors, particularly from retail investors, who were previously a driving force behind many oversubscribed IPOs. The waning investor enthusiasm has led some to question whether the IPO market is losing its appeal or if it is merely undergoing a period of recalibration.
The subscription figures for recent IPOs have dropped significantly, reflecting a shift in investor behavior. While high-profile IPOs like Hyundai Motors and Swiggy initially garnered massive attention, recent offerings have struggled to replicate this success. Several new listings have debuted with minimal premiums or even at discounts to their issue price. Experts attribute this to a combination of aggressive pricing strategies and market volatility. In the absence of strong growth potential or clear business fundamentals, some IPOs have failed to capture investor interest on their listing day, leading to lower-than-expected market performance.
Investor sentiment has become more discerning, with many now focusing on a company's fundamentals rather than relying on speculative opportunities or hype. According to Tarun Singh, Founder and Managing Director of Highbrow Securities, the regulatory changes implemented by the Securities and Exchange Board of India (Sebi) have played a significant role in reshaping the market. These changes have curtailed speculative trading, particularly the practice of buying shares with the intention of quick flipping for short-term gains. Instead, investors are now placing a stronger emphasis on a company's long-term growth potential and financial health.
Sebi’s reforms are designed to ensure that the IPO market remains focused on long-term value creation, and this has reduced the speculative frenzy that often surrounded IPOs in the past. Singh explained that “investors are becoming more discerning,” and the focus has shifted toward scrutinizing valuations and assessing the business fundamentals of companies seeking to go public. This change has led to a more sustainable approach to investing in IPOs, with investors now taking a longer-term view rather than chasing speculative, quick-profit opportunities.
Despite the slowdown, many experts remain optimistic about the IPO market's long-term outlook. They believe the market is undergoing a necessary correction rather than experiencing a fundamental decline. Ritin Agarwal, Managing Partner at Fundvice, pointed out that the IPO market may be seeing "IPO fatigue" due to the overwhelming number of listings in the market over the past few years. The sheer volume of IPOs has stretched investor capital and focus thin, resulting in lower interest in smaller or mid-sized IPOs. However, Agarwal remains confident that the market will adjust and recover. He noted that larger, more impactful IPOs are likely to emerge soon, especially as valuations become better aligned with investor expectations.
Interestingly, while the slowdown may appear concerning on the surface, some experts view it as a sign of market maturation. The reduction in speculative trading and the tightening of regulations by Sebi suggests that the market is moving toward a more stable and sustainable phase. Regulatory changes have targeted curbing over-speculation and ensuring that IPO investors have a clearer understanding of the long-term prospects of the companies they are investing in. This trend could ultimately benefit the market in the long term by fostering more informed, patient investors.
The contrasting subscription figures of recent IPOs demonstrate the market's shifting dynamics. For example, Resourceful Automobile’s IPO, despite having no anchor investors, received an overwhelming 500 times subscription from retail investors. In contrast, Usha Financial Services’ IPO, despite having institutional backing, only saw a subscription of 20 times. This contrast highlights the shift in investor behavior, as retail investors are becoming more cautious and selective in the current market environment.
In conclusion, while the IPO market in India has experienced a slowdown, it is important to recognize that this shift may be part of a broader market correction rather than a sign of decline. Experts suggest that investor interest remains strong, but it is now more measured and focused on the fundamentals of the companies seeking to go public. Regulatory reforms, while reducing speculative trading, have helped ensure that the market remains focused on long-term value creation. In the coming months, experts predict that the market will adjust, and larger, more impactful IPOs will emerge as the valuations align better with investor expectations. The IPO market's potential remains intact, with opportunities for growth and expansion in the future as the market matures.
