How Are Indian IPOs Performing? Analysing Recent Trends and Investor Insights

India witnessed a remarkable 111% increase in IPOs, with 76 mainboard listings, the highest since FY17. This surge highlights India's strong economic fundamentals, driven by infrastructure investment, manufacturing growth, and steady consumer spending.

Moreover, with foreign investors looking beyond China, India has become an attractive destination for capital, positioning itself as the fastest-growing G-20 economy. Read along as we discuss IPOs in India.

What is an Indian IPO? Understanding the Basics

An Indian IPO (Initial Public Offering) is when a private company offers its shares to the public for the first time to raise capital. This process allows you, as an investor, to buy a piece of a company that is transitioning from private to public, offering potential for growth if the company performs well.

Why Indian IPOs Attract Investors

Indian IPOs attract investors for several key reasons, including:

• Strong Economic Growth: India is projected to remain one of the fastest-growing major economies, with a growth rate of 6.8% in 2024. This creates a favourable environment for new businesses to thrive and expand through IPOs.
• Rising Startup Ecosystem: With a surge in unicorns and innovative startups, Indian IPOs offer early access to high-growth businesses, boosting investor interest.
• Government Support: The Indian government’s emphasis on digitisation and progressive reforms enhances the business environment, supporting IPO success and long-term profitability.
• Market Potential: India's youthful population and growing consumer demand make it an attractive market for companies looking to expand, making Indian IPO performance promising.

Recent Trends in Indian IPOs

FY24 marked a significant rise in mainboard IPOs, with 76 listings, the highest since FY17. This was a 111% increase from the previous year (FY23), which had 36 listings, and a 62% jump from FY22. The surge highlights growing confidence in the market and a broader spectrum of companies looking to go public.

Click here to learn more about SME IPOs in India.

Factors Affecting IPO Performance in India

The performance of IPOs in India can be influenced by various such as:

• Market Conditions: A bullish market can attract more investors, while a bearish market might dampen investor interest and lead to underperformance.
• Company Financials: Strong financials typically lead to a positive response during an IPO.
• Government Policies: Policies encouraging entrepreneurship, ease of business, and digitalisation can boost investor confidence in IPOs.
• Valuation: Overpricing an IPO can result in disappointing performance, while reasonable pricing can lead to strong demand and post-IPO growth.

Performance of Notable Indian IPOs in 2023-24

One of the standout points for FY24 is the IPO performance in India. The average listing gain for IPOs was 29%, up from 12% in FY23, reflecting a more robust investor appetite. Additionally, the subscription rates have surged. The total subscription in FY24 amounted to INR 23,133 billion, significantly higher than the INR 5,192 billion in FY23.

Key Indicators of IPO Success and Failure

Investors can gauge an IPO's potential success or failure by analysing several key indicators.

Indicators of IPO Success

• Companies with consistent revenue growth, profitability, and healthy margins perform well in IPOs.
• A reasonable IPO valuation that reflects the company’s growth potential and market conditions can lead to high demand for shares.
• High subscription levels, especially from institutional investors, indicate strong market confidence.

Indicators of IPO Failure

• Poor financial health, high debt levels, or inconsistent revenue streams can make investors hesitant
• If the IPO is priced too high relative to the company’s actual value or market conditions
• Low subscription levels, especially from institutional investors, can signal poor market interest.

Risks and Challenges for IPO Investors in India

Here are some of the key challenges that IPO investors in India face:

• Market Volatility: The IPO performance in India can be unpredictable, and market conditions often influence whether the stock will gain or lose value.
• Overvaluation: A company setting a high IPO price may not justify the valuation once the stock starts trading. This can result in a sharp drop in share prices, affecting your returns.
• Lack of Track Record: Without a proven track record, there’s a higher risk of poor performance of recent IPOs in India.
• Limited Liquidity: After an IPO, some stocks may experience low trading volumes, making it difficult to buy or sell shares at your desired price.

Expert Opinions: Is it the Right Time to Invest in Indian IPOs?

Experts suggest that while Indian IPOs present good opportunities, timing is key. The performance of recent IPOs in India has been mixed, with some seeing strong returns while others face volatility.

However, it could be a promising move if you’re willing to do your homework—studying the history of IPOs in India, evaluating the company’s fundamentals, and considering market conditions.

Tips for Investors Looking to Invest in Indian IPOs

Investing in Indian IPOs can be exciting, but it's essential to approach it with caution. Here are some practical tips to help you make informed decisions:

• Before investing, always look into the company’s business model, management, and financial health.
• Look at the IPO price and compare it to the company’s valuation and industry standards.
• Check the performance of recent IPOs in India to understand how market conditions might impact your investment.
• Assess potential risks such as overvaluation, market volatility, and economic factors that might affect the company.

What’s Next for the Indian IPO Market?

We expect the Indian IPO market to remain strong, especially as the country continues to experience robust economic growth. In FY25, IPO activity will likely stay active, driven by India's growing economy, young population, and the government's push for digitisation. This will likely continue to fuel Indian IPO performance as companies seize the opportunity to raise capital and expand.

Conclusion

The Indian IPO market has grown robust, particularly in FY24, with a significant increase in listings and funds raised. Sectors like consumer products, retail, and financial services have dominated, while retail investor participation has surged. As regulatory changes, like the SEBI amendment for SM REITs, take effect, the IPO trend in India is likely to continue growing, presenting opportunities for investors and companies alike.

FAQs

What is the success rate of IPOs in India?

The average return from all IPOs in India listed in 2024 stands at a solid 47%, with several delivering multi-bagger returns. Jyoti CNC Automation has been a standout, with a 253% increase in its share price since the IPO.

Is the Indian IPO good?

Investing in an Indian IPO can offer great opportunities for those looking to enter a growing company early. It is suitable for investors with a higher risk appetite and an understanding of market trends and IPO performance in India.

Is an IPO good for the long term?

IPOs can be a good choice for long-term investors, especially if you're willing to hold shares over time. Understanding the performance of recent IPOs in India is essential before committing to the long haul.