What’s Spurring India’s Robust Equity Fund-Raising?
The country has emerged as a hotbed for equity fund-raising, with over US$16 billion raised through IPOs this year
- Strong equity fund-raising in India as robust economic growth and improving market liquidity lend support
- Fund-raising activity spread across sectors and types of companies
- Markets pulling back due to event and price risks is part of a natural process of consolidation
India has increasingly drawn global investor attention as a confluence of positive factors from robust economic growth to improving market liquidity burnish its credentials in equity fund-raising.
“What we are seeing is a combination of IPOs, qualified institutional placements, and block deals across sectors,” said Mahesh Natarajan, Nomura’s Head of Equity Capital Markets in India.
If market conditions remain benign, 2025 looks all set to be another active issuance year with IPOs of 18 companies already approved by the Securities and Exchange Board of India, and another 62 awaiting approval. There will be certain windows when markets are quieter with issuers tweaking size and valuations closer to launch based on prevailing market conditions.
“From a macro perspective, there is a certain GDP growth and the GDP multiplier for the market capitalization, followed by a free float expansion associated with that market cap. That in itself is a fundamental thesis for improving liquidity pools, which make it attractive for larger foreign portfolio investors who are looking to play more actively in Indian markets,” said Natarajan.
Despite global economic challenges, India remains the fastest growing major economy, with GDP expected to grow at 6.5% in 2024 and 5.8% in 2025, according to Nomura analysis. The country’s large domestic consumer market is also helping position India as one of the primary beneficiaries of a realignment in global supply chains, in addition to it appearing to be the least exposed to China slowdown risks within the Asia-ex Japan region.
Boosted by the $3.3 billion debut of Hyundai Motor India in late October, the biggest IPO by far for India and oversubscribed more than two times by institutional investors, the country has emerged as a hotbed for equity fund-raising in the region.
Companies in India have raised over US$16 billion through IPOs year-to-date, second only to the US which raised about $27 billion in the same period, according to Bloomberg data. The number of IPOs with issue size exceeding US$50 million has also consistently grown in India over the last three years with 31 in 2022, 43 in 2023 and over 50 year-to-date in 2024.
“You will see equity market fund-raising activity year-to-date being well spread out between sectors and types of companies. You have manufacturing companies, new age companies, larger ones, profitable ones, and to-be-profitable ones,” said Natarajan. “It's not really in any one single direction as new-age companies make a comeback to reclaim their share of equity capital market issuances.”
Investors prefer leaders in respective niches, companies with a clear path to profitability if not already profitable, and those facing relatively lower competitive intensity, he added.
As more of the GDP gets listed and that gets valued at higher multiples, the market cap increases. But investors have been thinking of the price growth resulting from earnings growth delivered by companies, which is to say it is not purely a function of the multiple expansion, said Natarajan.
Part of the support for the surge in India’s position as Asia’s bright spot for equity market fund-raising has come from increased participation by domestic retail investors.
About US$2-3 billion of monthly inflows have been seen through systematic investment plans into mutual funds, said Natarajan.
“As prices move up in the secondary market, investors look at the primary market as an alpha creator because there is an expectation of an IPO discount,” said Natarajan. “In their hunt for that incremental return, IPOs become a natural pathway to create this alpha as secondary markets inch higher,” he added.
IPOs in India have provided average returns of over 30% year-to-date, around double that in the US, according to Bloomberg data. The BSE Sensex index rose about 11% over the same period.
Equity fund-raising could be exposed to risks including geopolitical risks, and the possibility of a mismatch in an IPO’s performance versus market expectations as the Indian market tests out larger listings.
“Once something like that happens, markets tend to go into cautious territory, which needs to recover over a period of time as confidence comes back. There will be a natural process of cooling and expanding that you will keep seeing,” said Natarajan.
Contributor
Mahesh Natarajan
Head of India Equity Capital Markets
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