Decoding India's 2021 IPO Boom

by Pankaj Pachauri 4 days ago Views 329

The challenge today is to fix the economy which is struggling since 2018. Before the negative 7.5% impact of the pandemic year, the GDP growth was declining steadily. Hoping that the rising Market Cap can change the economy is akin to wishing that the cart will pull the horse.

Indian IPO Boom Decoded 2021
There is a boom in India’s IPO market and by the second week of October this year 44 companies were listed on the stock exchanges adding more than Rs 80,000 crore to the market capitalization of the country. More than 50 IPOs are in the line for the rest of 2021 including big ticket ones like Life Insurance Corporation, Paytm, Policy Bazar and Adani Wilmar which can add another Rs 1,00,000 crore to the stock markets. 

This is being pointed out as the strength of the economy and a sign of revival by the government. It is also being heralded by the market pundits that the current IPO rally is led by the retail investor who are first time investors coming in millions and using recently launched investing digital applications. “The consumer of Zomato has become the investor is Zomato”, they gleefully state on business news channels.  Until a decade ago there were only 6 million stock market investment accounts or DP accounts which they claim have now reached about 5% of the country’s adult population or close to 50 million. Is this a turning point for the country’s capital market? Are gold and real estate loving Indians mass migrating into investing in scrips and stocks? Will this love affair last into maturing Indian capitalism? There are many pointers to show that we need more time before declaring a genuine ‘move to market’. 


First, look at the scale. India’s GDP today is about 3.1% of the world economy and so far this year only 2.9% share of global IPOs is in India’s name. Even smaller economies like Hong Kong, South Korea, UK, and Brazil have a larger share in the IPO market in 2021 after a pandemic driven reboind. (See Chart) Though it has to be mentioned here that from number 10 in market capitalization before the Pandemic, India has moved up to number 5 in the global list due to a stock market rally. 

Secondly, a cursory look at the IPOs offered so far is not very encouraging. Though there are outliers like Laxmi Organic Industries Ltd, Easy Trip Planners, Nureca limited and MTAR Technologies which have doubled or even tripled the shareholders investments, many of the new IPOs can be termed as duds at the start line. Surprisingly, 14 out of 44 new IPOs underperformed at the listing price, meaning there first day on the bourses was in a loss. Moreover, by October second week, eleven new companies – or 25% of total – are showing losses for the investors in a bull market where the Nifty50 has zoomed 30% since the beginning of the year and even the broad-based S&P500 has gained 17.5% for the investors. 

Thirdly, the contribution of all the 100 plus IPOs this year is not going to add much to the total market cap of the country. India’s market cap today is Rs 270 lakh crore, and it is expected that on the bright side another Rs 2 lakh crore will be added to it when all the IPOs are complete by the end of the year. That is even less than 1% of the existing market cap which may not drastically impact either the investor behavior or long term returns for the investors. Also remember that Rs 70,000 crore to this IPO kitty of Rs 2 lakh crore is coming from LIC sale by a government hard pressed for running cash. 

Fourthly, the market enthusiasts forget to take into account the rising GDP to Market Cap gap in the country. On average for the last 15 years, the Market Cap to GDP ratio has been at 79, which means that the GDP was always 21% larger than the stock market. Today that ratio is 122 meaning that the valuation of all the listed companies is 22% more than the country’s GDP. 


The challenge today is to fix the economy which is struggling since 2018. Before the negative 7.5% impact of the pandemic year, the GDP growth was declining steadily. Hoping that the rising Market Cap can change the economy is akin to wishing that the cart will pull the horse.

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