More and more Indian companies are getting IPO ready and this is an anomaly

• In the April-June quarter of 2023, there were six mainboard IPOs and 32 SME IPOs that hit Dalal Street.
• Hospitality and construction sector took the lead in the main markets during Q2 2023 with two InVITs raised funds.
• There could be more IPO action this year as 13 companies filed their DRHPs in the quarter.

Indian primary markets have been buzzing this year with 10 mainboard IPOs and 70 SME IPOs — making it one of the busiest in the world, says a latest report by Ernst & Young.

"Indian stock exchanges (BSE and NSE, including SMEs) have ranked first in the world in terms of the number of IPOs and eighth in terms of issue proceeds during the year to date 2023, with no cross-border deals recorded,” the report said.

In the April-June quarter of 2023, there have been six mainboard IPOs — that’s 57% higher than the same quarter of 2022, but 50% higher than Q1 of this year.

SME IPOs however continued their spectacular growth — with 32 IPOs in Q2 of 2023 — growing by 75% compared to only 18 last year, and decreasing by 16% sequentially.

Hospitality & construction sector took the lead in the main markets during Q2 2023 with two IPOs. Based on YTD figures for 2023, automotive & transportation, diversified industrial products, and real estate each saw two IPOs in the main markets.

Foreign institutional investors (FIIs) are showing sustained inflows in India, resulting in an 8% market rally since April 2023.

The global picture

On the other hand, 2023 so far saw more than 600 IPOs raising approximately $60 billion, a contraction of 5% by volume and 36% by value YoY. “These modest results continue to reflect slower global economic growth, tight monetary policies and heightened geopolitical tensions. High interest rates and poor post-IPO share price performance have also pushed investors to look for other investment asset classes,” E&Y said.

Mainboard IPOs in April-June 2023
Source: E&Y report

A large pipeline ahead

This year might see more action in the primary markets as 13 companies filed their Draft Red Herring Prospectus (DRHPs) in Q2 of 2023, adding to the pipeline.

“In the forthcoming months, there is anticipated to be significant momentum in the Indian IPO market, encompassing both the main and SME market segments. India must continue to focus on enhancing regulatory frameworks, improving corporate governance practices, and fostering investor education," said Adarsh Ranka, partner of financial accounting advisory services leader, network firm of EY Global.

However, fewer PE backed companies have pushed towards market debut this year, and traditional companies are taking a lead with the public markets as opposed to new-age companies, the E&Y report said.

Indian markets regulator SEBI introduced various amendments to enhance the capital markets' transparency and practices like changes in pricing of the issue, disclosure of Key Performance Indicators (KPIs), introduction of pre-filing of draft offer documents (confidential filing), the establishment of the Social Stock Exchange and more.

"The recent amendments introduced by SEBI showcase the commitment towards enhancing market transparency and governance. These changes lay a strong foundation for future IPO activity and empower companies to align with best practices, reinforcing the trust of investors in the Indian capital markets," said Veenit Surana, partner at EY India.