MUMBAI: New-age companies are revving up India’s hot IPO market which is set to close the year with an estimated $23-$25 billion worth of deals, higher than the tally of $21 billion last year, bankers at J P Morgan said on Tuesday, adding that $20 billion or so will become the “new threshold” for Indian IPOs. New-age tech firms are a big driver for this boost in IPO deal momentum with about 20 more startups across sectors in various stages of preparing for a potential market debut next year, said Abhinav Bharti, managing director and head of India, equity capital markets at J P Morgan.
$20Bn New Threshold For Local IPOs, Says JP Morgan I Deals Worth $23-25Bn This Yr
“Roughly about 15%-20% of IPOs this year were driven by new-age tech companies. Going ahead, this share is expected to go up to between 25%-30%,” said Bharti who is betting on tech startups to lead IPO deals next year alongside healthcare and consumer (traditional firms across durables, FMCG etc). The boom in IPO volumes comes even as the total equity flows into the capital markets are poised to end lower at about $65 billion from $72 billion last year on the back of a lower quantum of qualified institutional placements (QIP). A batch of startups including big players Lenskart, Groww and Meesho (listing on Wednesday) have made their debut on the exchanges this year, giving rich exits to early investors. In fact, PEs and VCs have been involved in about 50%-70% of IPOs this year in all, said bankers at the firm. “India is one of the top two markets in Asia (alongside Japan) where private equity has been more active. Ability to invest and exit assets through cycles has enabled this momentum,” said Nitin Maheshwari, co-head of India investment banking at J P Morgan. If PEs can exit, they can deploy more capital in India where their annual count of investments have averaged close to $40 billion in the recent years, said Maheshwari. More founders and companies are increasingly looking at IPOs as a credible alternative for an exit, somewhat impacting M&A volumes. PhonePe, Zepto and Flipkart are among new age firms eyeing an IPO next year. “There’s a significant focus on having companies come to market after or when they are about to achieve profitability. Consumer tech companies that went for an IPO this year have recently turned profitable or demonstrated ability to turn profitable. This financial maturity and stable business models are driving the startup IPO boom,” said Bharti. In all, at least 4-5 companies alone could raise $7-$8 billion through IPOs next year, he added. Even as foreign institutional investors (FIIs) have been selling an almost record amount of Indian equities, their investments in primary markets between IPOs and QIPs have touched $7 billion. The biggest (overall) market theme, though, is strong backing of domestic capital. “When you have demand to the tune of domestics pumping in $80 billion, supply will react to it. And supply can either be through blocks or IPOs,” said Bharti.
