Expert view: IPO market may see a stronger pull after the Budget 2024, says Mahavir Lunawat of Pantomath

Expert view: Mahavir Lunawat, the founder and managing director of Pantomath Financial Services Group, says favourable market conditions, high liquidity, a conducive growth environment with stable interest rates, and benign inflation have facilitated a boom in the IPO market. He believes the IPO market will experience a stronger pull after the Budget. In an interview with Mint, Lunawat shares his views on why retail investors are bullish on the IPOs and what upcoming IPOs may garner strong responses.

Edited excerpts:

Why are we witnessing a barrage of IPOs? How do you see the trend evolving in the IPO market after the Budget?

First of all, a combination of favourable market conditions, high liquidity, a conducive growth environment with stable interest rates, and benign inflation has encouraged companies to go public.

This, along with good returns generated by IPOs in the last two to three years, has positively impacted investor sentiments towards IPOs, creating a buoyant market for IPOs.

Regulatory changes and government policies that aim to improve the ease of doing business and promote growth have facilitated this trend.

Per our observation and trend analysis, we anticipate the IPO market will experience a stronger pull after the Budget.

Apart from massive spending on infrastructure and capex, the current government has been taking various initiatives to promote startups, digitisation, and infrastructure developments, which in turn is leading to private capex and creating a favourable environment for companies to raise capital through the primary capital market.

Read: Bain Capital-backed Emcure Pharma IPO to open on July 3: Namita Thapar to offload stake—Top 10 things to know

What has facilitated the growth of the Indian primary market?

The growth of the Indian primary market can be attributed to multiple factors. Key among them are:

Economic growth: India's strong economic performance has recently enhanced investor confidence and attracted domestic and international investors.

Government spending and the start of the capex cycle: In the last two to three years, the government has spent huge amounts of money on infrastructure and capex.

This is followed by favourable policies like corporate tax cuts, the PLI scheme, Make in India, and housing/water/electricity/internet for all.

This led to the start of the private capex cycle, which in turn has led to companies tapping the equity markets to raise growth capital for capex.

Positive loop: Many IPOs in the last two to three years have delivered handsome returns, which has led to positive sentiments among investors.

Liquidity: There is a gush of liquidity in the domestic and global markets, chasing all good return-generating asset classes, including IPOs.

Regulatory reforms: SEBI has implemented several measures to streamline the IPO process, enhance transparency, and protect investor interests.

Financial inclusion: Increased financial literacy among investors and the expansion of online trading platforms have made investing more accessible to a broader audience.

Institutional participation: The active involvement of domestic and foreign institutional investors has significantly supported the primary market.

Read: IPOs This Week: Emcure Pharma IPO to Ambey Laboratories IPO; 3 new issues, 11 listings to keep primary market buzzing

If we compare the Indian IPO market with the global IPO market, we still have much to cover. What are your expectations?

The Indian IPO market has made significant strides and is poised for further deepening due to several factors.

As more companies across diverse sectors go public, the depth and breadth of the market will improve, contributing to its overall robustness.

Adopting cutting-edge technologies in trading and settlement processes enhances market efficiency and attracts a broader base of investors.

Continued efforts by regulators to simplify procedures and protect investors will further bolster market confidence.

India's integration into the global economy and the increase in foreign direct investment (FDI) will drive further growth in the IPO market.

If we have to reach the GDP target of $7 trillion in the next six years, we must maintain the gross fixed asset creation ratio of 25–30 per cent of GDP.

This means that massive investments will be needed, which must be funded by a mix of debt and equity.

So, apart from equity issuances from the currently listed companies, we will need fresh issuances and IPOs to achieve the desired GDP growth.

We expect the Indian IPO market to continue its upward trajectory, gradually narrowing the gap with global markets through consistent reforms, innovation, and investor participation.

What are the reasons behind the strong interest of domestic institutional investors and retail investors in IPOs?

Several factors contribute to the strong interest of domestic institutional and retail investors in IPOs.

Historically, it has been seen that IPOs have offered high returns post-listing, making them appealing to investors.

India’s growing economy and positive market outlook have also increased confidence among investors.

IPOs allow investors to diversify their portfolios by investing in new and emerging companies across various sectors.

Enhanced access to information and online trading platforms has made it easier for retail investors to participate in IPOs.

The formalisation of the Indian economy, backed by digitisation and financial literacy, has led to domestic savings being channelled to the capital market.

How can retail investors make money from an IPO investment? What are the key things they should keep in mind?

Retail investors can make money from IPO investments by conducting deep research on the issuer company, focusing on its business models, financial health, and growth prospects.

If the IPO is overvalued or undervalued, there is a high chance of a course correction after listing, and if it is undervalued, investors may gain profits post-listing.

Investors must follow the idiom “Don’t put all your eggs in one basket,” which refers to diversifying investments across different sectors and companies.

Investors must look from a long-term perspective and consider holding onto quality stocks for long-term growth. Investors must avoid “hearsay” and informal market rumours rather than base their investment decisions on fundamentals.

How harmful can it be to chase listing gains by mindlessly investing in IPOs without understanding the company's fundamentals?

Chasing listing gains without understanding a company’s fundamentals can harm investors.

This approach can lead to investing in overvalued stocks, focusing on short-term gains, or investing in companies with weaker financials or unsustainable business models.

Investors must approach IPO investments with a well-informed strategy and a focus on long-term value.

What upcoming IPOs are expected to garner a strong response?

Several upcoming IPOs are expected to garner strong responses due to their market positioning, growth potential, and investor interest.

Some notable sectors include manufacturing, tech and digital companies, new-age companies, healthcare and pharma, and consumer goods, which are highly expected to benefit from strong fundamentals, robust growth prospects, and positive market sentiment.

Disclaimer: The views and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.