Big IPOs stumble, small ones soar but 2025 will bring a mix of Davids and Goliaths

IPO activity in India has hit a new peak this calendar year, with the total issue size amounting to ₹1.38 trillion – the highest in a decade, surpassing the previous peak of ₹1.31 trillion in 2021.

Additionally, 2024 has seen the highest number of IPOs in any year over the past decade. The average size for mainboard IPOs has risen to ₹1,795 crore, the highest since 2021, according to data from Prime Database. Investment bankers highlight that of late, smaller IPOs are seeing higher demand and better listing-day gains than most large IPOs, which attract less demand and lower initial returns.

Yatin Singh, head of investment banking at Emkay Global, noted that listing gains and subscription levels seem to be inversely proportional to the size of the IPO.

Neha Agarwal, managing director & head of equity capital markets at JM Financial Institutional Securities said, “We are seeing a bit of a downside in terms of both HNI (high-net-worth individuals) and retail subscription in recent IPOs.” While the overall number of IPOs may still be high, demand from these two segments has shown signs of weakening. This could be due to factors such as market volatility, slightly higher valuations, interest rates not dropping as quickly as expected, and economic uncertainty, all of which have made investors more cautious, she added.

Also read: It takes corporate earnings, not crowds, to sustain a stock market boom

Hyundai Motor India Ltd recently went public in what was India's biggest-ever IPO. Qualified institutional buyers (QIBs) or large institutions put in bids for 6.97 times the number of shares set aside for them. The quota for retail investors, who have been driving demand in the primary market this year, wasn't even fully subscribed, however, and the stock had a muted debut.

Meanwhile, Swiggy’s IPO--the second-largest this year after Hyundai’s--saw only lukewarm interest from retail investors, with a modest 1.14 times subscription. ACME Solar Holdings also had a disappointing debut after its ₹2,900-crore IPO, with the stock opening 12% below its issue price.

In contrast, smaller IPOs like that of Arkade Developers (issue size ₹410 crore), enjoyed a bumper response, posting a 30% gain on listing day. Likewise, BLS E-services’s ₹310.91-crore IPO soared 175% on listing.

What’s on the cards?

So are we likely to see more large IPOs or smaller ones in the coming year?The pipeline for 2025 issues in the primary market indicates a mix of both large and small IPOs, Singh said. Agarwal of JM Financial echoed this. “The overall trend comprises a mix of both small and large IPOs,” she said, adding that while there has been a rise in smaller IPOs, especially from mid-sized companies, large ones still capture attention and dominate the primary market.

She said, “Momentum (on IPOs) remains strong in India, with around 87 companies currently filing for offerings with Sebi (Securities and Exchange Board of India)”.

The big question now is whether this momentum will continue in the face of increased volatility and corrections in equities.

Also read: Early investors cheer Swiggy’s listing pop, but analysts are mixed on the stock

Analysts expect profitable companies with large free cash flows to perform well in the current IPO cycle as investors are leaning toward firms with a stable financial outlook. Agarwal said, “This trend is likely to persist, especially for businesses with strong fundamentals and resilience against macroeconomic pressures”.

Prashant Rao, director and head of equity capital markets at Anand Rathi Investment Banking, said while recent IPOs have faced some short-term resistance, with low subscription levels and small listing gains, the long-term outlook for the primary market remains strong.

IPO pipeline set to expand

According to a recent note by Axis Mutual Fund, “The IPO pipeline for the second half of the (fiscal) year is nearly three times the amount raised in the first half, with 91 companies looking to raise $17 billion in aggregate.” In recent weeks, another 70 listed companies have received board approval to raise a total of $16 billion through qualified institutional placements (QIPs). Additionally, secondary stake sales from promoters and private equity are expected to increase, driven by expiring lock-ins and high trading multiples in the market.

Companies that have received approval for IPOs from the capital markets regulator include NSDL, Avanse Financial Services, Vishal Mega Mart, and Manjushree Technopack. Those that have filed offer documents with Sebi and are awaiting approval include Hero Fincorp, JSW Cement, Ecom Express, Ather Energy, Hexaware Technologies and HDB Financial Services, according to data from Prime Database.

The surge in IPO activity reflects growing optimism about India's economic outlook, driven by broad-based growth across sectors and rising opportunities for small mid-sized companies. This is prompting more firms to raise capital for expansion and innovation. Additionally, good IPO returns over the past year have further fueled investor enthusiasm. So, the wider expectation is that demand for quality IPOs will remain strong despite the recent market volatility, driven by India’s expanding retail investor base and strong long-term economic outlook.

Also read: The best and worst IPOs of 2024. And next year’s big 3.

Markets may experience short-term adjustments that temporarily dampen investor sentiment, but IPO activity is likely to remain insulated from such volatility unless there’s a prolonged downturn that lasts for a few quarters, said Munish Aggarwal, managing director and head of equity capital markets at Equirus.

This is supported by the fact that, despite a weakening global macro outlook, estimates continue to forecast average real GDP growth of around 7% for India over the next five years, translating to approximately 12% nominal GDP growth, he added. “If we can achieve that, we will continue to be the fastest-growing large economy in the world for the foreseeable future, which will drive the need for capital. An increase in capital markets activity will be a natural corollary.”

FII selloff offers an entry point

Of late, the Indian equity market has been volatile due to a mix of global and domestic factors, including the US election, rising US Treasury yields, Middle East conflicts and fluctuating oil prices. High valuations, persistent food inflation and profit-taking in large- and small-cap stocks have also affected sentiment. This volatility is reflected in domestic institutional investors buying and their foreign counterparts selling Indian equities.

Singh of Emkay Global, said, “A subdued response and listing for a marquee company such as Swiggy suggests that weak FII sentiment has indeed impacted the primary market”.

Also read | Hyundai’s IPO: What kept retail investors away?

Having said that, he thinks that the entry point for investors is now considerably more attractive than it was a few months ago. “IPOs won't be as exorbitantly valued as they were three to four months ago. In fact, it’s a reasonably good level to enter for IPO investors, though companies with the flexibility to wait may hold off for a more favourable entry point to secure better valuations.”

Some experts cautioned, however, that investors sometimes overlook a company’s fundamentals, and whether its valuation aligns with its actual growth potential. They expressed worry that these inflated valuations may not be sustainable and could lead to more volatility or further corrections.