April 19, 2024

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India’s booming stock market is flocking to initial public offerings, but some investors are growing concerned about the poor performance of many Mumbai listings.

Investors and analysts said India’s optimistic outlook for economic growth, improving corporate earnings and strong demand from foreign investors are providing tailwinds for deals, with 21 IPOs raising nearly $678 million in January, Dealogic data shows. Raised, whereas a year ago it was 17 million dollars.

More listings are expected: According to brokerage IIFL, a total of 66 companies have filed listing documents with Indian regulators.

But analysts warn that a 20 percent rise in India’s benchmark Sensex stock index over the past 12 months has pushed the valuations of the country’s equities to historically high levels.

“In the near term, India will continue to see strong IPO inflows,” said Kunal Vora, head of India equity research at BNP Paribas, pointing to strong fundamentals and growth projections for the coming year. “The only concern that remains is valuation.”

The list of anticipated deals also includes Ola Electric – which is expected to be one of the biggest Indian IPOs of the last two years – as well as fintech group MobiKwik.

India’s IPO market boomed last year as stocks, which had made little progress since the end of 2021, gained momentum on strong corporate earnings and growing enthusiasm from both domestic and international investors. Many foreign investors were looking for attractive growth opportunities after fleeing China’s declining markets.

That new enthusiasm helped boost the total market capitalization of Indian-listed stocks to nearly $4 trillion, making Hong Kong the world’s seventh-largest. Last year, Indian IPOs raised about $8 billion.

“The potential for Indian companies to go public and raise capital is huge and yet underutilized,” said Nirmal Jain, founder of IIFL. While the “older generation.” [of company founders] Was very conservative and wanted to keep information private. , , A new generation has arrived”.

India has become one of the world’s fastest growing economies, with growth expected to reach 7 percent this year.

It has been a major beneficiary of unease over China’s economy and geopolitical tensions with the West, with foreign investors investing more than $20 billion in Indian stocks in 2023 compared to $8 billion in Chinese equities, according to Société Générale. Have done.

Prime Minister Narendra Modi’s push on infrastructure and digitalisation has benefited the country’s big listed companies, the government said on Thursday, announcing an increase in public spending in the budget ahead of elections this year.

The digitization drive has helped attract millions of new retail investors to India, with the total number of trading accounts in the country rising to a record of nearly 140 million by the end of 2023.

However, SocGen analysts warned that with Indian equities considered far more valued than their Chinese counterparts, “the relative strength argument is becoming somewhat weak”.

An analysis of returns on first share sales in Mumbai during recent years also highlights the poor performance of many Indian IPOs, which could mean that domestic and global investors will eventually lose their appetite for such listings.

Demand for IPO shares in listed companies in India has exceeded available supply by an average of 44 times since the start of 2021, according to a recent report by Investing, with those shares rising by almost a quarter on the first day of trading. Firm YK2 Partners.

But two-thirds of those listings lagged the broader market, according to the firm, which said Indian IPOs “may be worthwhile for investors looking for an IPO pop, but not for long-term investors”.

One of the most prominent examples is Paytm – one of the generation of technology start-ups to go public in 2021, which is now trading at Rs 609 per share, almost 70 per cent lower than its IPO price.

Shares of Paytm fell sharply on Thursday after the Reserve Bank of India ordered its payments bank to take deposits and stop offering banking services, shutting down a key growth area for the fintech group. The RBI cited “persistent non-compliance and”. , , Supervisory Concerns” The company said it is complying with the order.

Concerns about IPO performance have led some institutional investors in India to question the wisdom of participating in new listings. Ramdev Agarwal, chairman of Indian financial group Motilal Oswal, said his mutual funds will largely avoid IPOs this year, preferring to raise capital from companies already traded on public markets due to greater transparency around their finances.

“IPOs should be avoided for serious buying,” he said. “People apply for IPOs expecting big gains. , , “We are in the investment game, we are not in the betting game.”

Source: www.ft.com

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