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Indian markets likely to witness 1,000 IPOs in 2 years

IANS February 21, 2025 203 views

India's investment landscape is poised for a significant transformation with an anticipated 1,000 IPOs in the next two years. The robust economic growth and rising consumption are driving this remarkable market expansion. Experts like Arvind Kothari suggest that while many IPOs are initially underpriced, investors must carefully navigate valuation and liquidity challenges. The evolving market presents both exciting opportunities and potential risks for institutional and retail investors alike.

"Over 70 per cent of Indian IPOs tend to be underpriced initially" - Arvind Kothari, Niveshaay Founder
Bengaluru, Feb 21: Amid rising consumption and strong GDP growth, Indian markets are likely to witness approximately 1,000 initial public offerings (IPOs) in the next two years across various sectors, a report showed on Friday.

Key Points

1

India's capital markets show strong growth potential

2

IPO landscape expected to expand dramatically

3

Valuation dynamics crucial for investor returns

4

Liquidity shifts impact market performance

The IPO market is set for a dynamic year in 2025. This influx of public offerings reflects the strong growth in India’s capital markets and offers exciting investment opportunities.

Rising consumption and broader economic growth will keep the IPO market buzzing, said the report by Niveshaay Investment Advisors, a smallcase manager.

The excitement around IPOs often attracts both institutional and retail investors, looking to capitalise on potential early-stage gains.

However, the valuation at which an IPO is priced plays a crucial role in determining its post-listing performance. While some IPOs generate substantial listing gains, others struggle to sustain their issue price.

During bullish market cycles, companies tend to command higher valuations, often leading to stretched pricing. In contrast, during bearish phases, IPOs may be priced conservatively, creating better entry opportunities, said the report.

Given the profound impact of liquidity on market dynamics, investors must carefully assess liquidity risks when navigating large IPO events.

A well-thought-out allocation strategy ensures that capital is efficiently deployed, balancing participation in new opportunities while mitigating potential disruptions in the secondary market, said the report.

According to Arvind Kothari, smallcase manger and founder of Niveshaay, studies have highlighted that over 70 per cent of Indian IPOs tend to be underpriced initially, delivering positive short-term returns.

“However, these returns often do not sustain in the long run, especially when benchmarked against broader market indices. Recognizing this performance disparity, we see a unique opportunity to create value,” he mentioned.

Large IPOs, while offering attractive investment opportunities, impact overall market liquidity by absorbing capital that would otherwise circulate in the secondary market.

“When institutional and retail investors allocate funds to a major IPO, liquidity is diverted from existing stocks, particularly in mid and small-cap segments, leading to short-term corrections and price fluctuations,” the report noted.

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