Key Points
India's capital markets show strong growth potential
IPO landscape expected to expand dramatically
Valuation dynamics crucial for investor returns
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.
