After a tepid start in 2023, the IPO market looks to perk up with over ₹70,000 crore worth of IPOs in the pipeline and 70 companies waiting to raise funds.

“We do see a renewed opportunity to launch IPOs and hence we believe a lot of the pipeline will be cleared,” S Ramesh, MD & CEO of Kotak Mahindra Capital Company told businessline in a recent interaction.

He said that while the secondary markets were buoyant, India was still at the initial stages of an IPO market recovery.

With foreign portfolio investors pumping in around $20 billion into the country in 2023 so far, Ramesh feels that “India offers a hope of an oasis in the global deal drought”.

Here are edited excerpts from the interaction.


The IPO market seems to be reviving after a lull. Is this sustainable?

Yes, we do see a renewed opportunity to launch IPOs; hence, we believe a lot of the pipeline will be cleared. There are two interesting aspects to the success of IPOs during this period. One, we are seeing good interest from Indian institutions, especially mutual funds and two, we are witnessing realism in valuations with issuers and selling shareholders. The increased interest from FPIs, as we have seen recently, undoubtedly improves the deal’s success.


Do you see the buoyancy in the secondary markets spilling over into the primary market?

While the secondary markets are buoyant, we are still in the initial stages of an IPO market recovery. Investors today are more forthcoming on investments in IPO than 3-6 months back, and given the tailwinds, have a lot more confidence in company financials and performance.

To give some data, since 2020, IPOs have been dominated by issue sizes greater than Rs 1,000 crore (2020 – 87%, 2021 - 88%, 2022 – 80%, and 2023 YTD – 71%). In the current calendar year, only two issuances with issue sizes greater than ₹1,000 crore - Mankind Pharma and Nexus REIT. However, there are green shoots of revival as the pipeline has IPOs worth $5 billion (₹40,000 crore) with SEBI approval and $4 billion (₹33,000 crore) awaiting approval looking to hit the market at an opportune time


India is receiving a substantial portion of emerging market inflows from FPIs. What drives this, and do you see the inflows as broad-based or in specific sectors?

FIIs have been major buyers in consumer names, financials, and industrials as most of FPI flows have been passive, and these sectors constitute around 60 per cent of the NSE500.

Major factors attracting FII flows to India over other emerging markets are - higher growth prospects for the Indian economy aided by advantageous demographics, labour reforms, infrastructure boom, stronger tailwinds for manufacturing, and comfortable external sector balance.

There is political stability, and we can withstand shocks like geopolitical tensions that happened last year, control over inflation and interest rate hikes. FPIs are also encouraged by the outperformance of India vis a vis other countries, especially China, which has not given investor returns or comfort in investing.


Block and bulk deals garner a lot of attention with their frequency and high value. Why has this suddenly caught on?

Heightened activity in block and bulk deals is not new. The trend continues from 2022 onwards owning to exit by PE investors in tech IPOs of 2021 and 2022. The only difference is a shift in the sectors where block, bulk deals occur. While 2022 saw sell-downs in tech, 2023 sell-downs are dominated by the financial institutions group, followed by industrials.

Many companies listed in the last 3-5 years have high institutional shareholding and block deals, which are a great vehicle for exits by private market investors to public market investors. These trades are near market prices, improve liquidity in the stock, and reduce overhang. Given increasing depth and liquidity in the Indian markets, this product, like the developed markets, is gaining interest

Separately PE investors are willing to monetize their portfolio to ensure a return to investors especially given that LPs had severe losses in other regions. Promoters were also willing to sell to ensure capital cushion.


It’s been a while since we saw some FPOs or rights issues. Where are they?

FPOs are not a very popular product traditionally.

Rights issues are typically vehicles to raise capital from companies’ current shareholders. While some companies, where promoters are keen to subscribe, use this route, others tap the preferential or QIP route. These products have very specific features that each company needs to evaluate for itself. Also, valuations in the markets are at their peak, so many companies are not considering rights issues at this stage.

Rights and FPOs are typically done in a weak capital market scenario where external capital is tough, and existing shareholders invest primarily in the company.

The decision to do a FPOs or a rights issue is driven by idiosyncratic factors. Promoters needing access to capital without being diluted significantly at low valuations is one such factor that drove rights issues and FPOs during Covid.