India’s IPO sector is booming with the country emerging as the global leader in the number of public offers this year. The stampede to market is expected to keep going well into 2024 with investors encouraged by strong listing gains and a robust economy. This month alone, there are 14 IPOs slated.

The third quarter July-to-September period of calendar year 2023 saw 21 IPOs compared to a scant four a year earlier, according to a new EY report, representing a 425 per cent surge in deal numbers. These IPOs raised $1.8 billion, nearly 400 per cent more than in the third quarter of last year.

On top of the large companies listing on the main stock exchanges, 48 Small and Medium Enterprises (SMEs) staged IPOs in the third quarter, raising $166 million. For the full calendar year to date, there have been a total of nearly 170 public offers by Indian firms. “India has emerged as the global leader in the number of IPOs year-to-date in 2023," EY says.

What’s going on? Well, with general elections looming next year, a lot of companies want to have their fundraising out of the way before then. Even more importantly, the economy, which the IMF forecasts will grow by a world-beating 6.3 per cent this year, is looking good to investors. India stands out as one bright spot compared to most other larger economies experiencing lacklustre growth.

“The IPO landscape is witnessing a surge” helped by “strong economic activity,” and “this momentum is expected to continue,” says Adarsh Ranka, a partner at a member firm of EY Global. More than 25 companies filed their Draft Red Herring IPO prospectuses in the third quarter, demonstrating what EY says is “a strong intent to raise funds in the coming quarters.”

It’s all a big change from 2022 when the market for IPOs fell off a cliff as poor post-listing performances, worries about Russia’s invasion of Ukraine and global economic upheaval prompted many investors to get cold feet.

The rush to raise funds this year is continuing even though the overall market has tumbled in the wake of general global uncertainty and the Israel-Hamas conflict. The BSE Sensex was at 63,591 on Tuesday, down from a peak of 67,937 in mid-September.

Among a string of launches to raise about Rs 6,000 crore through November are Tata Technologies and ASK Automotive. Three IPOs, ASK Automotive, Sunrest Life Sciences and Rox Hi-Tech, are scheduled to open on November 9. Another one, Protean eGov Technologies, is slated to launch on November 6.

A lot of companies staging IPOs have been using some of the proceeds to cut debt with interest rates seen remaining high. The US Federal Reserve, which kept rates on hold at its policy meeting this week, saying it’s going to be keeping rates “higher for longer” than some market bulls expected due to inflation.

At home, Reserve Bank of India Governor Shaktikanta Das has said no rate cuts in 2023 and any easing will depend on inflation and that could be affected by foreign portfolio outflows.

Foreign investors are both buying and selling Indian stocks but overall they have pulled out Rs 1,500 crore from the market in October amidst increasing US bond yields. US 10-year Treasury notes, traditionally seen as safe havens in times of turmoil and the benchmark for asset prices across the globe, topped 5 per cent this week for the first time since the global financial crisis.

Domestic investors are filling the vacuum left by foreign investors and are still investing in a big way which has prevented the share market from falling further. But some analysts fret rising bond yields could spoil the party and it’s time for investors to play cautious. The share market has had a bouncy but mostly upwardly moving ride since March 2020 when it fell to a low of 27,590 after the Covid-19 pandemic.

One leading Indian stock market analyst, who didn’t want to be named, said “those higher bond yields are amber warning signs.” The share market “has been looking toppy for a while. It may be time for investors to take their money off the table and wait things out,” he said.

Also pulling down the market has been the tumble in the share prices of India’s software services giants, traditionally the stock market’s frontrunners, due to slowing US and European business. Infosys, for example, has slid from a 52-week peak of Rs 1,672 to Rs 1,351. The software services giants are going slow on hiring and some have even stopped recruiting because of client belt-tightening.

Healthcare and pharma companies have been stars of the recent IPO debuts. Several healthcare companies have or are heading to the IPO market. One company which has made a strong start is Jet Blue Healthcare. It just closed its Rs 840.27-crore issue which was nearly eight times oversubscribed and has been trading at a 14-per-cent premium to its issue price this week.

Another winner has been Maitreya Multicare, which has a 125-bed hospital in Surat. Its Rs 14.89-crore IPO was more than four times oversubscribed and debuted at a premium of 71.4 per cent to the issue price. Mankind Pharma successfully made its debut with a Rs 4,326-crore public offer. Meanwhile, a Rs 1,900-crore IPO by Cello World, which makes products ranging from consumer houseware to moulded furniture, was 38 times oversubscribed.

“The markets continue to reward companies with robust, scalable and well-governed business models,” says EY’s Ranka.

One good sign for the future is that several unicorns, soonicorns and other promising startups have cleaned up their act financially and are looking like they will be ready to make a market debut in either 2024 or 2025, analysis says.

Market analysts reckon the IPO rush demonstrates the underlying breadth and strength of India’s share market. But they also believe it could be a sign the market is approaching its peak and that companies are racing to raise funds before sentiment sours. “Unless inflation comes down significantly, high share prices are not sustainable,” said one analyst.

Some analysts say what’s happening in global bond markets may signal a seismic shift. It’s been a long while since prospective bond returns have started looking competitive with those on shares. Right now, India’s strong economic growth story is playing in its favour. But that could change if the “bond bears” turn out to be right."