India’s IPO Market is Booming with 1,000+ Offerings: Can this Momentum Survive a Market Correction?

Have you ever applied for an IPO? If yes, chances are you did it in the last two to three years. You might be wondering how we figured that out? The answer is simple! IPOs have been flooding the market like never before in the past few years.

To be precise, the Indian stock market has seen an unprecedented surge in IPOs since the Covid-19 pandemic. However, the IPO rally is expected to stay even though the Nifty 50 has already corrected by up to 14% from its highs.

According to a report by Niveshaay Investment Advisory, Indian markets are expected to see more than 1,000 IPOs in the next two years. Popular names such as Reliance Jio, Zepto, Ather Energy and NSDL are among those IPOs everyone has their eye on. However, with global economic uncertainties and the looming specter of a market correction, the key the question arises: Can this IPO momentum survive a downturn?

In today’s blog, we will be discussing the dynamics of India’s IPO boom, the driving factors and whether the IPO surge is built to last or not. Let’s find out below.

Why are IPOs Surging?

India’s IPO market is on fire, fuelled by both structural and cyclical factors. Here’s a closer look at the key drivers:

1. Strong Economic Growth & Investor Optimism

India’s GDP rate is projected to grow at 6.4% in FY25 despite the global economic headwinds. The growth is driven by robust domestic consumption, a thriving services sector and government-led infrastructure investments. As businesses expand and seek capital to fuel their ambitions, the IPO route has become increasingly attractive.

2. High Retail & Institutional Participation

The pandemic catalysed a retail investing revolution in India. With leading demat platforms like Kotak Securities, democratising access to equities, with retail investors now accounting for nearly 45% of the turnover in India’s equity market.

Simultaneously, institutional investors, including foreign portfolio investors (FPIs) and domestic mutual funds, are flush with liquidity creating a fertile ground for IPOs in the Indian stock market.

3. Favourable Regulatory Policies

The Securities and Exchange Board of India (SEBI) has implemented several investor-friendly reforms to streamline the IPO process. Key policies include:

• Simplified Listing Norms: SEBI’s move to reduce the time between IPO closure and listing from T+12 to T+3 days has enhanced market efficiency.
• Relaxed Profitability Criteria: Startups and new-age companies can now list on the mainboard without a three-year profitability track record, provided they meet alternative criteria like market capitalisation.
• Enhanced Disclosure Requirements: SEBI’s mandate for detailed risk factor disclosures ensures greater transparency and boosting investor confidence.

4. Key Sectors Leading the IPO Wave

The IPO pipeline reflects India’s evolving economic landscape. Some notable upcoming IPOs include:

• Reliance Jio (Telecom): A potential $120-billion IPO , said to be India’s largest, underscores the sector’s growth potential.
• Ather Energy (Electric Vehicles): As India transitions to green mobility, Ather’s IPO highlights the sector’s promise.
• Zepto (Quick Commerce): The 10-minute delivery startup’s public offering signals the rise of tech-driven consumer services.

Past IPO Booms & Corrections – Lessons from History

India’s IPO market has witnessed several cycles of boom and bust offering valuable lessons over the years. Let’s revisit three pivotal periods:

1. The Dot-Com Bubble (2000)
The late 1990s saw a flurry of tech IPOs, mirroring the global dot-com frenzy. Companies like Infosys and Wipro listed during this period flourished, but many others such as DSQ Software and Pentamedia Graphics collapsed post-listing. The key takeaway? Excessive valuations detached from fundamentals can lead to catastrophic losses.

2. Post-2008 Recovery
Following the global financial crisis, India’s IPO market rebounded strongly, driven by sectors such as infrastructure and banking. However, many companies, including Reliance Power, faced post-listing struggles due to overpricing. The lesson? Even in a recovery phase, investor caution is crucial.

3. The 2021-22 IPO Cycle
The post-pandemic IPO boom saw record-breaking listings like Zomato and Nykaa.While some IPOs, like Paytm, faced challenges due to high valuations and market sentiment, the overall cycle highlighted India’s ability to nurture innovative businesses and attract global capital. The takeaway? Even in a volatile market, IPOs backed by strong business models and growth potential can create long-term value for investors.

Will the Boom Survive a Correction?

The sustainability of India’s IPO boom depends on a delicate balance of positives and risks.

Positives:

• Economic Resilience: India’s strong domestic demand and policy reforms provide a solid foundation for growth.
• Sectoral Diversification: The IPO pipeline spans multiple sectors, reducing concentration risk.

Risks:

• High Valuations: Many IPOs are priced at premium valuations, leaving little room for error.
• Global Uncertainties: Geopolitical tensions and rising interest rates could dampen investor sentiment.
• Liquidity Tightening: Large IPOs like Reliance Jio could absorb significant market liquidity, impacting secondary market performance.

Investor Caution: What to Watch For

As the saying goes, prevention is better than cure. For investors navigating the India’s IPO frenzy, here are some critical factors to consider:

1. Valuations vs. Fundamentals
Avoid the temptation to chase hype. Thoroughly analyse financial metrics like revenue growth, profitability and debt levels.

2. Market Sentiment & Timing
IPOs tend to perform well in bullish markets but struggle during corrections. Assess broader market conditions before investing.

3. Lock-in Periods & Institutional Exits
Monitor lock-in expiries for promoter and institutional shares, as these can trigger price volatility.

Conclusion

As history has shown, not all that glitters is gold. While the momentum may sustain in the near term, a market correction could separate the winners from the losers.

For investors, the key lies in adopting a disciplined approach. Always focus on fundamentals, avoid speculative traps, and stay attuned to market dynamics. After all, in the world of IPOs, patience and prudence are the ultimate elements of success.

So, as you consider participating in the next big IPO, ask yourself: Are you investing in a business, or are you merely chasing a trend? The answer could make all the difference.