December’s IPO Frenzy: ₹20,000 Crore in Pipeline Despite FII Challenges

The Indian IPO market is on fire, and December 2024 looks set to be no exception. With at least 10 companies planning to raise a whopping ₹20,000 crore, it’s clear that the primary market is buzzing with activity. 

From retail giants like Vishal Mega Mart to specialised players like the International Gemmological Institute (India) Ltd, diverse companies are ready to debut.

But what’s fueling this surge? And how does it square with the recent pullback by Foreign Institutional Investors (FIIs)? Let’s break it down.

A Strong Pipeline

This December’s IPO lineup has something for everyone. Here’s a glimpse:

• Vishal Mega Mart IPO: The supermart chain aims to raise ₹8,000 crore through an offer-for-sale (OFS). 
• International Gemmological Institute IPO: Backed by Blackstone, International Gemmological Institute plans to gather ₹4,000 crore, with ₹1,250 crore as fresh equity and ₹2,750 crore through OFS.
• Avanse Financial Services IPO: This education-focused NBFC is looking to raise ₹3,500 crore, split between fresh shares (₹1,000 crore) and OFS (₹2,500 crore).
• Other players: Companies like Sai Life Sciences, Paras Healthcare, and diagnostic chain Suraksha Diagnostic are also gearing up for their IPOs.

The sectors are varied—education finance, healthcare, diagnostics, retail, and even diamond grading. This diversity reflects a robust market appetite and issuers’ eagerness to tap into the current positive sentiment.

Why the Optimism?

Two major factors are driving this IPO boom:

1. Improved Market Sentiment: Recent political events like the Maharashtra election results and the UP Lok Sabha by-election verdict have boosted investor confidence. Stability often brings a flood of capital back into markets, and the grey market is already abuzz with activity.
2. Successful Track Record: The IPO market has yielded stellar returns recently. Between FY21 and FY25, 236 IPOs provided an average listing gain of 27%, with retail investors enjoying even higher gains. 

Investor Gains Amid Market Dynamics

Over the past five fiscal years, IPO investors have enjoyed substantial gains. Between FY21 and FY25, 236 IPOs were launched, delivering an average listing gain of 27% for retail investors. As of October 31, 2024, these gains have soared to 105%, underscoring the lucrative opportunities available in the primary market.

Challenges Posed by FII Outflows

Despite the vibrant IPO landscape, the market faces challenges due to significant outflows from Foreign Institutional Investors (FIIs). In October 2024, FIIs sold a net of ₹1.14 lakh crore, marking the highest monthly outflow on record. This trend has continued into November, raising concerns about liquidity and the market’s capacity to absorb the upcoming IPOs.

The withdrawal of FIIs is attributed to several factors, including a rotation of investments from India to other emerging markets perceived as more attractively valued. Additionally, weaker-than-expected Q2 earnings have contributed to the selling pressure. While these outflows represent only about 1% of foreign ownership in Indian equities, they have nonetheless impacted market sentiment.

Balancing Opportunities and Risks

The influx of IPOs presents both opportunities and challenges for investors. On one hand, the diverse offerings across sectors provide avenues for portfolio diversification and potential gains. On the other hand, the substantial pipeline could strain liquidity, especially in the context of ongoing FII outflows.

Investors should approach the upcoming IPOs with a balanced perspective, conducting thorough due diligence and considering the broader market dynamics. While the primary market remains vibrant, the interplay between domestic investor enthusiasm and foreign investment trends will be crucial in shaping outcomes.

Conclusion

December’s IPO surge underscores the resilience and dynamism of India’s primary market. However, the concurrent FII outflows highlight the importance of cautious optimism. By staying informed and adopting a strategic approach, investors can navigate the evolving landscape and capitalise on the opportunities that align with their financial goals.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.