Mumbai: Powered by Indians demanding trendier haircuts and fitter bodies, businesses such as gymnasiums, hairdressers and jewellers are drilling their way into Dalal Street and the attention of investors, long accustomed to buying shares in steel makers and software exporters.

Graphic: Naveen Kumar Saini/Mint

This, after investors took a shine to jewellers such as Thangamayil Jewellery Ltd and Shree Ganesh Jewellery House Ltd. Hairdresser Jawed Habib, too, wants Rs200 crore from the public to fund acquisitions and open training academies.

“This is a clear endorsement of the domestic consumption theme," said Vinay Menon, executive director, equity capital and derivative markets, at JPMorgan India Pvt. Ltd.

A robust economy—projected to expand at 8.8% this year by the International Monetary Fund—is putting more money into people’s wallets. Indians are buying more cars and washing machines, and going by Talwalkars’ prospectus, more health club memberships as well. While major economies are struggling to expand at 3%, investors are thrilled at the high growth rates of Asian countries.

A recent survey by ING Groep NV, a global financial services group, says investor sentiment in India is the highest among pan-Asia (ex-Japan) markets due to “strong domestic consumption and positive economic outlook".

“It’s a natural process that newer industries tap the market for funds based on their growth prospects," said an investment banker with a foreign bank, who didn’t want to be named as he isn’t authorized to speak to the media.

Not all investors are falling for the bait. “From the macro point of view, domestic consumption is a good theme and everything looks good," said Gopal Agrawal, head of equities at Mirae Assets Global Investments (India) Pvt. Ltd. “(But) whether it makes a good investment or not, we have to study it on a case-by-case basis."

Thus, while the health club industry might be booming, it is fragmented and even entrenched players are facing tough competition. At the end of subscription on Day 2 on Thursday, Talwalkars’ issue was subscribed 0.9 time, as per data on the National Stock Exchange (NSE).

The initial public offerings (IPOs) of most other niche companies, too, were oversubscribed only by up to two times, a far cry from the 30-100 times excess demand for large issues.

One reason for investors hesitating to put their money in these shares is the lack of quality research and recommendations. The country’s top brokerages typically don’t cover more than 300 of the largest and most liquid firms.

In the case of Intrasoft Technologies Ltd, which owns 123greetings, Jaipur-based Hem Securities Ltd was the only brokerage to offer an analysis and recommendation. For Talwalkars, Keynote Capitals Ltd, the only brokerage to come out with an analysis of the IPO, says the pricing is “at a premium...However, we note the growth prospects of the segment, excellent brand equity enjoyed by the company".

Anant Gawande, chief financial officer at Talwalkars, says there is no peer review of the firm as the industry is in its beginning stage. “However, “(institutional) investors give me more time because they need to understand this industry."

At the end of the previous bull run in 2007, nearly one-third of the 44 companies that listed raised less than Rs50 crore. At least 100 firms have raised less than Rs50 crore from equity markets in the past seven years.

“Promoters’ dreams have gone up," said Jagannadham Thunuguntla, head of equities at SMC Capitals Ltd. “Whenever there is euphoria, whenever there (is) high liquidity, all kind of promoters rush to tap the primary market."

Even if the companies manage to sell all the shares on offer, investors at times find themselves holding lemons after listing as prices tank.

One-third of the 24 companies that have listed in 2010 showed declines on the listing day. Of the examples cited in this story, only Thangamayil, at Rs109.15 at closing on NSE on Thursday, is trading above its listing price. Intrasoft is down 12.4% on the Bombay Stock Exchange, and Shree Ganesh has slid 46.6%.