IPO and FPO issuance could reach 4-5% of India’s market cap, says Jefferies; lists 3 key reasons
Jefferies predicts IPO (initial public offering) and FPO (follow-on public offering) issuance could hit 4-5 percent of market capitalisation, mirroring China's figures.
Jefferies predicts IPO (initial public offering) and FPO (follow-on public offering) issuance could hit 4-5 percent of market capitalisation, mirroring China's figures. Robust demand for equities driven by rising domestic investors sets the stage for increased activity in the primary market, it said, adding that the pre-market activity will also be driven by promoter stake sale, government disinvestment, listing of large unicorns, and continued PE churning as seen in 2023.
The brokerage informed that India’s primary market activity i.e IPO and FPO issuance on average ranged around 0.8-1.2 percent of market cap over the last decade. In contrast, Chinese market saw a spurt of big listings between 2010 and 2015, issuing around 4.5 percent of their market cap during that period. The brokerage sees a similar story unfolding in India.
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The brokerage lists key reasons behind this prediction. Let's take a look:
Promoter/PE sell-downs can further improve market liquidity and float
As per Jefferies, promoters and private equity (PE) firms collectively hold a 50 percent stake in BSE500 companies, suggesting a steady stream of exits with an annualised pace of 0.7 percent of the Indian market cap, reflecting a substantial supply pipeline. Last year, 74 percent of equity issuances comprised stake sell-offs by promoters and/or large investors.
Jefferies' analysis of over 100 such block transactions in 2023 reveals a nearly equal split between exits by PE firms (51 percent) and promoters (49 percent). These exits include cases where PEs have been major shareholders and also encompass PE exits from recently listed internet companies. Despite high promoter and PE exits, Indian markets exhibited resilience, instilling confidence in PE/VC investors regarding exit opportunities in India, it noted. This confidence is expected to drive fundraising activity among PE/VC investors, fostering the growth of bigger and better Unicorns in India, added the brokerage.
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Opportune time for global MNC companies to list in India
Jefferies also opined that the timing appears opportune for global multinational companies to consider listing in India. For instance, Hyundai India, established nearly three decades ago, recently announced its listing plans in India, potentially paving the way for numerous other multinational companies with substantial market shares in India yet to be listed in the Indian market, it said.
The brokerage further pointed out that some of the global MNCs listed in India have enjoyed market cap growth much faster than their global listed companies driven by higher sustainable multiples these companies enjoy in India which is not available in their home countries. Recently BAT (stake in ITC), Whirlpool, and Hyundai have announced monetisation of their stakes in Indian companies. These examples may lead to more MNC companies operating in India to list/monetise their Indian assets. If larger global cos like Amazon, Samsung, Apple, Toyota, etc. were to think along these lines, Jefferies believes it could be a game changer for Indian equity capital markets.
It also noted that MNCs have started using the Indian market as a funding source. For eg. recently Hyundai India showed its interest to list in India to raise $3bn which would be India’s biggest IPO at a valuation of up to $30 billion, which is more than half its market cap of $42bn in Seoul. Similarly, Whirlpool corporation announced its plans to sell up to 24 percent stake in Indian arm, the proceeds of which will be used for debt repayment at the global unit, it added.
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IPOs of the large start-up base can drive attractive investor opportunities
The brokerage also noted that over the past decade, the Indian Internet economy has nurtured over 100 unicorns, positioning itself as the third-largest unicorn hub globally, trailing only behind the US and China. These unicorns span various sectors, including SAAS, e-commerce, fintech, gaming, edtech, D2C, logistics, mobility, Web3, and healthtech. Cumulatively, they have amassed over US$100 billion in funding and hold a combined valuation exceeding US$350 billion, it informed.
Jefferies further highlighted that India's unicorn growth rate surpasses that of other nations significantly, with a fivefold increase in unicorn numbers between CY18 and 22, compared to a 2-3x growth in China and the US. The proliferation of these large unicorns hints at substantial listing potential over the next 5-7 years, said the brokerage.
Notable examples of successfully listed startups in India include Zomato, Nykaa, PBFintech, EaseMyTrip, InfoEdge, and Honasa Consumers, while others like Flipkart, Swiggy, Ola Electric, and PhonePe are expected to follow suit in the near term. Furthermore, companies like Reliance Jio and Reliance Retail are poised for value unlocking upon demerger from Reliance Industries, presenting additional opportunities for investors, it argued.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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