Insatiable investor demand for Elon Musk’s SpaceX will be music to the ears of another billionaire half a world away. In India, Mukesh Ambani’s digital empire is headed for an initial public offering (IPO) expected to be the biggest in Indian history.
Until recently, the tycoon’s team may have wondered if the knock-on effects of the Iran war would choke the liquidity required for Jio Platforms Ltd’s IPO. But with global institutions writing $10 billion cheques for Musk’s rockets and satellites, it’s clear there is no dearth of demand for mega-tech; or for tech-adjacent businesses like the Reliance chief’s data carriage, e-commerce and media play.
At its core, Jio is a telecom juggernaut with 525 million subscribers. Were the volume of data they guzzle in a year to be represented by the storage capacity of high-end iPhones, the stack of devices laid on top of one another would leave the atmosphere.
With customers paying ₹214 a month on average, Jio garners $15 billion in operational revenue at a 52% Ebitda margin. Street estimates for its worth are clustered around $130 billion.
But realizing a market price that validates that figure is tricky. Jio is basically an emerging-market story and global investors have lately been pulling money out of this asset class, wary of stretched valuations. India has been badly hit, with foreigners dumping more than $37 billion of equities over the past year. While Ambani may want Jio listed this year, tight financial conditions at home pose a challenge.
Jio’s big Silicon Valley backers such as Google and Meta came in during the 2020 pandemic when digitization was the craze. Six years later, their attention—and that of global hot money—is fixated on AI.
Ambani’s ambition of providing low-cost AI products to enterprises and consumers via a partnership with Meta may well become a future revenue source for Jio. Pushing out AI-generated mythological and fantasy content via its media outlets could be another. However, this isn’t the kind of AI innovation that currently excites big-ticket international investors.
That leaves Ambani’s IPO, the first from his conglomerate in over two decades, largely to the appetite of domestic savers. Others expect to list too. Quick-commerce company Zepto has filed updated paperwork for a $1 billion issue. An asset manager, a lender against gold and the country’s largest stock exchange are all lining up to raise equity. Can local capital carry them past the finish line?
This is where the Reserve Bank of India enters the play as a deus ex machina. In a bid to shore up a drooping currency, RBI announced it would absorb the hedging costs for banks raising deposits from the Indian diaspora. If, say, $50 billion rushes inward through this channel, it will inject rupee liquidity into the banking system.
Even after RBI mops up some of the excess, the residual windfall is likely to gravitate towards the stock market. So yes, local institutions and retail savers may have the stomach for Jio’s $4 billion float.
Yet, this engineered triumph is precisely where Ashish Gupta urges extreme caution. The former Credit Suisse analyst, whose 2012 House of Debt report became a prescient warning of the bankruptcies that followed India Inc’s unsustainable leverage, wants investors to reach back into their memory once again.
Writing recently in Mint, Gupta reminds us that massive, record-breaking IPOs have historically presaged market tops.
The now-independent analyst points to a chilling pattern: Mukesh Ambani’s younger brother Anil’s 2008 Reliance Power IPO hit the market weeks before the benchmark Nifty 50 Index shed half its value over the following months; Coal India’s massive 2010 float preceded a near-30% correction; and globally, Visa’s 2008 debut landed right before the S&P 500 collapsed by 48%. Agricultural Bank of China’s 2010 listing came with a surge—followed by a long slide in the Shanghai Composite Index.
The logic is straightforward: Mega-IPOs act as a structural liquidity drain, sucking vital capital out of secondary markets. A single quarter’s equity issuance absorbing a meaningful fraction of annual deposit formation is a system-wide hazard. The danger is particularly elevated in India, where the banking system’s 12% deposit growth is 4 percentage points slower than credit expansion.
While tapping the diaspora’s funds might bridge the funding gap for the large upcoming IPOs, Gupta’s data shows that when equity supply turns into a gush, the broader pool of market liquidity tends to dry up. When the primary market claims the final dregs of investable cash, gravity asserts itself on the secondary market. Between Musk’s rockets and Jio’s telecom-and-media behemoth in India, the air at the top is getting thin. ©Bloomberg
The author is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.