Why was the Indian IPO market strong in 2023?

Written by Kapronasia || January 02 2024

In what was not a banner year for capital markets, India’s IPO market performed surprisingly well, exceeding expectations and the performance of numerous competitors. We had been expecting Hong Kong to stage a strong comeback in 2023 – which did not happen – while mainland China also did not perform as all as we expected, despite contributing about 40% of global proceeds last year. Overall, in 2023 732 companies went public in Asia Pacific raising US$69.4 billion, an annual decrease of 18% and 44% respectively. India, however, recorded 57 deals that raised roughly US$6 billion. While proceeds were down from 2022’s US$7.2 billion, the number of IPOs was up by more than 25% and among the most of any single market in the world.

In addition to recording among the most deals globally in 2023, India hit another milestone in late November as the total market capitalization of its National Stock Exchange reached US$3.989 trillion. While we do not usually round to three decimal points, in this case, it is essential to be exact because that figure exceeded the US$3.984 trillion of the Hong Kong Stock Exchange and allowed India’s to become the seventh-most-capitalized global bourse, according to CNBC.

While investor expectations for India have long been bullish, changing economic and geopolitical conditions are combining to push the subcontinent to the forefront of many different growing industries, from technology hardware to digital financial services. Low-hanging fruit is abundant and India’s enormous size – like China before it – means that even its niche markets can be significant opportunities.

For instance, even though India’s credit card penetration is estimated at just 5.5%, in absolute terms, that’s still about 77 million people because the subcontinent’s population is 1.4 billion. So even at that low level of penetration, India has a larger credit card market than all of France or the UK. Should usage in India reach the level of Thailand, a middle-income country where about 27% of the population uses credit cards, the market would swell to 378 million people.

At the same time, with funding scarce in risky private markets, public markets look more attractive since they offer liquidity while India is a bright spot in a shaky global economy. The Indian economy is projected to grow at a 6.5% to 7% rate in the fiscal year ending March 31, 2024.

Looking ahead, Indian firms including Ola Electric, Oyo and Swiggy are expected to go public this year. Ola Electric hopes to raise US$700-US$800 million, while hospitality major Oyo has planned to raise about US$1 billion.

The forthcoming Indian IPO we will be watching most closely is PhonePe’s – though we may have to wait until 2025 for it. The Walmart-backed fintech giant valued at US$12 billion managed to raise close to US$1 billion last year despite the fundraising winter in private markets, showing investors’ confidence in the company. In December, Walmart said that PhonePe had reached a total payment value of US$1.3 trillion, similar to some of the largest fintech firms in the U.S. market.

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