How should we look at it? Is it half full because the market is so vibrant and there are so many IPOs? Or is it half full because there are so many promoters and private equity players trying to make a profit?
Pranav Haldea: We have seen a tremendous amount of activity in the market over the last few years. The primary market has always followed the secondary market and there has been a long-term trend in the secondary market since 2022, which has caused a lot of problems in the primary market as well. As for the sales that you mentioned, the sales by promoters or the sales by private equity and venture capital investors, I just looked at the data and there has been a sales of Rs 4.27 lakh crore this year as against Rs 2.26 lakh crore in the same period last year.
I don’t think that’s negative. It’s a sign that the capital markets ecosystem is maturing. We have to realize that some of these private equity and venture capital investors came in and invested in these companies six or seven years ago when they were very small and represented much higher levels of risk, and they need to get an exit, and only when they get an exit can they get new capital to invest in new companies. So this is a sign that the capital markets ecosystem is maturing. There’s nothing to worry about in that regard.
In August, more than Rs 16,000 crore was already raised. This calendar year, it looks like we will easily surpass the amount raised in 2023. Do you expect similar fundraising in the rest of 2024? Do you expect another Rs 15,000-16,000 crore to be raised in the coming months?
Pranav Haldea: The filings look very strong. There were 16 filings in July and already 17 filings in August. There are a few more in the pipeline. Of the companies that have already received SEBI approval, 22 are looking to raise Rs 20,000 crore and Bajaj Housing Finance is one of the big ones as you mentioned. There are 44 more companies that have already submitted to Sebi for approval and the total could be over Rs 100,000 crore.
Of course, this includes the mega issue of Hyundai Motors, which is expected at some point this year. There are also some new-age companies, including Swiggy. In fact, there have been encouraging developments in the last few weeks. You may have seen some of these new-age companies like FirstCry and Unicommerce coming to market. To see this, we have to go back to 2021. That was when the first new-age companies were listed and of course the story after that was not very positive. There was concern that none of these companies would come to market in the near future. But things have changed and even as we speak, some of these companies are trying to file with Sebi.
But is there any concern about the quality of the companies coming in? Is the quality still there? I know that the Indian market is very vibrant and there are a lot of SMEs that are at a turning point and may be ready to enter the ecosystem of listed companies. Is that so? Or is the quality being diluted a little bit here?
Pranav Haldea: Well, first of all, we need to distinguish between main board IPOs and SME IPOs. Let me first talk about main board IPOs and OFS fundraising vs. new fundraising. This is a very important data point. A lot of companies are doing IPOs now and they have had multiple private equity investors before. They have gone through multiple due diligences. So the comfort level for retail investors when they are doing IPOs is much higher. If you go back to the 90s or early 2000s, most of the companies that came into the market were raising new capital and as a result, a lot of these companies either didn’t perform well or disappeared with the investors’ money. So you often say that an IPO has a very high OFS component, but that may not be a good investment. But there is also a flip side to that. The flip side is that the company has already reached a certain size. There will already be certain governance practices in place. There will already be institutional investors who have invested in the company. So the quality of companies that are joining the main board today is much better than what we saw 20 years ago. The SME sector is different. These are very small companies. Investors should be extremely cautious before investing in these companies. We have seen the current subscriber numbers. I just looked at the data and what is very interesting is that five years ago in 2019-20, the average number of retail applications and small business IPOs was only 408. The average retail application was only 408. Today, in 2024-2025, that number has increased to an average application of 213,000.
So, we are seeing a lot of retail interest coming into this SME sector. The kind of listing growth that you are seeing, the average listing growth in this sector was 78%, which is bringing a lot of retail investors into this space. My advice is that investors should be extremely cautious before investing in these companies and do extensive research before investing.
QIP, rights issue and preferred shares are the focus of fund raising in the secondary market. It is expected that FY25 will easily surpass the FY24 amount. In which sector or segment is the fund raising taking place the most? Also, why is rights issue still the least preferred fund raising method compared to QIP and preferred shares? Is it because the process is considerably more complex than the other two?
Pranav Haldea: Yes, Sebi has recently released a consultation paper on this, which not only reduces the timeline for rights issuance but also makes the entire process much simpler and more frequent. On the other hand, QIP is a bull market product. Therefore, in a bull market, QIP fundraising is always higher, as promoters can raise capital at higher valuations.
Of course, the other side of QIP is that it raises new capital. Usually when the economy is doing well, companies are looking to expand and deploy new capital. That’s when you see QIPs increasing, and it’s usually mostly in financial services. So of course, banks are coming in with bigger QIPs, but at the same time, you’re also seeing bigger ticket sizes from infrastructure and real estate companies.
