Indian companies raised ?27,417 crores through initial public offerings (IPOs) this year, the highest in at least a decade compared to six months of previous years, driven by gushing liquidity in capital markets and investor euphoria.
Private equity and venture capital funds took advantage of buoyant stock markets to exit their investments.
Initial Public Offering Data From Primary Market Tracker Prime Database
The majority of funds raised through IPOs were utilised to provide an exit to existing PE or VC funds, as well as current shareholders and promoters, rather than for growth capital for companies, according to data.
According to statistics from the primary market tracker Prime Database, investors and promoters raised roughly 62.5 per cent of the total money raised through IPOs through offer-for-sale (OFS). The remaining 10,278 crores, or 37.5 per cent, was used to help enterprises raise new capital.
The dominant contribution of secondary share sales in the overall fundraising in the first six months of 2021 is a continuation of a trend seen in the past few years, with PE or VC funds, which have invested large sums of capital in Indian companies in the past decade, increasingly using the primary market route to exit their mature investments.
As a result, most IPOs hitting the primary markets have had a PE/VC backer in recent times, thus leading to a higher proportion of secondary share sales in IPOs.
Investors Used Favourable Market Conditions To Exit Or Book Partial Profits!
As per Gaurav Dua, head of capital market strategy, Sharekhan by BNP Paribas, promoters and other institutional investors have used favourable market conditions to exit or book partial profits rather than raise fresh capital for business growth.
“The trend is not ideal but not necessarily negative for retail investors. The listing has enabled retail investors to participate in some fast-growing companies. At the same time, there are cases of IPOs priced at high valuations with little left on the table for retail investors. Consequently, it is essential to be very selective in investing in the medium-to-long term. We believe that the hyperactivity in the IPO market will continue shortly—many mega-IPOs are in the pipeline, including Zomato, LIC and Paytm,” Dua said.
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