IPO Insights- December 2024

Index Valuation

Nifty 50 Index has been on a continuous uptrend over the past five years, recording a remarkable total gain of 228% from its COVID low of 7,511 on 24th March 2020. Even compared to pre-COVID levels, The Nifty 50 Index has surged 112% from its 31st March 2019 value. An analysis of the Nifty 50 Index’s historical price-to-earnings (PE) ratio reveals an interesting perspective. Despite the sharp rally in the Nifty 50 Index, it is currently trading at a PE of 22, which is in line with its 25-year average.

PE Comparison with global economies

India’s strong position with a PE ratio of 22, second only to the United States, reflects robust investor confidence and growth prospects in the Indian market. This high valuation underscores India’s attractiveness as a growth-driven economy with promising consumer services, technology, manufacturing, and infrastructure sectors. Compared

to other global markets, India stands out with valuations significantly higher than mature European economies and emerging markets like China (9.66) and Brazil (8.34). The premium valuation reflects India’s sustained economic resilience, reform-driven policies, and a favorable demographic profile, making it a key destination for domestic and international investors. However, the high PE raises questions about potential overvaluation, warranting cautious optimism.

One of reasons for a high PE may be attributable to the fact that India is fastest growing economy as per IMF forecast for FY25 issued in October 2024. As highlighted our first edition of the IPO Insights, India continues higher GDP forecast compared to nations in emerging and advanced economies. India’s resilience amidst global challenges considering its higher working population coupled with consumption driven market, supports the higher PE of the Indian Markets.

Following robust October 2024, the IPO activity continued to outperform in November 2024, with INR 35,729 crores being raised, one of the highest capital raised in a month in India. November month saw listings across various industries, which included new-age companies like Swiggy, NTPC Green Energy from NTPC Group, and a few companies in the construction space.  The average issue size has increased from INR 983 crores (ex-Hyundai) in October 2024 to INR 4,466 crores in November 2024.

Listing on Main-Board

From April to November 2024, 54 companies successfully listed on the mainboard, collectively raising INR 120,512 crores (approximately USD 14.35 billion). While October month saw the highest OFS in a month (contributed majorly by Hyundai Motors), the trend continued in November month with 44% of the IPO proceeds being allocated for OFS. The year to date average issue size has increased from 1,843 crores till October 2024 to 2,231 in November 2024. Primary issue in November was the highest in the current month with NTPC raising INR 10,000 crores followed by Swiggy with INR 4,499 crores.

Listing under 6(1) and 6(2) during the year

Around 26% of the companies that went for listing during the year opted for Regulation 6(2) to list their securities. Entities looking to list their securities in the market have 2 eligibility criteria under SEBI ICDR:

Regulation 6(1) – Commonly known as Profitability route – Where an entity can list if it satisfies the following three criteria:

a) Net Tangible asset of more than 3 crores for 3 preceding years

b) Average operating profit of 15 crores in the preceding 3 years

c) Net worth of 1 crore in the preceding 3 years

Regulation 6(2) – Companies that are loss-making or companies with lesser operating periods that don’t satisfy the 6(1) criteria can prefer the 6(2) route.

SEBI has increasingly supported startups and innovation-driven businesses by offering more avenues to access capital. By allowing companies with a 2-year operational history or a company that has not become profitable to go public, SEBI is making it easier for promising startups to access the capital markets. Swiggy, Ola Electric Mobility Limited, and Go Digit General Insurance Limited are some prime examples of a startup leveraging Regulation 6(2) for its IPO, enabling the company to capitalize on the increasing market demand.

Using Regulation 6(2) will likely make the IPO market more dynamic, especially for startups in sectors like technology, fintech, edtech, and consumer goods. This shift toward flexibility and faster access to the capital markets is highly attractive for startups and high-growth companies.

Listing in Pipeline with SEBI

As of today, SEBI has received approximately 92 draft offer documents, which collectively represented a proposed issue size of around INR 111,000 crores (approximately 13.2 billion). This includes around INR 9,706 crores from November month with additional issuers submitting draft offer documents.

Investor Participation