A boom in Indian stocks has encouraged companies to raise cash at the fastest rate since the global financial crisis, raising fears that share prices are overheating as the country grapples with rising Covid-19 cases.
Companies in India have raised $1.6bn through 13 initial public offerings so far this year, according to Refinitiv, marking the biggest haul from equity listings since the corresponding period of 2008.
The previous week has been the busiest of 2021, with five companies launching IPOs. Among them are diamond and gold merchant Kalyan Jewellers, chemicals maker Laxmi Organic Industries and Nazara Technologies, the first Indian gaming company to go public.
Mirroring a global trend, Indian businesses have rushed to public markets this year to take advantage of a record-breaking equity rally. The BSE’s benchmark Sensex index nearly doubled from its lows at the start of the coronavirus pandemic to more than 52,000 points in February.
Over “the last five years the equity market itself was very dull and there wasn’t much happening in terms of IPO activity”, said Hemang Jani, an equity strategist at brokerage Motilal Oswal. “This year we’re seeing very strong momentum and there’s a big pipeline.”
The momentum has also spread to follow-on equity sales by listed companies. Real estate group Godrej Properties raised Rs37.5bn ($517m) through a share sale that closed last week.
Private equity firm Carlyle is also selling a similarly valued chunk of shares in SBI Cards, the credit card provider of India’s largest bank, which went public last year.
But some are approaching the recent run of share sales with caution, worrying that it could signal the market is overheating as the rally outpaces India’s corporate and economic recovery from the pandemic.
From a low of fewer than 10,000 daily Covid-19 infections last month, India recorded nearly 40,000 on Friday, raising fears of new growth-choking restrictions.
The Sensex has fallen more than 5 per cent from its highs last month, as rising US bond yields dampen the appeal of high-yielding but riskier emerging market assets.
“The euphoria is reaching crescendo levels,” said Vasudev Jagannath, head of sales at brokerage IIFL Securities. “There’s so much activity happening and everything is getting lapped up.”
He added: “If you put all the pieces together, it kind of signals that the market is due for a correction now given how much primary and previously non-free float stock is coming up for sales. But this could have another three months or six months.”
Nazara, which launched its IPO on March 17, is the first of a crop of fast-growing Indian mobile gaming companies to go public. It is looking to raise Rs5.8bn, with demand for the shares on offer outstripping supply by 175 times as of Friday afternoon.
It heralds what is expected to be a flurry of tech IPOs in India this year, following the success of listings such as DoorDash in the US. Zomato, a food delivery company whose investors include venture capital firms Tiger Global and Sequoia, and SoftBank-backed insurance comparison site Policybazaar are also expected to list.
“There’s general enthusiasm,” said Neha Singh, chief executive of data provider Tracxn. “Markets are at an all-time high so people want to take advantage.”