IPO Board: Quality of companies going public is far superior to what we saw 20 years ago: Pranav Haldea

How should we look at it? Is it the glass half full, as the markets are very dynamic and there are many IPOs, or is it the glass half empty, as many promoters and private equity players are interested in making profits?
Pranav Haldea: We have seen a tremendous amount of activity in the market over the past few years. The primary market always follows the market. secondary market And since 2022, there has been a secular run on the secondary market, which has resulted in a spate of issues in the primary market as well. As far as the exits that you talked about, promoters exiting or private equity and venture capital investors exiting, I was just looking at the data and we have seen exits worth Rs 4.27 lakh crore this year as against Rs 2.26 lakh crore during the same period last year.

I don’t think this is a negative thing. It is a sign that the capital market ecosystem is maturing. We have to realise that a number of these private equity and venture capital investors came and invested in these companies six or seven years ago when they were very small and represented a much higher level of risk, and they also needed to exit, and only when they do that, they will get fresh capital to invest in a newer set of companies. So, this is a sign that the capital market ecosystem is maturing. There are no concerns in that regard.

Over Rs 16,000 crore has already been raised in August. It looks like we will easily surpass the funds we have raised in 2023 in this calendar year itself. Do we expect a similar kind of fundraising? fundraising For the rest of 2024, another Rs 15,000-16,000 crore in the coming months as well?
Pranav Haldea: The applications look very strong. There were 16 applications in July and we have already had 17 applications in August. There are several more in the pipeline. Of those that have already got SEBI approval, 22 of these companies are looking to raise Rs 20,000 crore and as you mentioned, Bajaj Housing Finance is one of the largest of them. There are another 44 companies that have already filed applications for approval with SEBI and together we could look at a total fundraising of over Rs 100,000 crore.

Of course, this includes the mega issue of Hyundai Motor, which is expected sometime this year. Also some of the new-age companies, including Swiggy. In fact, in the last few weeks, there has also been an encouraging development. Some of these new-age companies, such as FirstCry and Unicommerce, have been seen coming to the market. We have to go back to 2021 to analyse this. At that time, the first set of new-age companies were listed and of course, the subsequent story was not extremely positive. There was a fear that none of these companies would be seen coming to the market in the foreseeable future. But that has changed and even as we speak, several such companies are considering filing their papers with Sebi.

But is there any reason to be concerned about the quality of the companies that are coming in? Is the quality still intact? I understand that the Indian market is very dynamic and many SMEs are at an inflection point and may be ripe for entry into the ecosystem of listed entities. Is that the case or is the quality getting a bit diluted here?
Pranav Haldea: Well, first of all, we have to segregate between Main Board IPO and SME IPOs. Let me first talk about main board IPOs and the amount of OFS being raised versus the amount of new capital being raised. That is a very important data point. Many companies are filing IPOs and have had multiple private equity investors previously. They have gone through multiple rounds of due diligence. So the comfort level that retail investors The percentage of available capital that they can have now when they go public is much higher. If you go back to the 90s or even early 2000s, we used to find that most companies that came to the market raised new capital and as a result of that, many of these companies did not perform well or simply disappeared with the investors’ money. So, even though it is often said that the OFS component is very high in an IPO, it may not be a good investment. But there is a trade-off as well. The trade-off is that the company has already reached a certain scale. It would already have certain governance practices built in. There would be institutional investors who would have already invested in the company. So, the quality of companies that come to the main board now is far superior to what we saw maybe 20 years ago. SME segmentIt is a different cup of tea. These are very small companies. Investors need to be extremely cautious before investing in these companies. We have seen the kind of subscription numbers that are doing the rounds. I was looking at the data and very interestingly, in 2019-20, which is about five years ago, the average number of retail and SME IPO applications stood at just 408, just 408 average retail applications. That figure today for the year 2024-2025 has gone up to 2.13 lakh average applications.

So, we are seeing a lot of retail interest in this SME segment. The kind of price increase that is being seen, the average price increase in this segment has been 78%, which is attracting a lot of retail investors to this space. My advice would be for investors to be very careful before investing in these companies and study them thoroughly before investing.

As far as secondary market fundraising is concerned, QIP, rights issues and preference shares are something that has been gaining ground. In FY2025, if the full fiscal year is taken as a basis, it seems that we will easily surpass the FY2024 amount. In which sectors or segments are we seeing most of this fundraising happening? Also, why is rights issue still the least preferred form of fundraising compared to QIP and preference shares? Is it because the process is quite complicated compared to the other two?
Pranav Haldea: Of course. Sebi has recently come out with a consultation paper in this regard, not only to reduce the tenor of rights issues but also to make the entire process much more streamlined so that it can be used more frequently. On the other hand, QIPs are a bull market product. So, in bull markets, we have always seen higher fundraising from QIPs because promoters are able to raise capital at higher valuations.

Of course, the other aspect of QIPs is that new capital is being raised. Typically, when the economy is doing well, companies are looking to expand and deploy new capital; that is the time when you also see a surge in QIPs, usually in the financial sector. Of course, banks are coming in with larger QIPs, but at the same time, infrastructure and real estate companies are also seeing larger investment volumes.