The primary market puzzle: Too much, yet too little?
India’s IPO Boom: Is It Fueling Real Economic Growth?
A surge in capital raising through IPOs and QIPs often signals strong business confidence and economic growth. This influx of capital typically drives new projects,capacity expansion,and technology upgrades,creating a positive cycle. However, recent trends in India suggest a more complex picture.
In FY25, Indian markets witnessed a remarkable ₹3.14 trillion mobilized through IPOs and QIPs. While FY24 also saw significant fundraising of over ₹1.40 trillion, primarily driven by qips, the subsequent utilization of these funds raises concerns about private capex.
Surprisingly,only a small fraction of the capital raised in FY24 was deployed in new projects or capacity expansion. Rather, a significant portion went towards debt repayment, general corporate expenditure, or Offer for Sale (OFS) routes, benefiting institutional investors and promoters rather than fueling economic expansion.
The trend appears similar for FY25, with new capital projects receiving a meager share of the overall fundraising. the Hyundai IPO, the largest ever in India, exemplifies this, as it was entirely an OFS by the parent company, with no proceeds benefiting the Indian entity.
This pattern is likely to continue, with many multinational corporation (MNC) promoters seeking to capitalize on India’s premium valuations, especially given financial challenges in thier home countries.This rush to tap into the market raises questions about the long-term economic impact of the IPO boom.
The stagnation of private sector investment as a percentage of GDP further underscores these concerns. After a brief improvement in FY23, private investment slipped back to 11.2% in FY24 and is estimated to have dipped below 11% in FY25,the lowest in over a decade,excluding the COVID-19 slump.
Several factors may contribute to India inc.’s hesitancy in unleashing new projects, including global surplus capacity, persistent Chinese dumping, and ongoing tariff-related uncertainties.These challenges make it difficult to fault companies for their cautious approach.
What’s next
Given the subdued global outlook, these challenges are unlikely to disappear soon. The wait for a significant upturn in the private capex cycle may be longer than anticipated. Monitoring how funds raised in primary markets are utilized will be crucial for any signs of a shift.