‘Get us more paper’: Indian equity issuance hits record high

Indian equity issuance has skyrocketed as companies take advantage of a stock market bull run and a surge in local investor flows, even though some foreign fund managers are balking at the country’s richly valued shares.

More than $28bn was raised in India’s equity markets in the country’s busiest ever first half of the year, according to Dealogic data, a 198 per cent jump from the same period in 2023. In contrast, issuance in the rest of Asia, excluding Japan, dropped 32 per cent.

The frenetic activity across corporate India has been underpinned by the world’s fastest headline growth in a large economy — forecast by the IMF to be 6.8 per cent this year — a stable currency and strong company earnings.

It has also been helped by investors selling out of China, whose equity market is down sharply in recent years, with the MSCI China underperforming the MSCI India by 61 per cent over the past three years.

“Market momentum, the demand dynamic, all of that is strong,” said Arvind Vashistha, head of India equity capital markets at Citigroup, the country’s top equity underwriter so far this year, according to London Stock Exchange Group data.

“We’ve heard people saying, ‘look, get us more paper’,” he added, referring to investor appetite for further issuance. “We don’t see that momentum really slowing down in 2024 and 2025.”

More than three quarters of the issuance is in the form of secondary offerings, with multinational parent firms, Indian founders and buyout funds seeking to cash in as the shares continue to rise after an initial public offering.

A number of major listings are also expected this year, including the local subsidiary of Hyundai Motors, which is expected to raise up to $3bn.

Food delivery firm Swiggy has filed for a $1.3bn IPO, while electric vehicle scooter firm Ola Electric has regulatory approval to raise $660mn in its market debut.

India is “a key cornerstone of activity in the region”, said Edward Byun, co-head of Asia excluding Japan ECM at Goldman Sachs in Hong Kong. “The market clearly wants more champions to emerge to expand investment opportunities.”

A key driver of local demand has been the millions of Indians who are increasingly choosing to put their savings in stocks, rather than traditional stores of wealth such as gold or real estate.

Assets under management in Indian mutual equity funds have more than quadrupled to Rs27.7tn ($332bn) since March 2020, according to data compiled by Mumbai-based financial services group Motilal Oswal.

However, many overseas investors have flinched at India’s lofty valuations — the BSE Sensex currently trade at 25 times forward earnings, one of the highest levels in Asia, according to Bloomberg data.

Some are also concerned about the amount of equity supply hitting the market, as well as the poor performance of many new issues: Indian IPOs on their first day of trading on average have gained 25.4 per cent, according to Dealogic, compared with the global average of 52 per cent.

Secondary issues meanwhile gained 2.2 per cent in India, compared with 10 per cent globally.

Foreign institutional investor inflows have remained flat this year, according to data compiled by Motilal Oswal.

“There’s a little bit of trepidation,” said one investment banker. “There hasn’t been this level of equity issuance in India before and you pair that together with the fact that valuations are near all time highs.”

With the Nifty 50 having more than tripled over the past decade, “some sort of correction should be expected”, said Perris Lee, Asia ECM insights director at ION Analytics.

“But that shouldn’t stop the equity market from growing and maturing so long as the economy continues to march ahead,” Lee added.

However, others believe the high multiples are justified by the pace of growth.

“You get what you pay for, the runway is long which is why the multiples can optically look big,” said Rajiv Jain, chief investment officer of Florida-based GQG Partners, which has more than $20bn invested in Indian stocks.

India “is getting to the point where it is hard to ignore just simply because of the size and scale of the growth”, Jain added.

The Nifty 50 and BSE Sensex have also roared ahead following a brief sell-off last month. That came after India returned a surprise election result, with Prime Minister Narendra Modi’s Bharatiya Janata party — which was seen by investors as positive for growth and stock market performance — shorn of its parliamentary majority.

“Thankfully the election outcome has been well absorbed,” said Subhrajit Roy, India head of global capital markets at Bank of America, who expects record equity issuance this year and an even stronger 2025.

Outside of Hyundai’s expected blockbuster IPO, which is scheduled for later this year, multiple bankers see more multinational companies eyeing up an Indian listing for their subsidiaries.

Decades ago, foreign firms were delisting from India, for instance Cadbury India, said Mahavir Lunawat, founder of Pantomath Financial Services Group in Mumbai.

Now “a lot of such large corporations are looking at India,” he added. “Here is a market which has depth, which has valuation, which has demand.”