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Mega IPO Boom

An all-time high in stock market indices and a slew of IPOs hitting the markets is creating a frenzy and attracting record participation from a new breed of retail investors. Is this party going to last long?

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Anuj Saha, Dhanush Aiyar, and Poornima Sahni have three things in common. They are in the age bracket of 27-33 years, are salaried professionals and they opened Demat accounts during the lockdown. And all three traded on the stock market for the first time in their life within the past 15-months.

“I am liking it. I applied for three IPOs did not get any allotment. But I am learning every day,” says Saha, an engineer working in Bengaluru. Aiyar, a marketing professional from Mumbai claims good returns from one of the recent IPOs. “I started trading in May 2020. I am a disciplined investor and keen on taking calculated risks,” says Aiyar because he managed to multiply his small investment of Rs 20,000 in a short trading period.

Sahni, a Gurgaon-based tech services professional says she is a bit uncertain and risk averse. “Do Iinvest more or hold my stocks? Or should I exit on a small profit? I keep asking myself every day,” she says. Saha, Aiyar, and Sahni (name changed on request) represent the new breed of retail investors who have recently entered the world of stock markets, Initial Public Offerings (IPOs), and stock-trading. And they are not exceptions.

As on date, there are almost six crore Demat accounts, up from 3.6 crore in FY 2019, with over 1.8 crore having been added over the past 15-months alone. With markets scaling new heights, over wo-dozen private companies have taken advantage and got listed over the past eight months. A lot more are on way and at different stages of taking permissions for the IPO process.

Why is this happening? Who is gaining from the mega IPO boom? How long can the Bull run continue? Markets are at an all-time high. Can this sustain for a long time? These are some key questions in the mind space of investors, especially those entering the space recently. Let us look at some hard facts before we tackle each of these relevant questions.

Fact 1: India’s benchmark indices have more than doubled from the pandemic lows of March 2020.

Fact 2: The BSE Sensex touched a high of 53,290.81 in July from a low of 25,639 in March 2020.

Fact 3: NSE Nifty hit 15,962.25 in July 2021, from a low of 7,511 in March 2020.

Fact 4: Several companies – from tech to chemical manufacturing to defence – have gone public in recent times. Several more are in the pipeline.

“The rally in the IPO market is also owing to the stock market performance and participation by first time investors,” says Prashant Singhal, Emerging Markets, TMT Leader, EY India. He explains why.

“Companies have announced their plans to list in India as deeper pools of capital are available and investors continue with a global horizon,” says Singhal. And this is happening in developed markets as well. “There are similar trends in global markets including in the US where significant capital has been raised by special purpose acquisition companies targeting fast-growth companies or other large businesses to be listed,” he adds.

Agrees Rakesh Jhunjhunwala, ace investor, trader, a qualified Chartered Accountant, and the Chairman ofasset firm Rare Enterprises. “Thecurrent bull market is here to stay,and it will not vanish as the 1992 market or the 2005-2008 marketsand this will take the country to a different level going ahead,” he says in a webcast with Raamdeo Agrawal,Chairman of Motilal Oswal Asset Management Company (See Box.

Market expert, Sunder Iyer,Partner at Deloitte India is of theopinion that the venture capital firms and/or the Private Equity investors will inevitably exit at some stage tosupport another emerging risk story.“The true barometer of the successfulbusiness story will always be thestock exchange. Public markets will determine success or failure, including the right valuation,” he adds.

Exactly the sentiments echoed by Ajay Tyagi, Chairman, Securities and Exchange Board of India (Sebi) whenhe says that the Indian capital markets are entering a new era with several tech companies choosing to list domestically. “Recent filings andpublic issues show the maturity ofthe Indian markets in accepting thebusiness models of new-age techcompanies, which cannot be valued through the conventional metrics ofprofitability,” Tyagi says at an industry event. “The success stories of the IPOs from these new-age tech companies will only attract more funds into the domestic market and helpc reate a new ecosystem of entrepreneurs and investors,” he adds.

Bull Run: Here to Stay?
Despite the rush of IPOs, market experts do raise this question in hushed tones – how long will the Bullrun continue? Will IPOs continue toattract more retail and traditionalinvestor participation? Experts offersome interesting views. “Markets areover-priced globally. Valuations areexcessive at the moment,” admits V.K. Vijayakumar, Chief Investment Strategist of Geojit Financial Services.

“In India, our long-term market cap to GDP is 77 per cent; long-term PE (price to earning) ratio is around16 and long-term median Price to Book ratio is 3.3,” he explains, adding, “Now these figures at 115 per cent, 22 per cent and 4.4 per centrespectively are flashing red.” What does that mean? “A sharp correctionis possible any time. So, return expectation should be very moderate goingforward,” says Vijayakumar. ButNarendra Solanki, Head- Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers has adifferent view. He believes that themarkets are expected to do well inthe medium-to-long term. “Since weare already trading at a lifetime highand the earnings season is on, hencemarkets could wait for earnings tocatch up in the short term,” says Solanki.

Suresh Shukla, Joint President and Head of Broking and Customer Services, Kotak Securities, offers atechnical explanation. “Expect modest returns”. Why? “At current levelsof 15,920 the Nifty-50 is trading at22.2x on FY 2022E and 19.5x on FY2023E (E=estimates). From now tillthe end of FY 2022, we expect modest returns from the Indian market considering strong economic recovery and gradual increase in global and domestic bond yields,” he says.

Shukla says the equity markets willhave to adjust to the reality of higher interest rates. Why? “Because as thecentral banks start to execute their‘exit’ plans for their ultra-loose monetary policies over the next fewmonths, by the end of FY 2022 investors would start discounting FY 2023earnings. Considering 300-400 bps(basis points) premium of equity PE (price to earnings ratio) over bond PE, we can justify forward PE of 19-20x for Nifty-50. On FY 2023EEPS (earnings per share) of Rs 813 we can expect Nifty-50 to end FY2022 somewhere ~16,500 (+/- 500points). A similar level of Sensex byend of FY 2022 could be ~55,000 (+/- 1700 points),” Shukla goes on tosay.


Ace investor, market expert, and a CA by qualification, Rakesh Jhunjhunwala's take on markets are heard carefully by everyone. Excerpts from his recent online chat with promoters of MOAMC.

On Bull Run on the Markets
I was most bullish during June 2020. I am even bullish on the markets today. The current bull market is here to stay and it will not vanish as the 1992 market or the 2005-2008 markets had. This will take India to a different level. Many are celebrating the markets being at record highs. But all I see is doubt and questions because this is a very long bull market. This will turn out to be the greatest bull market in India.

On India's Growth Fundamentals
India’s fundamental story is much better than what we had in 1990-2000. At present, we have a world established story in the software space which could reach milestones in the future. We are also the pharma capital of the world. Economically, India is at a much better place today than it ever was. The country today has a proactive government and a proactive Prime Minister. Combined together, I am ensured that we will see a 10 per cent growth in the future.

On Market Corrections 

We started the race from 7,500 and now we are around 16,000 on Nifty. In the future it might go till 25,000 and then maybe we can see a pause. But that will be limited for a period of six to nine months, given that the markets are so strong. The market corrections are mainly industry-wise. I don't see much of a correction in the market.

On New-Age Companies
It is clearly not my party, and I would never go out in that space. New-age companies and Crypto will never become my picks at any time. I will invest in sectors like Metals and Banks for better returns. The trend that is going on currently is surely going to get spoiled at some stage. Companies like Zomato with a Rs 60,000 crore value carry a 15-20 per cent upside but nearly 60 per cent downside. All of this is only driven by discounting the next 15

According to Amarjeet Maurya, AVP, Mid-Caps, Angel Broking, therehas already been a six per cent Sensexreturn in this financial year. “We areexpecting the momentum to remainthe same. And there could be five-sixper cent increase in return (over thegains already clocked) in the next sixmonths,” predicts Maurya. And hemay not be off track, given the economic fundamentals and the slowbut steady signs of recovery. Forinvestors, this is indeed, good news!

Analysing Gains & Misses
We have established that most IPO shave performed well because of the good market conditions. The Indianmarket has had over 26 new listings since the start of the year with overRs 46,000 crore raised so far.Undoubtedly, the IPO market isbuzzing. So, let us quickly examinethe performers for a better insightand why they succeeded?

Over half the IPOs have given double-digit returns this year. Among the recently listed companies, four registered more than 100 per cent gains on debut – Chemcon Speciality Chemicals, Happiest MindsTechnologies, Route Mobile, GRInfraprojects – and Clean Science & Technology that almost hit a 100 percent increase on listing. But expertshave some common picks.

For Maurya from Angel Brokings,Burger King India and Stove Kraft IPOs were impressive. And he has hisreasons too. “For Burger King, the first factor is the growth of the quickservice restaurant industry, which ispredicted to grow at 23 per centCAGR in the next five years, makingit the fastest-growing industry in thehotel and restaurant segment.Secondly, Burger King has outperformed its peers in terms of store additions, with an 85 per cent CAGR from 2015 to 2020,” Maurya adds.

“They also have an aggressive roadmap for the future with a target of having 700 stores by 2027 (up from265 stores currently) in India,” he says listing some of the reasons for the stock’s success post listing.

A company called Stove Kraft is also doing well, Maurya points out.The company is in the kitchen appliances segment making pressurecookers, LPG stoves, and non-stickcookware. “The growth of the kitchenappliances brands is enabled byUjjwala Yojana with almost 100 percent LPG penetration across India. It has led to the demand for pressurecookers and cookware and the industry has also performed well in thepast two-three years,” he adds. Sincethe onset of Covid-19 unorganizedplayers have lost market share owingto liquidity issues, says Maurya, adding that the situation will benefitorganized players like Stove Kraft.

Suresh Shukla of Kotak Securitiesis impressed with Nureca (leading healthcare and wellness company with a product range of over 150 SKUs across different categories), Burger King and MTAR Technologies (provides all the manufacturing solutions such as advanced machining, specialized fabrication, assembly andtesting, heat treatment, special processes).

These three, according to Shukla,have had an outstanding performance witnessing 300 per cent-plus,181 per cent and 157 per cent rise in price respectively upon listing –thereby giving massive listing gains to the investors.

For Narendra Solanki, at Anand Rathi Shares & Stock Brokers,besides the scrips mentioned earlier, the Easy Trip Planners IPO was alsovery impressive. It saw a huge 132 per cent gain at listing. “It is a profitmaking and cash generating company in a highly competitive andgrowing industry,” says Solanki.

Agrees Gaurav Garg, Head of Research at CapitalVia Global Research. “The financials for EasyTrip Planners for the last three yearsreveals tremendous growth. Thecompany’s overall income increasedat a CAGR of 25.80 per cent duringthis period. Furthermore, the profit after tax increased at a stunningCAGR of 128.96 per cent between2018 and 2020. With lean and costeffective operations, the organizationhas a steady track record of financialand operational performance,” says Garg.

Suryodaya Small Finance Bank, IRFC, Kalyan Jewellers and Macrotech Developers are the IPOs that did not perform post listing andsaw a significant discount from the listed price. But these are exceptions compared to the gains clocked by themajority, which indicates that the Bull run may continue for now.

Boom or FOMO?

Why are we seeing a record surge in retail investors opening Demat accounts to enter active trading? Indian investors opened a record 14.2 million new Demat accounts in FY 2021, a nearly three-fold rise fromthe previous year’s 4.9 million, according to data with the National Securities Depository (NSDL) and the Central Depository Services (CDSL). A Demat account holds financial securities in electronic formand is an essential requirement forstock trading. In India, Demataccounts are maintained by twodepository organisations, NSDL andCDSL.

Simply put, the total number of Demat accounts at CDSL and the NSDL have touched six crore as ofJune 2021, up from four crore in February 2020. Also, the share of individual investors in the total turnover on the stock exchanges has gone up from 39 per cent in March 2020to 45 per cent in March 2021. “IPO financing is booming. Add self financing to this mix and they maywell ensure spectacular listing gains,”says Jill Deviprasad, Partner,Investor Relations Practice, EY India. This is good for the markets, investors and the companies.

“We can estimate how interested first-time investors were investing inthe capital markets based on the rate of Demat account openings in India. Thanks to the stock market’s upward trend and the IPO’s prompt listing, the retail confidence in investing their money directly in the market has increased,” says Gaurav Garg at CapitalVia Global Research.

In FY 2020, 4.9 million Demat accounts were opened, compared tothe three years’ average of 4.3 millionin the three fiscal years preceding FY2018. In January 2021 alone 1.7 million new Demat accounts were opened, the biggest monthly risesince September 2019.

The FOMO (Fear Of Missing Out) factor is also bringing in an increasing number of retail investors intothe market, says V. K. Vijayakumar, Chief Investment Strategist of Geojit Financial Services. “The fact that the newbie retail investors are aggressively investing in IPOs is borne outby the huge over subscription in the recent IPOs. The Zomato IPO, for example, received 3.23 million applications,” he adds.

Shukla of Kotak Securities offers some more pointed reasons. “A lot offactors are contributing to thischange. Obviously, the current Bullrun has been one of the prime reasons for attracting retail investors,but we are also witnessing some ofthe long-term structural changes ininvesting behaviour,” says Shukla.What are these?

“Low-interest rates in fixed income instruments are another reason retailis slowly shifting to equities,” he adds.“Participations in mutual funds havegrown exponentially in the last ten years and now as a logical extension MF investors are switching to directtrading as well,” he says, adding that the technological advancements of brokerage too have played a verying important role here. “Now all the leading brokers have client-friendly trading platforms. Besides the ease oftrade, this also offers a lot of learningand research tools, which are helping a lot of new investors,” says Shukla.

What about traditional investment tools like fixed deposits (FDs),government securities, or bonds?Are they losing their shine? Not really, says Solanki of Anand Rathi.“Investments in FD, bonds and government securities still form a largeportion of the retail investor’s portfolio compared to direct stocks and equity mutual fund,” he says.

Solanki has a different theory of why young retail investors are investing in IPOs or trading. “The young retail investors want to participate in growth stories of successful companies whose products and servicesthey have experienced as a consumer,” he says. That is the key here and the Zomato IPO is perhaps the best example.

Boom Time for Markets?
If the past six months are any measure of success for the primary markets, the next six months may simply bring in the big boom. A host of popular and visible brands/companies are in the process of hitting the markets via the IPO route. Experts pointout that while LIC, Paytm or Mobikwik may be the most recognised of the lot, several are in the pipeline.

Sansera Engineering, Vijaya Diagnostics Center, Devyani International, Cartrade Tech, Penna Cement Industries, Fincare Small Finance Bank, and Nuvoco Vistas Corporation are among the companies awaiting a Sebi review, says Garg of CapitalVia Global Research.“Other startups and companies, suchas Nykaa, PolicyBazaar, and LavaMobiles, are rumoured to be preparing to approach the capital markets regulator,” he adds. So, how much money can be raised over the next six months?

Solanki of Anand Rathi says it’s very difficult to predict numbers.“Considering the expected pipelinefor the next few quarters, we couldsee something around Rs 2 lakh crore worth of IPOs in the next one year and Rs 50,000 crore in the next six months should be hitting the streets,”he says.

But Garg quickly points to LIC’s initial public offering. “We may see atotal IPO of over Rs 1 lakh crore inthe second half of CY 2021 if we addLIC’s anticipated (Rs 60,000-Rs70,000 crore) IPO,” says Garg. But Maurya of Angel Broking is morerealistic. He says that in the first six months of the calendar year, the market raised around Rs 51,000 crore whereas, for the entire calendar year 2020, the markets had raised only Rs 46,000 crore. “With such momentum as it is today, there are manymore IPOs that will come in the future provided the market remains good,” he says.

With the economy bouncing back,Covid fears receding and vaccinations continuing at a steady pace,close to Rs 75,000 crore of IPOs are already in the pipeline in 2021-22, says Deviprasad of EY. Zomato,Paytm, Mobikwik, Car Trade,Glenmark Life Sciences, Shriram Properties and several others are invarious stages of the IPO process.

Therefore, it’s safe to say that both categories of investors –private equity and retail – are making haywhile the sun shines. For how longwill it be sunny and pleasant is altogether a different question. For now, we do know that it is boom time both for the markets and for investors.

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