A report by Niveshaay Investment Advisors indicates that the Indian markets could see around 1,000 initial public offerings (IPOs) in the next two years, reflecting strong GDP growth and rising consumption. The IPO market is poised for a dynamic year in 2025, offering exciting investment opportunities across various sectors.
The report highlights that the enthusiasm around IPOs often attracts institutional and retail investors seeking potential early-stage gains. However, the valuation of an IPO at the time of pricing significantly impacts its post-listing performance. While some IPOs generate substantial listing gains, others may struggle to maintain their issue price.
During bullish market cycles, companies tend to command higher valuations, which can lead to stretched pricing. Conversely, in bearish phases, IPOs may be priced more conservatively, creating better entry opportunities for investors.
The report emphasizes the importance of liquidity in market dynamics and advises investors to carefully assess liquidity risks when navigating large IPO events. A well-thought-out allocation strategy is crucial to efficiently deploying capital, balancing new opportunities while mitigating potential disruptions in the secondary market.
Arvind Kothari, the smallcase manager and founder of Niveshaay, noted that studies show over 70% of Indian IPOs tend to be underpriced initially, delivering positive short-term returns. However, these returns often do not sustain in the long run, especially when benchmarked against broader market indices.
Large IPOs, despite offering attractive investment opportunities, can impact overall market liquidity by absorbing capital that would otherwise circulate in the secondary market. When institutional and retail investors allocate funds to major IPOs, liquidity is diverted from existing stocks, particularly in mid and small-cap segments, leading to short-term corrections and price fluctuations.
