How should we look at it? Is it the glass half full as the markets are so vibrant and there are a lot of IPOs or is it the glass half empty, as a lot of promoters as well as private equity players are looking at booking the profits?
Pranav Haldea: We have seen a tremendous amount of activity in the market over the last couple of years. The primary market always follows the secondary market and ever since 2022, there has been a secular run in the secondary market, which has resulted in a deluge of issues in the primary market as well. As far as the exits that you spoke of, 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 versus Rs 2.26 lakh crore during the same period last year.
I do not think that is a negative. It is a sign of a maturing capital market ecosystem. We have to realize that several of these private equity and venture capital investors came in and invested in these companies six to seven years back when they were very small and represented a much higher level of risk as well and they need to get an exit as well and only when they get an exit, will they get fresh capital to deploy in a newer set of companies. So, this is a sign of a maturing capital market ecosystem. There are no worries on that front.
More than Rs 16,000 crore has already been raised in August. It seems that we will be easily surpassing the funds that we have raised in 2023 in this calendar year itself. Do we expect a similar kind of fundraising for the rest of 2024 – another Rs 15,000-16,000 crore in the coming months as well?
Pranav Haldea: The filings look extremely strong. There were 16 filings in July and we have already had 17 filings in August. There are several more that are in the pipeline. Of the ones that are already sitting with SEBI approval, 22 such companies are looking to raise Rs 20,000 crore and as you mentioned, Bajaj Housing Finance is one of the larger ones out of those. There are another 44 companies that have already filed with Sebi for approval and cumulatively, we could look at a total fundraise 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, Swiggy being one. In fact, over the last couple of weeks, there has been a heartening development as well. You have seen some of these new-age companies like FirstCry and Unicommerce coming to the market. We have to go back to 2021 to look at this. At that time, you had the first set of new-age companies listing and, of course, the story after that was not extremely positive. There was a fear that you may not see any of these companies coming to the market for the foreseeable future. But that has changed and even as we speak, several such companies are looking at filing their documents with Sebi.
But is there anything to get nervous about about the quality of the companies that are coming in? Is the quality still intact? I understand that the Indian market is very vibrant and a lot of SMEs are at the inflection point and may be ripe for coming into the ecosystem of the listed entities. Is that the case or the quality is getting a bit diluted here?
Pranav Haldea: Well, first of all, we need to segregate between main board IPOs and SME IPOs. Let me first speak about the main board IPOs and the OFS amount being raised versus the fresh capital amount being raised. That is a very important data point. A lot of companies are now coming up with IPOs, and have had several private equity investors previously. They have gone through multiple rounds of due diligence. So, the comfort level that retail investors can have now when they come up with an IPO is far higher. If we go back to the 90s or even to the early 2000s, we used to find most of the companies which were coming to the market were raising fresh capital and as a result of that, a lot of these companies either did not perform well or simply vanished with investors’ money. So, while often it is said that, the OFS component is very high in an IPO, maybe it is not a good investment. But there is a flip side to it as well. The flip side being that the company has already reached a certain scale. It would have certain governance practices already on-boarded. There would be institutional investors who have already invested in the company. So, the quality of the companies that are coming now to the main board are far superior than what we saw maybe 20 years back. The SME segment, is a different cup of tea. These are very small companies. Investors, need to be extremely wary before investing in these companies. We have seen the kind of subscription figures which are going around. I was just looking at the data and very interestingly, in 2019-20, which is just about five years back, the average number of retail applications and SME IPOs stood at just 408, only 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 coming into this SME segment. The kind of listing gains that you are seeing, the average listing gain in this segment has been 78%, which is drawing a lot of retail investors into this space. My advice would be that investors need to be extremely wary before investing in these companies and study them extensively before investing.
When it comes to fundraising in the secondary market, QIP, rights issues, and preferential equity are something that has been gaining traction. FY25 on a full-year basis, it seems like we will easily cross the FY24 amount. In which sectors or segments are we seeing most of this fundraising happening? Also, why is the rights issue still the least preferred way of fundraising compared to QIP and preferential? Is it because the process is quite complicated compared to the other two?
Pranav Haldea: Absolutely. Sebi has recently floated a consultation paper in this regard to not just reduce the timeline for the rights issues, but also make the entire process far more streamlined so that it is used more often. QIPs, on the other hand, are a bull market product. So, in bullish markets, we have always seen higher QIP fundraising because promoters can raise capital at higher valuations.
Of course, the other aspect of QIPs is that fresh capital is being raised. Typically when the economy is doing well, companies are looking at expanding and deploying fresh capital that is the time when you see a pickup in QIPs as well, typically mostly from financial services. So, of course, you have banks coming in with larger QIPs, but at the same time infrastructure and real estate companies also you see larger ticket sizes from these companies.
