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Fueled by an influx of new retail investors and optimism for the country's economic recovery, India's benchmark BSE Sensex index set an all-time high above 60,000 last week.   © Reuters
Market Spotlight

The Great Indian IPO Rush: Investors look to tap a frothy market

Billionaires, venture capitalists and even the government are readying share sales

DEV CHATTERJEE, Contributing writer | India

MUMBAI -- Wearing only a saffron colored dhoti, and striking a yoga pose, India's most popular yoga evangelist Swami Ramdev takes his followers by surprise in a yoga session: "Do you want to be a millionaire? I will give you the mantra to become a millionaire. First open a demat account to trade in the stock markets and when I tell you, buy shares of Ruchi Soya. Then invest in Patanjali Ayurved, whose brand equity and market cap is in lakhs of crores and you can get it checked from any agency in the world. If you buy Ruchi Soya shares now, no one can stop you from becoming a millionaire and I can guarantee you that."

The advice in chaste Hindi, broadcast live on TV to millions of his followers last month, was not disinterested. Ramdev is a nonexecutive director at Ruchi Soya Industries, which makes food and cooking oils, and his family owns Patanjali Ayurved, its unlisted holding company. Patanjali is about to sell part of its 98.9% stake in Ruchi Soya by way of a follow-on public offering, raising 45 billion rupees ($608 million).

The politically-connected yoga guru is not the only one touting an equity offering at the moment. Company owners from billionaire tycoons, to venture capital firms, to the Indian government are readying share sales -- though they are likely to be marketed through more conventional channels.

The Indian stock markets are witnessing an unpreceded boom, fueled by an influx of new retail investors and optimism for the country's economic recovery. That sent the benchmark BSE Sensex index to an all-time high above 60,000 last week and opened a window of opportunity to Indian companies to raise funds to reduce debt and plan new ventures.

"Some companies are cutting debt, while some need growth capital. Some companies just want brand visibility and some investors are just cashing out," said Motilal Oswal, chairman of Motilal Oswal Financial Services, a Mumbai based brokerage and mutual fund company. "Maximum fundraise happens when markets are buoyant."

India's most popular yoga evangelist, Swami Ramdev, is a nonexecutive director at Ruchi Soya Industries. (File photo by Getty Images) 

In the Great Indian IPO Rush, companies as varied as edible oil sellers and hotel booking apps are launching offers in the next few months. Forty-one Indian companies have already raised Rs 669 billion in 2021 so far, a big jump from the Rs 266 billion raised by 15 companies in the whole of last year and poised to surpass the calendar-year record of Rs 671 billion raised by 36 companies in 2017.

And the pace is accelerating. Over 60 more companies have filed for IPOs. Filings records maintained by research firm Prime Database suggest that in the current fiscal year ending March 2022, Indian companies' fundraising will exceed Rs 1 trillion.

A signal that sellers will receive a welcome reception came when Ant Group-backed food delivery firm Zomato raised Rs 90 billion in July, with an offering that was 38 times oversubscribed. Since then, Zomato's market valuation has crossed Rs 1 trillion at Rs 138 a share -- far higher than its IPO price of Rs 76 a share.

Startups following it to market include Softbank-backed Oyo Hotels and another Ant Group investee company, One97 Communications, which offers online shopping payment systems under the PayTM brand.

Ant Group-backed food delivery firm Zomato raised Rs 90 billion in July.    © Getty Images

The Indian government, which owns companies in critical industries ranging from airlines to logistics to ports, is also planning IPOs. It is planning to sell up to 10 percent of Life Insurance Corporation of India (LIC) to raise up to Rs 900 billion in the country's biggest-ever IPO. Proceeds of the share sale and other privatizations of Hindustan Copper, Bharat Petroleum and Air India will be used to plug a fiscal deficit and pay for cash-sapping social programs.

India's billionaires are getting in on the boom, too. The Aditya Birla Group, owned by Kumar Mangalam Birla, is raising up to Rs 27 billion by listing its mutual fund business on Monday. Birla's joint venture partner, Canada's Sun Life, is also divesting part of its stake. The company is estimated to receive a valuation of up to Rs 250 billion.

Gautam Adani's Adani Group has applied to the stock market regulator to list its own cooking oils company, Adani Wilmar, a joint venture with Singapore's Wilmar International, to raise up to Rs 45 billion.

India's biggest firm by market valuation, Reliance Industries, owned by India's richest man, Mukesh Ambani, has not one, but two offerings in the pipeline. It is planning to list its mobile telephone firm Reliance Jio -- giving an exit option to early investors like Google and Facebook and the private equity firm KKR -- and its retail arm Reliance Retail. The company has not yet finalized the dates for the IPOs.

The listing of Reliance Jio will give an exit option to early investors like Google and Facebook and the private equity firm KKR.   © Getty Images

Bankers said the new all-time high for the BSE Sensex, and the strong performance of recent IPOs, bodes well for those planning to list. Strong fund flows from the foreign and local investors, rising corporate earnings, falling COVID-19 cases, and low costs of capital have contributed to the buoyant atmosphere.

"Spectacular average first day listing gains are attracting participation from institutional investors, high net worth individuals and retail investors," said Atul Mehra, Managing Director and Co-CEO of Investment Banking at JM Financial.

But some experts warn that valuations of some companies have reached alarming levels. The price-earnings ratio on the BSE Sensex is currently around 31 and, apart a brief moment at the peak of the dot-com boom, you have to go back to the mid-Nineties to see numbers regularly above 30. The p/e ratio peaked at 36 in February this year before earnings improved.

"Given rich valuations, one cannot ignore intermittent volatility," said Oswal. "However, we expect the positive momentum to continue on the back of improving economic activity and recovery in corporate earnings."

Meanwhile, retail investors old and new, those who have been hooked on stock trading via mobile phone apps and veterans alike, continue to buzz about the next blockbuster listings. "The music is on and I don't think the party is going to be over any time soon," said Pavan Dharnidharka, a 70-year-old Mumbai-based small investor who started trading in 1977 and retired from a stockbroking firm a decade ago. "We are getting ready to see the Sensex at 100,000," he added.

As for Ramdev, the yoga guru, his TV pitch caught the attention of the market regulator, the Securities and Exchange Board of India. It warned him on Sept. 30 not to give investment advice with a share sale imminent.

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