IPOs to get larger after averaging ₹2,000 crore this year: Kotak’s S Ramesh

“The average size (of IPOs) has roughly moved from about ₹900 crore to close to ₹2,000 crore because this year saw the advent of some of the large IPOs of companies such as Bajaj Housing Finance, Hyundai, FirstCry, and Swiggy. So, I think it has navigated towards larger size on an average,” Ramesh said in an interview, without providing any estimates.

The large IPOs in 2024 included Hyundai Motor India ( ₹27,870 crore), Swiggy ( ₹11,237 crore), Bajaj Housing ( ₹6,560 crore), Ola Electric Mobility ( ₹6,145 crore) and Brainbees Solutions (FirstCry) for ₹4,193.73 crore. The Carlyle Group Inc is exploring a $1 billion share sale in portfolio company Hexaware Technologies Ltd later this year or in 2025.

It’s been a busy year for investment banking teams across banks, given that the capital market has been buoyant. In the current calendar year, there have been 73 IPOs that mopped up $16.7 billion ( ₹1.4 trillion), Kotak Investment Banking said, citing data from Prime Database. That was more than double the 58 IPOs amounting to $6.35 billion in 2023, the data showed.

Follow-on share sales by companies also peaked in 2024. There were 93 follow-on share sales amounting to over $13 billion compared with 58 amounting to $7.7 billion in 2023.

Financial sponsors

The deepening of the Indian capital markets is largely credited to the growing pools of capital available with domestic institutional investors. The mix of active foreign investors in India has also changed over the years, with those from the Far East being more consistent, according to Ramesh.

“Investors from the Far East including India have been more consistent in investing in Indian IPOs, whereas those from Europe, the UK and the US have been more selective. I expect this trend to continue,” he said.

Often, IPOs include stake sales by promoters and existing investors, apart from a fresh issue of shares by the company raising funds. Early investors in companies seek to cash in their gains during an IPO.

While financial sponsors (private equity firms) have come of age in the Indian market and have been increasingly active since 2019, going forward, more companies will consider sponsors as their first choice of external capital, Ramesh said. That is also driving a lot of deal activity, with sponsor sell-downs, or partial PE exits, dominating this year.

“Of the $24 billion sell-downs that we saw this year, promoter sell-downs constitute about $10 billion. The remaining are all financial sponsors,” he said.

Meanwhile, PE investors are becoming a crucial element in IPO pricing, said Ramesh.

“Financial sponsors are an important stakeholder in IPO pricing,” he said. “When I look at the breadth of IPOs that are happening, there is a very interestingjugalbandi that is happening between the mutual funds who have all the money, and in some ways, they are the price setters, versus a lot of the financial sponsors and promoters, who are sellers of equity, but particularly financial sponsors. And what we are noticing is that is setting the advent of IPO pricing,” he explained.

Mutual funds are equally focused on long-term prospects and near-term volatility in earnings and markets as compared with select FPIs that are more focused on long-term prospects, he said. Mutual funds tend to have a deeper understanding of certain sectors and businesses because they are based in India and they have a better sense of potential immediate challenges, such as degrowth issues, he added.

Ramesh expects mergers and acquisitions (M&A) in the domestic market to pick up. According to him, more than inbound M&As by global players and outbound buys by Indian companies, domestic consolidation is a theme that is likely playing out.

“M&A activity has picked up this year. Domestic companies are pretty active. It is actually domestic corporations where all the activity is happening. And if you look at the sectors, cement, pharma and financial services are where the consolidation is happening,” he said.