tier-II companies are likely to drive India’s IPO boom in 2025

“At this point of time, our estimates suggest around $35 billion (worth of) IPOs (planned) in the current calendar year,” Kaushal Shah, managing director and head of equity capital markets at Kotak Mahindra Capital Co. said at the 17th Mint BFSI Summit & Awards in Mumbai.

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Last year, over 300 companies across the main board and small and micro enterprise (SME) categories raised around $18.5 billion through IPOs, double the amount raised in 2023. Other than the growing quantum of fundraising, experts are also excited about the diversity of the current pipeline of IPOs.

Traditionally, Indian IPOs have been dominated by financial services companies, followed by new-age players like Swiggy and Zomato, real estate and specialty chemicals companies. “But last year, not only new-age companies, but also infrastructure, industrial and manufacturing companies were there (for fundraising), and we are expecting this to continue,” Shah added.

‘Beyond tier-1’

Government schemes like Make in India have also given a fillip to these “real economy” companies to hop on the IPO bandwagon. As a result, experts are anticipating more small- and mid-cap IPOs in 2025.

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“Last year, 40% of the IPOs were from beyond tier-I companies, and there is a significant demand for these small players from HNIs (high net worth individuals),” Nirav Shah, managing director of investment banking at Equirus Capital said at the summit. Since most of these small companies are starting off a low base, expectations of stronger growth and hence higher returns are fuelling investor risk appetite for SME IPOs, he added.

Naturally, the current IPO frenzy has raised questions on the readiness of these companies looking to go public. Moreover, increasing liquidity in the system through channels like systematic investment plans (SIPs) has made fundraising easier in recent years. As a result, “because of the markets being good, I think a lot of companies which would have probably planned an IPO two to three years down the line, have advanced their plans,” Amit Ramchandani, managing director and chief executive officer of investment banking at Motilal Oswal Investment Advisors said.

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According to Ramchandani, companies worth ₹1,000 crore and above are in the sweet spot for IPO fundraising. But going forward, he expects more players in the ₹500- ₹1,000 crore range to launch IPOs. While Ramchandani agreed that many of these small companies tapping the public market might not be fully ready, he pointed out that they are willing to adopt the processes of becoming ready with help from lawyers and other financial intermediaries.

“The governance standards from what we had expected in some of these mid-cap companies have drastically improved in the past 10 years. That is also because some of these cities have seen a lot of evolution in professions like chartered accountants whom these companies are hiring,” Shah of Equirus Capital said.

Governance standards

Moreover, increased private equity backing over the years have also ensured healthy corporate governance in many of the start-ups, even though at a cost of higher IPO pricings, merchant bankers noted. In fact, they pointed out that market regulator Security and Exchange Board of India (Sebi) is also playing a major role in helping these companies go public.

“Yes; the regulations have tightened (for companies), but rightfully so, as Sebi’s job is to protect the investor. But they are also doing an impressive job in expediting the clearance process,” Madhurima Mukherjee, partner and head of capital markets practice at JSA Advocates & Solicitors said. “AI (artificial intelligence) has become one of the tools that Sebi is using to smoothen operations.”

With regulators erecting guardrails around IPOs in recent years, retail investors have found more comfort in investing in new offerings. Moreover, the alure of listing day gains also contributed to significant retail participation in IPOs last year. Naturally, domestic institutional investors have had no dearth of capital to deploy in primary markets, giving them more sway over pricing lately.

“Earlier, we used to always look at FII participation, but now they look for large mutual funds’ participation while investing in IPOs,” Shah from Equirus Capital said. Going forward, experts expect deal pipelines to remain robust as they see the appetite for primary issuances getting stronger in 2025.