The Indian IPO market is witnessing a significant upswing, with several companies preparing to go public in 2025. The lineup includes Swiggy, Ather Energy, Reliance Jio, OfBusiness, Hexaware Technologies, and AI startup Fractal. The market’s growth trajectory in 2024, which saw a 149% increase in IPO value to $18.4 billion, has set a promising stage for the upcoming year.
The Bombay Stock Exchange (BSE) anticipates a record-breaking streak continuing into 2025. Over 90 companies have filed their draft prospectuses, aiming to raise an estimated INR 1 trillion or $11.65 billion. About 34 companies have either already raised or are announcing their fundraising efforts.
Along similar lines, the BSE also witnessed a surge in investor confidence, with its share price doubling over the past year. Moreover, the trend of smaller city-based companies entering the stock market is expected to gain momentum in 2025.
Domestic Funds Taking the Charge
One of the most significant reasons for this upswing is India’s burgeoning retail investor base. Higher disposable incomes and financial literacy have driven increased participation in equity markets. Moreover, the rise of fintech platforms such as Zerodha or Groww and digital infrastructures has made IPO participation accessible to a broader audience.
Mahavir Lunawat, chairman of the Association of Investment Bankers of India, recently said that Indian firms used to take pride in raising funds abroad, but now foreign firms line up to raise funds in India. In an interview with BusinessLine a fortnight ago, he explained that around 851 IPOs had entered the market in the last six years, and around 1,000 companies will go public in the next two fiscal years.
Data from 2024 suggests that holding IPO stocks for at least six months yields better returns, reinforcing the need for thorough research and strategic investment planning.
Krishnan V R, a quantitative research specialist at Marcellus Investment Managers, told AIM that this could be the right time for an IPO if organisations have a good business model that can sustainably ensure cash flows or credibly demonstrate a path to profitability through scaling.
Highlighting the importance and the increased interest of domestic investors, Krishnan said, “Domestic mutual funds, which have become one of the largest incremental investors in Indian equity markets, are still seeing strong inflows,” he said, reiterating that December of 2024 saw a net inflow of INR 41,156 crore into equity mutual funds, the second highest inflow ever.
“Though inflows could weaken if market returns are low, I still expect inflow to be strong enough to support primary market issuances at least over four quarters of FY2025,” Krishnan added.
Factors Affecting the IPOs
Domestic mutual funds and retail investors have dominated the market over the last year, while foreign investors (FII) have been reducing their allocation to Indian equities. This is also visible with the drop in the valuation of the Indian rupee last week.
“Indian rupee depreciation negatively affects FII investments, so I do not see much of an impact on the investor IPO demand, as long as domestic mutual fund flows are strong,” Krishnan said. He noted that if the newly listed companies are AI startups serving international clients with dollar-denominated revenues (similar to IT services), they could potentially benefit from a weaker rupee.
This was also reflected by Akash Aggarwal, managing director (investment banking) at Motilal Oswal Financial Services and former executive director at Axis Capital. Having participated in several IPOs in the past, Aggarwal said that despite the down market, IPOs are seeing decent subscriptions among Indian investors. “A majority of the money comes from Indian investors and not foreign investors,” Aggarwal told AIM. As of January 21, 2024, the BSE index has fallen by almost 10 percent compared to September 2024, when the market surpassed the 84,000 mark, its highest ever.
He added that the drop might not affect small IPOs or the investment participation from FII. “Almost 70-80% of the interest is from domestic investors. Of the several companies that I am in touch with, some are going IPO, and I think this is the right time for it because it might take at least 9-12 months for them to launch the deal,” Aggarwal said, adding that if a company is mature enough, it should think about it.
He explained that the jump in the amount of retail investment is very significant. Compared to the average of 15-20 lakh applications last year, the average is now expected to be around 30-40 lakh since the last major IPO of Waaree Energies saw 98 lakh applications.
The Need for a Strong Business Model Remains Paramount
“In my view, not every startup is ready for an IPO because most of the investors are looking for companies that are not burning cash for revenue. This makes these companies not ready for the public market,” Aggarwal said. These companies should look to raising funds from private investors, he added. He said he suggests this to most of the AI startups that he is in touch with, as generating revenue and achieving profitability is currently not proven for AI startups.
“Unless a startup has reached a certain level of maturity, it should not think about going public as it may not reach the expected valuation,” Aggarwal said.
Many young and yet-to-be profitable companies have successfully been listed in the past 2-3 years, and several others are waiting to be listed from sunrise sectors like quick commerce, payments, etc.
High valuation expectations and stiff competition in certain sectors could challenge companies’ efforts to attract investors. Therefore, it is crucial for companies to focus on long-term growth strategies rather than just short-term market trends.
