As on date, there are almost six crore Demat accounts, up from 3.6 crore in FY 2019, with over 1.8 crore having been added over the past 15-months alone. With markets scaling new heights, over two-dozen private companies have taken advantage and got listed over the past eight months. A lot more are on way and at different stages of taking permissions for the IPO process.
Why is this happening? Who is gaining from the mega IPO boom? How long can the Bull run continue? Markets are at an all-time high. Can this sustain for a long time? These are some key questions in the mind space of investors, especially those entering the space recently. Let us look at some hard facts before we tackle each of these relevant questions.
- India’s benchmark indices have more than doubled from the pandemic lows of March 2020.
- The BSE Sensex touched a high of 53,290.81 in July from a low of 25,639 in March 2020.
- NSE Nifty hit 15,962.25 in July 2021, from a low of 7,511 in March 2020.
- Several companies from tech to chemical manufacturing to defence have gone public in recent times. Several more are in the pipeline.
Expert says, the rally in the IPO market is also owing to the stock market performance and participation by first-time investors. Companies have announced their plans to list in India as deeper pools of capital are available and investors continue with a global horizon, and this is happening in developed markets as well. There are similar trends in global markets including in the US where significant capital has been raised by special purpose acquisition companies targeting fast-growth companies or other large businesses to be listed.
According to the popular name of the Stock Market Mr. Rakesh Jhunjhunwala, The current bull market is here to stay, and it will not vanish as the 1992 market or the 2005-2008 markets and this will take the country to a different level going ahead.
Mr. Ajay Tyagi, Chairman of Securities and Exchange Board of India (SEBI) says "The Indian capital markets are entering a new era with several tech companies choosing to list domestically. Recent filings and public issues show the maturity of the Indian markets in accepting the business models of new-age tech companies, which cannot be valued through the conventional metrics of profitability,” Tyagi says at an industry event. “The success stories of the IPOs from these new-age tech companies will only attract more funds into the domestic market and help create a new ecosystem of entrepreneurs and investors,” he adds.
How long will the Bull run continue? Will IPOs continue to attract more retail and traditional investor participation?
Experts offer some interesting views. Mr. V.K. Vijayakumar, Chief Investment Strategist of Geojit Financial Services says “Markets are over-priced globally, valuations are excessive at the moment. In India, our long-term market cap to GDP is 77 per cent; long-term PE (price to earning) ratio is around 16 and long-term median Price to Book ratio is 3.3,” he explains, adding, “Now these figures at 115 percent, 22 per cent and 4.4 percent respectively are flashing red.” What does that mean? “A sharp correction is possible any time. So, return expectation should be very moderate going forward.
But Narendra Solanki, Head- Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers has a different view. He believes that the markets are expected to do well in the medium-to-long term. “Since we are already trading at a lifetime high and the earnings season is on, hence markets could wait for earnings to catch up in the short term,” says Solanki.
According to Amarjeet Maurya, AVP, Mid-Caps, Angel Broking, there has already been a six per cent Sensex return in this financial year. “We are expecting the momentum to remain the same. And there could be five-six per cent increase in return (over the gains already clocked) in the next six months,” predicts Maurya. And he may not be off track, given the economic fundamentals and the slow but steady signs of recovery. For investors, this is indeed, good news!
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