India's IPO market concluded 2024 with strong fundraising momentum, raising ₹1.71 lakh crore compared to ₹1.59 lakh crore in the previous year, marking a 7% increase according to NSE data. The market benefited from record retail and domestic institutional participation throughout the year, though the composition of fundraising revealed significant trends toward investor exits rather than fresh capital infusion.

OFS Transactions Drive Market Activity

The most notable trend in 2024's IPO landscape was the dominance of offer-for-sale (OFS) transactions by existing investors and promoters. These secondary sales increased 13% to ₹1.07 lakh crore from ₹95,217 crore in the previous year, representing 63% of total fundraising.

Major OFS Transactions Shape Market

Several large-scale OFS transactions dominated the year's fundraising activity. Tata Capital led with the year's biggest IPO, raising ₹15,512 crore entirely through OFS by parent company Tata Motors. HDB Financial Services followed with a ₹12,500 crore OFS by promoter HDFC Bank.

While some large OFS transactions were required to meet regulatory compliance, the majority facilitated exits for early investors, including venture capital and private equity firms.

Market Implications and Expert Analysis

Narinder Wadhwa, Managing Director & CEO of SKI Capital, noted that while OFS-led issues improve free float and liquidity, their growing dominance suggests market valuations may be approaching a cyclical peak. He observed that informed insiders typically divest when pricing conditions are most favorable, a pattern historically associated with late-stage bull markets characterized by abundant liquidity and strong retail participation.

The relatively lower share of fresh issue proceeds dilutes the broader objective of IPOs as funding tools for expansion, capital expenditure, and balance sheet strengthening, according to Wadhwa's analysis.

Investment Considerations and Future Outlook

Vinit Bolinjkar, Head of Research at Ventura, emphasized that while providing exits for early investors indicates market maturity, retail investors often purchase stakes at peak valuations without fresh growth capital entering businesses. He stressed the importance of enhanced due diligence when OFS dominates IPO structures, cautioning investors against funding exits at inflated prices.

Looking ahead, Wadhwa recommended that retail participants shift focus from short-term listing gains toward comprehensive assessment of proceeds utilization, promoter commitment post-IPO, and valuation comfort. Industry estimates suggest IPO fundraising could range between ₹1.8 lakh crore and ₹2.5 lakh crore in the following year, with high OFS shares potentially continuing as valuations moderate and promoters seek to realize gains.

India's Chief Economic Advisor (CEA), V Anantha Nageswaran, has raised concerns about the evolving nature of Initial Public Offerings (IPOs) in the country's capital markets. In a statement that has caught the attention of market watchers, Nageswaran highlighted a significant shift in the purpose of IPOs.

IPOs: From Capital Raising to Exit Strategy

According to the CEA, IPOs are increasingly being used as exit vehicles for early investors rather than serving their traditional purpose of raising long-term capital for companies. This trend, Nageswaran argues, undermines the fundamental spirit of public markets.

Call for Evolution in Capital Markets

Nageswaran emphasized the need for India's capital markets to evolve beyond mere scale. He cautioned against celebrating what he termed as "wrong milestones," specifically pointing out:

• Market capitalization
• Derivative trading volumes

The CEA warned that focusing on these metrics could lead to a diversion of savings from productive investments, potentially impacting the broader economy.

Implications for Investors and Companies

This shift in the purpose of IPOs could have significant implications:

1. For investors: It may mean a change in the quality and long-term prospects of companies going public.
2. For companies: It might signal a need to reassess their approach to public listings and long-term capital raising strategies.

The Way Forward

Nageswaran's comments underscore the need for a balanced approach in the capital markets. While the growth of India's capital markets is a positive sign, the CEA's warnings suggest that quality and purpose should not be overshadowed by quantity and scale.

As the Indian capital market continues to evolve, regulators, companies, and investors alike may need to recalibrate their strategies to ensure that public markets continue to serve their fundamental purpose of facilitating long-term capital formation and economic growth.