India has had the highest number of IPO deals in the world this year

Global IPO activity has been volatile in recent times, but India registered the highest volume of deals since the start of this year, and the market is expected to continue thriving in the near future, provided it can prevent international developments from affecting investor sentiment, according to a new EY report. 

Analysis of India’s private equity and IPO market in recent times has broadly reflected a relatively stable market in direct contrast with the turbulent IPO activity across the globe. The geopolitical volatility across the developed world has done little to affect India’s economy thus far, given that it has been on a steady growth trajectory.

Within the IPO and private equity sectors specifically, a report from Bain & Company earlier this year revealed that fund-raising in the country grew substantially over the last year, which positioned India amongst the growth leaders across Asia for the segment. Dry powder levels in the country stood at nearly $9 billion last year.

A new report from Big Four accounting and advisory firm EY has confirmed that this strong activity has continued into this year. The report, titled ‘IPO Readiness Survey: Factors driving a successful IPO in India,’ has examined deal activity in the first half of this year, and the results are fairly promising.

Overall, money raised through IPOs since the start of 2018 amounts to nearly $4 billion, representing a 18% increase from the amount raised in the first half of last year, despite the fact that the second quarter of this year has seen a marginal drop in activity due to failure to realise the value of issues.

A standout highlight of the report is that the number of IPO deals in India since the start of this year has been the highest in the world. The 90 deals completed in the Indian market in 2018 constitute 16% of deal activity worldwide, generating 5% of the global value from IPOs. The figure also represents a 27% increase in the number of deals in India since the first half of last year.

The bulk of proceeds generated by these deals – 93% – were contributed by just 15 major deals that were listed on the National Stock Exchange as well as the Bombay Stock Exchange. Sector-wise, the industrials segment has been the most active with 27 deals, followed by consumer staples at 18 deals, and materials at 14 deals. The consumer products and technology segments saw 10 and 5 deals respectively.

What is promising about the report is that it indicates strong activity going forth as well. The survey revealed that a number of major companies in India have plans to execute IPO deals over the next few months, and the cumulative value generated from these deals is expected to be around the $5 billion mark.

Nevertheless, there is always room for improvement, and the report asked a number of private equity and non-private-equity firms about how to improve the current IPO sentiment in India. Among the private equity respondents, the most important changes that need to be effected are a shift in the corporate earnings outlook to make it brighter as well as overall stabilisation of equity markets.

An increase in investment appetite is also crucial according to private equity respondents. Respondents from other segments had similar suggestions, with the obvious exception being that those hailing from other backgrounds prioritise a stablisation of broader macroeconomic conditions over just that of the private equity market.

Respondents were also asked what the most important metrics are – financial and otherwise – to evaluate an IPO. Amongst financial metrics, there was broad consensus between private equity firms and others, with both placing cash flow and return on equity as the most important determinants, followed by earnings ratios.

There were differences, however, in the priorities of non-financial nature. For private equity firms, the most important non-financial metrics for an IPO are brand strength & market position, followed by corporate governance practices and backing from a financial sponsor. For other firms, management credibility & experience matter the most, followed by brand strength & market position and corporate governance finances.

Summing up the overall scenario, National Leader and Partner at EY India Sandip Khetan said, “Several companies have IPOs lined up in the coming months. Influenced by an increase in oil prices, geopolitical tensions and local factors, like the upcoming elections in 2019, the stock market is seeing a lot more volatility this year and thus the window for deals will be shorter as compared to last year. Consequently, the prospects for Indian IPO activity are bright for the rest of year and over the medium term.”