NEW DELHI — After a gush of initial public offerings in 2021 and a sudden lull in 2022, India’s primary market fundraising picked up steam once again in the latter half of 2023.

Many high-profile IPOs have lit up the bourses in recent months. Tata Technologies and IdeaForge were among the 50 IPOs in India this year — the highest globally.

In 2022, 40 companies raised 599.39 billion rupees ($7.2 billion), a far cry from the 1.2 trillion rupees raised by 63 companies in 2021, according to market data provider Chittorgarh.

Fast forward to 2023, and 50 companies have already raised 449.59 billion rupees from their IPOs so far. By the end of the year, more than 60 companies will have raised close to 720 billion rupees, Chittorgarh estimated.

The fall in the IPO market in 2022 from the highs of 2021 was, in no small part, due to the lackluster performance of the new-age technology companies that debuted on the Indian bourses two years ago.

Take Paytm, for instance. The Vijay Shekhar Sharma-founded company, which introduced Indians to online payments and digital wallets, raised 183 billion rupees in November 2021 at a valuation that most analysts agreed was expensive, given its lack of a clear path to profitability.

Paytm’s shares debuted on the bourses at a 9% discount to its IPO price of 2,150 rupees per share and hit the lower circuit on the listing day itself. Even after two years, the stock has not fully recovered from the dramatic descent and ended trading on Dec. 18 at 616 rupees — 70% below its issue price.

In the same vein, shares of online fashion and beauty retailer Nykaa, which listed in October 2021, are down more than 80% from its IPO price.

The hard lessons forced many IPO hopefuls to go back to the drawing board. Founders decided to put their houses in order first and straighten the weak fundamentals of their companies.

Consequently, several startups that had received the regulator’s nod to raise funds through an initial share sale then postponed or even called off their plans in 2022, amid bleak market conditions and depressed valuations.

“Pre-IPO companies like Mobikwik, Ixigo, etc. that filed their DRHP (draft red herring prospectus) in 2021 but did not go for a listing eventually learned and applied the lessons over the past 18 months very well. These companies are now stronger in profitability than ever before and are thus very confident of approaching public markets,” said Anup Jain, who has led investments in firms including Batterysmart, Ixigo and Mobikwik.

The attention to fundamentals seems to be paying off. Of the 50 companies that were listed on India’s stock exchanges in 2023, only seven opened at a discount to the IPO price, compared with 14 companies in 2022. The average gain on the listing day of stocks that debuted in 2023 stood at 29.5%, compared with 10.72% in 2022, according to Prime Database.

Shares of Tata Technologies, IdeaForge and Utkarsh Small Finance Bank more than doubled or nearly doubled on the listing day itself.

The successful listings of Tata Technologies, IdeaForge and Utkarsh Small Finance Bank signal better days for the IPO market in 2024.

Many companies, such as Oyo, Ola and Go Digit, are expected to hit the market in 2024, after previously postponing their plans. Last year, in an interaction with DealStreetAsia, Gupshup Chief Executive Officer Beerud Sheth said the company would be looking to go public in the next calendar year, adding that it was waiting for better market conditions.

India’s GDP registered a growth of 7.6% in the second quarter (July-September) of this fiscal year, exceeding the expectations of the Reserve Bank of India for a 6.5% growth.

The Nifty 50 index has risen 17% between Jan. 1 and Dec 18.

As of the end of November, the total market capitalization of the National Stock Exchange was $3.989 trillion, pipping Hong Kong’s $3.984 trillion to become the seventh-most-capitalized global bourse, CNBC reported earlier this month.

Positive expectations for India’s future growth, a boost in available funds and increased involvement from local investors have all played a part in the rise.

According to the brokerage firm Jefferies, one of the major reasons for the recent stock rally is the success this month of India’s ruling party, the Bharatiya Janata Party, in three state elections — Madhya Pradesh, Rajasthan and Chhattisgarh — that were widely seen as a precursor to 2024’s national election.

The victory reinforces the consensus expectations of Prime Minister Narendra Modi’s re-election next year. The BJP-led National Democratic Alliance now has a higher likelihood of securing over 300 seats, according to Jefferies.

“The IPO landscape is witnessing a surge in activity driven by both an urge to tap the capital markets pre- or post-Indian general elections and strong economic activity, and positive domestic and foreign investor sentiment towards India,” said Adarsh Ranka, a partner at Financial Accounting Advisory Services, a member firm of EY Global, in a report. “This momentum is expected to continue well into [the second half of 2024].”

The third quarter of 2023 saw a staggering 21 IPOs in the Indian main market, compared to just four in the same quarter of 2022, according to the report. The proceeds raised in the third quarter of 2023 amounted to $1.77 billion, a significant increase of 376% compared to $372 million in the third quarter of 2022.

According to Jain, the increase was due to a few underlying trends. Firstly, India stands out as a bright spot in the global economic landscape — it is among the fastest-growing major economies. A rising tide lifts all boats and is helping everyone.

Secondly, the funding winter continues in the private market and there is no incentive to move funds into riskier bets with uncertainty on both valuation and liquidity.

Thirdly, public markets are better bets, since they offer liquidity.

According to the venture capital firm Elevation’s Founder Pulse Report 2023, 66% of the 250 founders it surveyed believe there will be more IPOs of venture-funded startups in the next five years compared to the previous five, with the optimism ringing even louder (75%) among late-stage founders.

For 2024, companies such as Ola Electric, Oyo and Swiggy have planned their IPOs. According to media reports, Ola Electric plans to raise a substantial $700 million, while hospitality major Oyo has planned to raise 84.3 billion rupees.

Around 40 new-age firms could go public or be ready for an initial public offering by fiscal year 2025 because the ecosystem has turned its focus on profitability, according to a report by the consulting firm Redseer.

Rehan Yar Khan, a co-founder at the early-stage venture capital firm Orios Venture Partners, said he expects 2024 to be more robust for IPOs in terms of the quality of companies going public because of an increased focus on profitability.

However, some are skeptical about the quality of the IPOs. An investor at an early-stage global investment firm, who preferred to stay anonymous, said there are many IPO companies out there that are unable to raise venture capital or a few where the promoters do not want significant board guidance: “Just because a company is getting listed, it does not mean it has strong metrics. It is just an event. A case in point is Paytm.”

For the original story from DealStreetAsia, click here.

DealStreetAsia is a financial news site based in Singapore that focuses on private equity, venture capital and corporate investment activity in Asia, especially Southeast Asia, India and greater China. Nikkei owns a majority stake in the company.