India’s booming initial public offering (IPO) market may be on the verge of overheating, according to veteran investor Ramesh Damani.
With a surge of upcoming IPOs from major South Korean multinationals, referred to as ‘K-pop’ issues, the market could face a significant liquidity drain, impacting secondary market stability.
Damani expressed concerns that high valuations sought by these companies could stretch the market further, leading to a more cautious approach by investors.
In a conversation with CNBC-Awaaz, Damani, a member of the Bombay Stock Exchange (BSE), highlighted his worries about the influx of South Korean companies eyeing India’s IPO landscape.
He noted that prominent brands like Hyundai, LG, and Samsung are looking to raise significant capital, which could sap liquidity from the broader market.
The upcoming Hyundai Motor India IPO, poised to be India’s largest ever at $3 billion, exemplifies this trend.
Damani also observed that valuations in the mid and small-cap sectors have become “stretched” following a strong market rally.
He indicated that he has begun shifting his portfolio focus toward large-cap stocks, reducing his exposure to smaller companies.
“At some point, we’ll have liquidity sucked out of the market,” he warned, hinting at potential market froth.
The market regulator, SEBI, recently approved Hyundai Motor India’s IPO, with other South Korean giants like LG Electronics and Samsung India expected to follow suit soon.
This influx of ‘K-pop’ IPOs could potentially crowd out local companies in the race for investor capital, according to Damani.
India’s IPO market has been red-hot in 2024, with companies raising approximately $9 billion so far, according to Bloomberg data.
This surge has attracted major institutional investors, with mutual funds also snapping up newly listed companies like Brainbees, Ola Electric, and Unicommerce, based on the latest data from the Association of Mutual Funds in India (AMFI).
The frenzy isn’t slowing down, with several more billion-dollar IPOs expected before the year ends.
Swiggy, backed by Softbank, recently increased its IPO size to $1.4 billion, driven by growing competition in the online grocery space.
Alongside Swiggy, Indian businesses of LG Electronics and Hyundai Motor are also preparing to go public.
The demand for new IPOs has led to massive oversubscriptions, with many offerings seeing a listing day pop of around 30%—much higher than the global average of 22%, Bloomberg reported.
While the IPO wave has been lucrative for many investors, Damani’s warnings suggest that the influx of high-profile foreign companies could shift market dynamics, leading to heightened caution in the months ahead.
As the Indian market braces for these mega IPOs, the question remains whether the market can absorb such a large influx of new offerings without a significant liquidity crunch. Investors will need to stay vigilant as they navigate this evolving landscape.
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