India's initial public offering (IPO market) is coming back to life after a dozy few years, as companies take advantage of investor ebullience on the country's economic prospects.
Last week, Coffee Day Enterprises – the company behind India's biggest coffee chain Cafe Coffee Day – saw its $177 million IPO over 1.8 times subscribed in what is the country's biggest listing in three years.
Next week, InterGlobe Aviation – the owner of India's biggest and most profitable airline IndiGo – is set to top that amount by opening an IPO on October 27 that is expected to raise up to $510 million.
"The increased IPO activity is being driven by the enhanced need for the companies to raise capital for their growth and expansion plans, as the corporate sector becomes increasingly confident of its business plans, in light of the economic recovery that we are witnessing," Anup Bagchi, managing director and CEO at ICICI Securities told CNBC.
"As secondary markets continue to be stable and primary markets start doing well, most companies and investors are turning to the IPO route as the most preferred option for generating liquidity," he said. The primary market refers to the part of the capital market that deals with issuance of new securities, while the secondary market is where investors trade previously issued securities.
Another factor driving increased IPO activity is private-equity backed companies capitalizing on the positive market sentiment to provide an exit for their investors, "who have been patient partners waiting for a right window of opportunity," said Bagchi.
Indian companies have raised around $1.03 billion via IPOs so far this year, well above the $282 million for all of last year and $295 million in 2013, according to data from Dealogic.
Activity in the IPO market tends to lag the performance of the broader stock market, which took off in mid-2014 amid optimism that Prime Minister Narendra Modi would able to unlock India's economic potential.
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"During 2013 and 2014, the secondary markets were not doing very well due to various concerns around the Indian economy including high inflation, currency risk, fiscal deficit, and low investor interest," Bagchi said.
"As secondary markets picked up in the second half of calendar year 2014, the primary market activity has kick-started with a lag, and therefore we are seeing higher action now in this space," he said.
While India's equity market has failed to repeat 2014's bumper performance this year (major indices are unchanged year to date), it continues to be among the most favored by emerging market investors given the country's strengthening macro fundamentals. Concerns over the economy as well as cultural tolerance have risen recently, but haven't dented investor sentiment substantially.
This, "paves way for the IPO boom to come back in India," says Jigar Shah, CEO of Maybank Kim Eng Securities.
"There are different sectors where we see a lot of activity from where the IPOs will come, including banking and financial services, technology, logistics, pharma. There are plenty of opportunities," he said.
Who's buying?
Demand for Indian IPOs is coming both from domestic as well as international investors, say experts.
"It's a good balance, and varies based on the company and sector," says S Ramesh, Managing Director and CEO, Kotak Investment Banking.
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"While we've always seen good FII [foreign institutional investor] inflows into India, one trend we've noticed is that Indian mutual funds are now very active participants in the primary market as they have grown their corpus significantly."
While India's IPO market is picking up steam, it's hard to overlook the relatively small size of the deals – compared with those seen in other Asian financial capitals such as Hong Kong and Tokyo.
"We will also see a few modest-sized IPOs from larger companies, while the larger offerings will come from government divestments," Ramesh said.