This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.
The big story
Investors wanting to cash in on India’s growth have typically focused on storied conglomerates – like Reliance Industries and Adani Enterprises operated by the nation’s tycoons – or tech startups transforming the way people live.
The spotlight has seemingly shifted in the past year toward companies going to market, hoping to ride on the coattails of India’s growth story.
The South Asian giant had a flood of listings in 2023, which hit a nine-year high of 238 with 614 billion Indian rupees ($7.35 billion) raised, according to FactSet data.
Among the names that re-kindled interest in initial public offerings was the listing of Mankind Pharma — a manufacturer of condoms and pregnancy test kits — last year. Although the company operates in a less prominent segment, it does offer steady revenue growth and healthy profits.
However, the real takeaway was that attractive opportunities could be found in seemingly ordinary segments of an economy experiencing phenomenal growth.
India’s IPO boom shows no sign of abating, with 130 new listings and 313 billion Indian rupees raised so far this year, according to FactSet.
“I expect a record-breaking year for India with a significant number of IPOs and private equity exits,” Neil Bahal, founder of Negen Capital, told CNBC’s Inside India.
“The IPOs are not because some tech company guys think they should raise money from the stock market instead of from private equity. There is amazing fundamentals in equity markets with supportive policies from SEBI [Securities and Exchange Board of India], retail participation and broad-based opportunities,” he said.
IPO frenzy
India’s tech startups are at the cusp of significant listing momentum with the likes of food and grocery delivery player Swiggy, online travel portal ixigo, software-as-a-service firm Unicommerce, and payments company MobiKwik at varying stages of the process.
The push comes as venture capital and private equity players see India’s stock markets as a “great way to exit their investments and leverage on retail investor participation,” says Dhruba Jyoti Sengupta from Wrise Private Middle East. He expects Ola Electric, Aakash Educational Services, and PhonePe to go public in the future.
Ola Electric has secured SEBI’s approval for a $660 million IPO. Sengupta expects the manufacturer of electric two-wheelers to have a valuation of “nothing less than” $4 billion to $5 billion.
Sengupta’s pick of Aakash Educational Services is unusual given that it has inadvertently been embroiled in its parent company Byju’s bankruptcy case. What sets Aakash apart, however, is that it has been doing “exceptionally well,” with several of its students acing their examinations, the wealth manager said. Word on the street is that the company will go to market this year to “quickly raise some funds,” he added.
Elsewhere, Sengupta sees Walmart-owned Indian e-commerce marketplace PhonePe going to market soon thanks to its “brilliant ecosystem.” While the company said that it has no plans to list, Sengupta says its expansion beyond India via collaborations in the United Arab Emirates and Sri Lanka are “typical signs of a company looking at an IPO.”
Growing foreign listings
The allure of India’s stock markets has trickled to companies beyond its shores — with foreign entities eyeing a share of its growth.
Hyundai India made headlines this week after reports of its $2.5 billion IPO. If successful, it will reportedly be one of the country’s largest listings following Life Insurance Corporation of India‘s offering in 2022.
India’s bourse is no stranger to the listing of foreign companies’ Indian entities thanks to the likes of Maruti Suzuki India, Hindustan Unilever, Siemens and ABB India.
Such listings add strength to India’s markets, says M&G Investment’s Asian Equities Portfolio Manager Vikas Pershad. He expects foreign companies are likely to take this route “once they reach a certain scale.”
Expensive market?
The optimism on India’s IPO boom is sometimes marred by concerns over elevated valuations of its stock market — and whether it is headed toward a bubble.
India is trading at around 21 times price-to-earnings — which global emerging markets strategist Malcolm Dorson acknowledges is “a little expensive.”
However, he says it presents good relative value compared to other emerging markets.
“When we look at India, we see continued economic and earnings per share growth and higher levels of profitability,” Dorson from Global X told CNBC’s Inside India. Global X’s parent, Mirae Asset, is one of India’s largest foreign asset managers.
“We need to look beyond multiples and price to intrinsic value. And India offers quality growth now.”
Need to know
How to invest in India, the world’s fastest-growing major economy. India has been dubbed the “perfect” emerging market to invest in. CNBC Pro has assessed the case for buying into this booming economy, the risks to consider — and how global investors can get involved.
Major backers are pumping millions into Major League Cricket. The sport has attracted nearly a billion dollars from the likes of Microsoft CEO Satya Nadella and Adobe CEO Shantanu Narayen to set up a new U.S. professional league. This comes as the Men’s T20 Cricket World Cup is being co-hosted by the U.S. And if you watched the match between India and Team USA earlier this week, it would be fair to assume that billions more would be needed before any returns are made. India won by seven wickets.
Four Indian companies are accused of selling fake medical devices on Amazon. Roche, one of the world’s largest biotech companies, sued manufacturers and sellers based in India for selling counterfeit versions of its diabetes medical devices Accu-Chek on Amazon.
External pressures are the biggest risk for India’s aviation sector. Factors such as fuel costs and the strong U.S. dollar could impact growth in the aviation sector, according to the CEO of Vistara Airlines. Vinod Kannan told CNBC in an exclusive interview that despite those headwinds, the aviation boom continues largely due to a growing middle-income population that will see a substantial rise in household earnings.
What happened in the markets?
Indian stocks moved more cautiously in the week following the Indian election results. The Nifty 50 index is heading for a 0.5% gain this week. The index has risen 7.67% this year.
The benchmark 10-year Indian government bond yield has remained relatively subdued, with a yield of 7.01%, nearly flat since last week.
On CNBC TV this week, UBS chief India economist Tanvee Gupta Jain said that she expects inflation in India to be below 4% in the third quarter but could rise again in the second half of next year.
Sumant Sinha, chief executive of Nasdaq-listed ReNew Energy Global, told CNBC that Prime Minister Narendra Modi’s new government will be “as supportive as it has been” in the past for the renewable energy sector. He expects Modi to deliver on his target of 500 gigawatts of clean power generation capacity by 2030.
What’s happening next week?
India’s central bank will meet to set interest rates on Friday. Economists polled by Reuters expect the RBI to hold rates at 6.50%.
The U.S. Federal Reserve is expected to hold rates when it meets next week.
By CNBC