Fresh issues in Indian initial public offerings are on an upward trend over the past three fiscals. However, this increase has not translated into a proportional rise in growth capital deployment. Companies appear to be taking a cautious approach, focusing on strengthening their balance sheets rather than expanding their operations.
In financial year 2025, fresh issues have accounted for 45% of the total IPOs till September, according to PRIME Database. This is a jump from 34% over the corresponding period last year and 22% increase from the year before that, reflecting a shift towards raising new capital rather than divesting of existing stake.
But instead of funding growth via fresh issues, companies are prioritising debt repayment and bolstering working capital. While this stabilises their financial positions, it also limits the funds available for expansion and new projects.
From April 2023 to June 2024, 64% of the funds raised through fresh issues were allocated to deleveraging, working capital, and other non-growth purposes, according to research by Antique Ltd. and Axis Mutual Fund. This left only about a third of the funds for growth-related activities such as augmenting capital bases and capital expenditure.
This trend is set against the backdrop of increasing IPO activity in India, which is driven by favourable market conditions and investor appetite. This financial year, 28 IPOs have been launched till now, making this five-month stretch the most active period for primary market activity in at least six years.
The booming IPO market underscores the importance for investors to make informed decisions, as it significantly influences the quality of their portfolio, according to Moneyeduschool Founder Arnav Pandya. The kind of strategy that investors implement while investing in these issues also becomes a point to consider, as this will determine the risk that they take, he wrote.
Despite these concerns, the country's IPO market remains robust, with a steady pipeline of companies like Hyundai Motor India Ltd., Swiggy Ltd., Bajaj Housing Finance Ltd. and Ather Energy Pvt. preparing to go public in the coming months. The focus on fresh issues is expected to continue, driven by companies seeking to capitalise on favourable market conditions.
Retail investors will be looking out for whether IPO-bound companies' preference for operational support continues over expansion goals, which might, in turn, ensure short-term financial health but limit long-term growth opportunities.
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