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The gradual rise in Indian markets might not convey a sense of euphoria. The 14-day winning streak went largely unnoticed, except for a few headlines. The usual tell-tale signs, like market tips from your hairdresser or the shoe-shine boy, are absent—likely because they’re busy investing in the primary market.

According to a Moneycontrol report, funds raised through Initial Public Offerings (IPOs) reached a 27-month high in August 2024. Ten firms collectively raised Rs 17,047.52 crore in the primary market, marking it the largest fundraising since May 2022. Notably, three companies — Ola Electric Mobility, Brainbees Solutions, and Premier Energies —accounted for over 77 percent of the funds raised.

2024 has been a strong year for IPOs, with 56 companies raising Rs 65,000 crore, a significant increase compared to the 20 IPOs that raised around Rs 15,051 crore during the first eight months of 2023.

The details of these offerings give a glimpse of market euphoria. Approximately, 43 percent of the total funds — about Rs 7,333 crore — came from offers for sale (OFS), where private equity players and promoters partially cashed out during their company’s listing.

With liquidity abundant and secondary market valuations high, investors are turning to the primary market for opportunities. Mutual funds, sitting on Rs 1.70 lakh crore of cash and waiting for a better time to invest, are finding the secondary market stubbornly resilient. With few alternatives, they are increasingly investing in IPOs.

Retail investors are pouring into IPOs with renewed enthusiasm, both on the main board and in the SME segment. The high levels of oversubscription in most offerings highlight the intense demand for any company entering the market. An SME IPO from a bike dealer with just eight employees recently saw an astonishing 400 times oversubscription.

In August, several main board issues were in high demand. Unicommerce eSolutions led the way with an oversubscription of 168.35 times, Orient Technologies at 155 times, and Saraswati Saree Depot at 108 times. Premier Energies, ECOS India Mobility and Hospitality, and Akums Drugs and Pharmaceuticals also received heavy subscriptions, of 75 times, 65 times, and 63 times, respectively.

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While demand for these IPOs is undeniably high, it doesn’t necessarily indicate that investors see long-term value in these stocks. A SEBI report reveals that most investors, including institutional ones, are only in for a quick profit. On average, around 54 percent of IPO shares (by value) allocated to investors -- excluding anchor investors -- are sold within a week of listing.

Although the typical exuberance of a bull market might be absent, the primary market is enjoying its own surge. Savvy investors are capitalising on market liquidity, swiftly booking profits and moving on to the next opportunity. This strategy works well — until the profits dry up and investors are left holding on to loss-making positions, waiting for the next bull market to bail them out.

Investing insights from our research team

Kaynes Technology: Should you buy, post the OSAT approval?

Metro Brands: Looking forward to a strong second half

What else are we reading? 

Something feels not quite right in the mid-cap rally

It's time for the RBI to be truly flexible on inflation targeting

The policy twists that lie in wait for investors in sugar mills

World Bank calls upon India to lower tariff barriers to boost exports

Is oil’s long-term role in the energy mix unavoidable?

Indian component makers stare at risks from slowing global auto sales

Semiconductor success — The key is to make the system bug-free

Martin Wolf: Lessons from the great inflation (republished from the FT)
Index rejects find favour with stock market bargain hunters (republished from the FT)

Private Sector Participation: Can it lead India’s domestic military growth story?

India-Singapore Trade Ties: Boosting economic relations amid regional challenges and changing global landscape

India needs more small loans but not to households

The US Federal Reserve is containing Yuan bears. That’s ironic

Markets

Motilal Oswal AMC looks at 'high conviction investing' to generate alpha

Personal Finance

Women and entrepreneurship: How to manage personal finances to build a solid business

Technical Picks: Granules India, JK Cement, ONGC futures (These are published every trading day before markets open and can be read on the app).
Shishir Asthana
Moneycontrol Pro