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The Great Indian IPO Rush: Investors want to tap into a foaming market

MUMBAI – In a yoga session, India’s most popular yoga evangelist Swami Ramdev, wearing only a saffron-colored dhoti and assuming a yoga pose, surprises his followers: “Do you want to become a millionaire? I will give you the mantra to become a millionaire First, open a Demat account to trade the stock markets and if I tell you, buy shares of Ruchi Soya, then invest in Patanjali Ayurved, whose brand value and market cap is Lakhs of Crores, and you can Have it checked by every agency in the world. If you buy Ruchi Soya shares now, no one can stop you from becoming a millionaire, and I can guarantee you that. “

The advice in chaste Hindi, televised live to millions of its followers last month, was not disinterested. Ramdev is a non-executive director at Ruchi Soya Industries, which manufactures food and edible oils, and his family owns Patanjali Ayurved, the unlisted holding company. Patanjali is on the verge of selling part of its 98.9 percent stake in Ruchi Soya in a follow-up bid that will raise 45 billion rupees ($ 608 million).

The politically affiliated yoga guru isn’t the only one promoting a stock offering right now. Business owners, from billionaire tycoons to venture capital firms to the Indian government, prepare to sell stocks – though they will likely be marketed through more conventional channels.

Indian stock markets are experiencing an unprecedented boom fueled by the influx of new retail investors and optimism about the country’s economic recovery. This pushed the benchmark BSE Sensex index to an all-time high of over 60,000 last week, and opened up opportunities for Indian companies to raise funds to reduce debt and plan new ventures.

“Some companies are working to reduce their debt while others need growth capital. Some companies just want brand awareness and some investors just cash in, ”said Motilal Oswal, chairman of Motilal Oswal Financial Services, a Mumbai-based broker and mutual fund company. “Maximum fundraising occurs when the markets are buoyant.”

India’s most popular yoga evangelist Swami Ramdev is a non-executive director at Ruchi Soya Industries. (File Photo by Getty Images)

In the next few months, companies as diverse as edible oil sellers and hotel booking apps will start in the Great Indian IPO Rush. Forty-one Indian companies in 2021 already have 669 billion companies in 2017.

And the pace is increasing. Over 60 other companies have applied for IPOs. Records maintained by research firm Prime Database suggest that fundraising by Indian companies will exceed 1 trillion rupees in the current fiscal year ending March 2022.

A signal that sellers will receive a welcome receipt came when Ant Group-backed grocery delivery company Zomato raised Rs 90 billion in July with an offer 38 times oversubscribed. Since then, Zomato’s market valuation has surpassed Rs.1 trillion at Rs 138 per share – well above its IPO price of Rs 76 per share.

Startups following the launch include Oyo Hotels, backed by Softbank, and another Ant Group affiliate, One97 Communications, which offers online shopping payment systems under the PayTM brand.

Ant Group-backed food delivery company Zomato raised 90 billion rupees in July. © Getty Images

The Indian government, which owns companies in critical industries from airlines to logistics to ports, is also planning to go public. It plans to sell up to 10 percent of the Life Insurance Corporation of India (LIC) to raise up to Rs 900 billion in the country’s largest public offering ever. Proceeds from the share sale and other privatizations of Hindustan Copper, Bharat Petroleum and Air India will be used to help meet a budget deficit and pay for cashless welfare programs.

India’s billionaires are also joining the boom. Aditya Birla Group, owned by Kumar Mangalam Birla, raised up to 27 billion rupees through the listing of its mutual fund business on Monday. Birla’s joint venture partner, Sun Life from Canada, is also selling part of its stake. The company is valued at up to 250 billion rupees.

Gautam Adani’s Adani Group has filed with the Securities and Exchange Commission to list its own edible oil company, Adani Wilmar, a joint venture with Singapore’s Wilmar International, to raise up to 45 billion rupees.

India’s largest company by market valuation, Reliance Industries, owned by India’s richest man, Mukesh Ambani, has not one, but two offers in the pipeline. It plans to list its mobile phone company Reliance Jio, which offers an exit option to early investors like Google and Facebook and private equity firm KKR, and its retail company Reliance Retail. The company has not yet set the dates for the IPOs.

The listing of Reliance Jio will offer early investors such as Google and Facebook, as well as private equity firm KKR, an exit option. © Getty Images

Bankers said the new all-time high for the BSE Sensex and the strong performance of the recent IPOs bode well for those planning a listing. Strong inflows of funds from overseas and local investors, rising corporate profits, falling COVID-19 cases and low capital costs all contributed to the good mood.

“Spectacular average stock market gains on day one are attracting investment from institutional, high net worth individuals and private investors,” said Atul Mehra, managing director and co-CEO of Investment Banking at JM Financial.

However, some experts warn that valuations of some companies have reached alarming heights. The price-earnings ratio of the BSE Sensex is currently around 31 and, apart from a brief moment at the height of the dot-com boom, you have to go back to the mid-1990s to regularly see numbers above 30. The rate reached this in February It peaked at 36 in the year before the result improved.

“Given the high valuations, the temporary volatility cannot be ignored,” said Oswal. “However, we expect the positive momentum to continue due to improving economic activity and the recovery in corporate earnings.”

Meanwhile, retail investors old and new, those who got excited about trading stocks via mobile apps and veterans alike, continue to rave about the next few blockbuster listings. “The music is on and I don’t think the party will be over anytime soon,” said Pavan Dharnidharka, a 70-year-old small investor from Mumbai who started trading in 1977 and retired from a stockbroking firm ten years ago. “We are preparing to see the Sensex at 100,000,” he added.

As for Ramdev, the yoga guru, his TV pitch caught the attention of the market regulator, the Securities and Exchange Board of India. It warned him on September 30 not to give investment advice on an impending stock sale.

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