India’s Booming Equity Market: Expect Large IPOs in Energy, Financials, and Healthcare in H2 FY25, Says JM Financial

India is quickly becoming a major player in the global equity capital markets. Over the past 20 years, Indian equity markets have consistently delivered returns of about 8-10% USD CAGR. This strong performance is supported by a robust macroeconomic environment, steady earnings growth, and significant equity market inflows, particularly from domestic mutual funds. Structural reforms and favorable demographics have also bolstered this growth. In FY24, JM Financial completed around 56 capital market transactions, including IPOs, QIPs, and block deals, and topped the equity league tables.

Primary Market and M&A Activity

The outlook for the primary market is positive, with a strong pipeline of IPOs and QIPs across various sectors expected in the coming years. In the M&A space, abundant global liquidity has given financial sponsors and strategic investors strong buying power. Financial sponsors are now more comfortable with control deals as they have multiple exit options, including M&As and block deals.

Emerging Sectors

Several sectors are seeing increased deal activity, including manufacturing, industrials, specialty chemicals, digital and technology, healthcare, consumer, and financials. Notable recent IPOs include Ixigo, a mobile travel platform, and TBO Tek, a travel distribution platform, both of which saw strong listing gains. Other IPOs have included companies in industrials like Happy Forgings and consumer tech like Mamaearth.

M&A Landscape

India’s favorable demographics, economic optimism, and ample dry powder make it an attractive destination for M&As. Companies are competing for a limited pool of attractive targets, driving up competition. Foreign companies looking to enter the Indian market further heat up the M&A landscape. Early engagement, flexible deal structures, and focusing on win-win outcomes are crucial for success in India’s M&A market.

Private Equity Investments

While PE investments in India have recently been lower than in the peak years of 2021 and 2022, they are still substantial. In 2024, PE investments reached ₹1 trillion, slightly down from ₹1.1 trillion in 2023. The technology and consumer tech sectors saw significant investments in previous years, but now traditional sectors like financial services, healthcare, and IT services are gaining momentum. Recently, JM Financial advised on the sale of Shriram Housing Finance Ltd, the largest all-cash buyout transaction in affordable housing in India. High-quality assets in healthcare, consumer, and IT are expected to see continued deal activity.

Sectoral M&A and Block Deals

Significant M&A activity is anticipated in healthcare, financials, energy, and industrial sectors. Rising incomes and demographics are driving demand for quality medical services, prompting consolidation among healthcare delivery players. In financial services, rising credit demand is fueling M&A activity as companies seek to expand and acquire new customers. The government’s push for clean energy is expected to drive M&A in the renewable energy sector. In the industrials sector, expanding product portfolios and optimizing supply chains are driving M&A activity.

IPO Valuations

Despite high indices in the secondary market, almost all IPOs in FY25 have given positive listing gains, indicating that issuers have priced IPOs attractively. Investors are willing to invest in companies with strong fundamentals and near-term growth prospects.

Current Pipeline and Future Plans

Despite global economic uncertainties, there has been a significant surge in IPO activity in the last 12 months, driven by confidence in the Indian economy, strong inflows into domestic mutual funds, and positive listing gains. With elections behind us, the second half of 2024 is expected to be very busy. Over 55 DRHPs have been filed with SEBI, aiming to raise about ₹70,000 crore. JM Financial is working on a strong pipeline of IPOs and QIPs across sectors like real estate, industrials, and healthcare.

Focus for the Upcoming Year

FY24 was a record year for IPOs and QIPs in India, with around 80 IPOs, the highest in the last decade. While the average IPO size has slightly decreased, many large IPOs are expected in FY25. JM Financial has a mix of small and large IPOs and a robust pipeline of QIPs as corporates look to raise funds for capital expenditure.

Trends in Private Equity

There is a growing trend of continuation funds in India, with funds like ChrysCapital and Samara Capital raising substantial amounts. Climate-focused investments are also gaining traction, with funds raising or planning to raise about $2 billion for ESG-related investments.