India’s capital markets have experienced a significant surge in initial public offering (IPO) activity in 2024, positioning the country as a global leader in public offerings. With 327 IPOs raising approximately USD19.9 billion – accounting for nearly 30 percent of global IPO listings – India has surpassed major markets such as the US, Canada, and Europe, and has overtaken Hong Kong as the world’s fourth-largest stock market.
Key drivers of IPO growth
The robust IPO activity in India can be attributed to several factors:
- Deepening domestic capital base: Two-thirds of IPO funding in 2024 originated from domestic sources, a significant increase from a quarter three years prior. Systematic investment plans (SIPs) have driven record inflows of approximately USD2.7 billion per month, strengthening mutual funds as key institutional investors are reducing reliance on foreign capital.
- Favorable valuation environment: Indian IPOs, particularly in high-growth sectors such as technology, healthcare, and infrastructure, have achieved strong valuations. The median price-to-earnings (P/E) ratio for Indian IPOs in 2024 was 21.5x, compared to 14x in the US and 12x in Europe, creating a compelling valuation arbitrage for international companies with India-centric assets.
- Macroeconomic strength: India is projected to grow at 6.2–6.5 percent annually over the next five years, supported by an expanding middle class and rising consumption. This environment is conducive to digital and consumption-led IPOs, with increasing household savings favoring equity-linked products.
Regulatory and structural reforms
Recent reforms by the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) have streamlined the IPO process and enhanced investor protection. These include the following regulatory and structural changes:
- Fast-track reverse flipping: Effective September 2024, foreign companies can merge into their Indian subsidiaries via a fast-track route, potentially reducing merger timelines from 12–18 months to 3–4 months.
- Promoter requirement reforms: SEBI has exempted professionally managed venture capital- and private equity-backed companies from a 20 percent promoter contribution rule and relaxed the rules regarding classification of entities as promoters, reducing compliance burdens.
- Removal of security deposit: The one percent security deposit requirement for IPOs has been eliminated, lowering upfront costs for issuers.
- Standardized IPO documentation: SEBI is introducing simplified, standardized offer documents and exploring artificial intelligence (AI)-driven approval processes to expedite IPO timelines.
- Retail investor protections: New measures restrict the size of secondary offers by unprofitable companies, tighten disclosure norms, and require demonstration of a clear path to profitability, bolstering retail investor confidence.
Ideal candidates for Indian IPOs
The evolving landscape favors the following company profiles:
- Global companies with significant Indian operations: Multinational businesses with material revenue, headcount, or R&D presence in India are well-positioned for a domestic IPO, either through a reverse flip or a carve-out/spin-out of their Indian business.
- Scalable technology companies: Asset-light, scalable businesses in sectors such as ecommerce, fintech, health-tech, and software as a service (SaaS) can leverage India’s large consumer base and digital infrastructure for premium valuations.
- Prominent consumer brands: Established brands with strong market share in India, particularly in fashion, food, home products, and personal care, are attractive candidates given the growing middle class and domestic consumption trends.
Structuring options for foreign entities
Given that India does not permit direct listing of foreign-incorporated companies, the following structuring options are available:
- Reverse flipping/domiciliation: This involves re-domiciling the parent entity to India, typically via a cross-border merger or share swap. The fast-track merger route now expedites this process. Tax implications vary depending on the structure, with inbound mergers potentially qualifying for capital gains exemptions under the Indian Income Tax Act.
- Carve-outs/spin-outs: Global companies may list their Indian subsidiaries as standalone entities, as demonstrated by recent high-profile IPOs. This approach can unlock value and provide access to domestic capital.
- Dual listings: Direct overseas listings for Indian companies are currently limited to exchanges in GIFT-IFSC, a special economic zone with tax and regulatory benefits comparable to offshore financial hubs like Singapore and Dubai. Similarly, foreign companies cannot currently list directly on Indian exchanges. However, strategic restructuring can provide access to India’s capital markets.
India’s capital markets offer compelling opportunities for international companies seeking liquidity, growth capital, and premium valuations.
[View source.]
