India was at the forefront of global initial public offering activities in 2024. Global Insight assesses the driving forces behind this, as well as the regulatory reaction.

In October, Hyundai Motor India Limited (HMIL), a wholly owned subsidiary of Korean car manufacturer Hyundai Motor Company, closed its initial public offering (IPO) on the Bombay Stock Exchange and the National Stock Exchange of India.

Raising $3.3bn in proceeds, the IPO was the largest in Indian history and the world’s second biggest in 2024. Perhaps more importantly, it was also HMIL’s first listing of a unit outside of its home country in a market where it operates two manufacturing units and has already invested around $5bn.

While the move could be viewed as an example of a foreign conglomerate simply utilising a hot IPO market to raise funds, Rajiv Gupta, Head of the Latham & Watkins team that advised HMIL, says it must also be seen as a wider endorsement of the Indian economy. ‘Listing in India is a way for foreign companies to show their continued commitment to the country,’ he says. ‘And of course, the buoyancy of the Indian capital markets and valuations have made listings a compelling case.’ Gupta understands that a number of other international companies with Indian subsidiaries are looking to do exactly what HMIL has done.

Prashant Gupta leads the capital markets team at Shardul Amarchand Mangaldas & Co in Delhi and was co-counsel on HMIL’s IPO. His team are working on five or six other IPOs for international companies trying to list their India business. ‘Indians tend to be inward looking’, he says, ‘and the establishment of an Indian identity for a global brand has worked very well for many international companies in the past, such as Nestle, Unilever, Siemens and Suzuki, all of whom have traded very well since’.

India’s capital markets have historically been driven by foreign institutional investors who would pile in and drive share prices up, resulting in multiple IPOs taking place. When that foreign liquidity was inevitably withdrawn and deployed elsewhere, that’s when the flow would fall out of the Indian market, share prices would drop and IPO activity would cease. ‘There was a strong stop-start element to Indian IPOs’, explains Arun Balasubramanian, a partner at Freshfields in Singapore. ‘However, there is now a very large amount of domestic liquidity available in India, due to the rise of the Indian mutual fund and asset management industry, and what exists today is a domestic flow of support for the stock market, which is enormously important.’

A high-achieving market

According to data released by the Reserve Bank of India (RBI), India’s stock exchanges set new records for IPOs in 2024, recording highs in both volume and proceeds. Even before the end of January 2024, India had overtaken Hong Kong as the world’s fourth largest stock market.

For example, seven of the 12 start-ups that had gone public by the end of November were technology companies, making India the only market to record consistent growth in such listings in recent years. In contrast, the US recorded 22 venture-backed tech IPOs in 2024 – just one more than the 21 tabled a year earlier – while China’s 56 listings in 2024 were significantly down on the country’s total of 117 for 2022. And India’s SME story is set to continue in 2025, with over 20 start-ups reportedly preparing an IPO.

There are several other driving forces behind the country’s booming capital markets. These include political stability, robust domestic economic growth and favourable geopolitical dynamics.

For example, in the summer, Narendra Modi won a third consecutive term as Indian Prime Minister and was keen to send the message of ‘business as usual’ to international investors with respect to his government’s focus on continued economic growth. However, while this played well to investors, the ruling Bharatiya Janata Party (BJP) didn’t achieve an outright majority in the elections and for the first time had to rely on coalition partners to form a national government.

As a result, there was some initial concern that ‘coalition politics’ could potentially disrupt the new government’s policy agenda. However, Sujoy Bhatia, Vice Chair of the IBA India Working Group, believes the situation is different today than in previous coalition governments. ‘The coalition partners in the government are two regional parties that support the BJP, unlike previous coalitions which were almost a coalition of equals’, he explains.

Foreign incentives

The Indian government’s strong economic focus is expected to result in gross domestic product (GDP) growth of 6.5 per cent in the financial year 2024–25. This puts India on course to meet the findings of a 2024 government review, which anticipated that it would become the world’s third largest economy by 2027, with a GDP of $5tn. To put that in context, India was the world’s tenth largest economy just a decade ago with a GDP of $1.9tn, at current market prices.

For GDP to grow to $7tn by 2030, as predicted by the government, Balasubramanian says international investment must continue to play a pivotal role. ‘The re-election of the current ruling party […] was a positive development because it provides another five years of policy continuity in India and that is welcomed by a lot of international investors’, he says.

International investment is vital to the government’s drive to promote India as one of the ‘factories of the world’. To that end, the country has become the geopolitical beneficiary of China–US tensions, with India’s large population offering an alternative manufacturing base as part of the so-called ‘China Plus One’ (C+1) strategy adopted by many global corporations.

The government has been keen to exploit the favourable geopolitical landscape by introducing numerous Production Linked Incentive (PLI) schemes, which provide companies with certain incentives and benefits – such as reduced customs duties – if they manufacture in India. For example, PLI schemes for specialty steel, combined with the country’s expanding infrastructure needs and other strategic policy initiatives, have helped fuel a recent increase in steel-related IPOs.

Bhatia, who’s Head of Corporate Practice at Chandhiok & Mahajan in New Delhi, says these schemes are expected to continue in 2025, but only in sectors that the government considers strategically important. ‘The Indian government has come up with policies and incentives to bring in manufacturers who are really looking at doing hardcore infrastructure manufacturing’, he explains. ‘For example, they are rolling out the red carpet in the silicon chips and telecommunications space.’

While Bhatia agrees there has been a shift in sentiment away from China, he doesn’t believe that’s the primary driver behind much of the foreign institutional liquidity flowing into his country. ‘India is starting to position itself as the real alternative to China, whereas the C+1 strategy was more about being in China but needing a supply chain backup’, he explains.

He says the government will continue its push to make India a global manufacturing hub because the country requires the local manufacturing of goods meant for the Indian market. ‘India’s manufacturing sector is not geared towards exports – unlike China’s – because the Indian market itself is so massive’, says Bhatia. ‘You are now looking at manufacturing in India for India.’

He gives the case in point of Apple, which set up a huge manufacturing base in India, together with one of the country’s largest manufacturing companies, Tata. ‘Although they first manufactured the cheaper iPhones, because that’s what the Indian market wanted, they now manufacture the top end as well’, says Bhatia.

The retail participation surge

India’s government hopes that its focus on economic growth will continue to elevate parts of the population out of poverty. And a growing middle class of salaried Indians are doing their bit to improve their prospects by saving up to five per cent of their monthly pay cheque and investing it in systematic investment plans.

With many Indians saving and investing more, Rajiv Gupta says the domestic mutual funds are flush with cash and that’s driving much of the growth in the IPO market. ‘A lot of retail money is being channelled to Indian mutual funds,’ he says. ‘The IPO valuations have proven to be more reasonable than the secondary market and have therefore become an attractive target for investments by the Indian mutual funds.’

That domestic support for the stock market is important, says Balasubramanian, because it prevents a dip when foreign investors inevitably withdraw liquidity from the market. ‘It gives the IPO market a certain amount of confidence that its prices will be sustained, and it gives bankers confidence they can still go and pitch for transactions and ensure a reasonably robust pipeline’, he says. ‘So, it is a far more important driver behind the boom than some of the others because it has to do with the structure of the Indian stock market itself.’

Retail participation in IPOs has surged, with many investors entering the stock market for the first time. ‘The markets have been doing very well, and in the short-term people are able to make a decent amount of money’, says Prashant Gupta. ‘I personally know of people in tier two cities across India who have closed down their businesses because they say they make more money trading on the stock market.’

Kosturi Ghosh, Membership Officer of the IBA Corporate and M&A Law Committee, says active retail participation has been part of the Securities and Exchange Board of India (SEBI) education agenda for many years. ‘SEBI has specifically directed the middle classes away from traditional asset classes as viable savings options, including vanilla products like bank fixed deposits’, she says.

‘But it has been the proliferation of the mutual funds industry that has brought about a sophistication while taking the guess work out of picking stocks for the common retail investor’, adds Ghosh, who’s a partner at Trilegal in Bangalore. ‘We have seen Indian retail investors shift from traditional asset classes like gold and fixed deposits, due to volatility in price, and they are now attracted towards listing gains, which a lot of companies have offered over the past few years. This is expected to be a continuing trend.’

However, India’s capital markets have historically struggled with exit opportunities and faced scepticism from domestic institutional and retail investors regarding loss-making companies going public.

For example, in 2021, food delivery company Zomato went public, giving it a valuation of $12bn and attracting a number of high-profile institutional investors. ‘In their red herring prospectus, under risk factors, they listed the fact that they were loss-making and didn’t know if they would ever be profitable’, says Bhatia. ‘But that didn’t stop their IPO from being over-subscribed because their brand perception continued to rise.’

Meanwhile, the competitive nature of the IPO market has led to a surge in companies rushing to list, raising questions about the financial health and governance practices of some of those entering the market.

Excitement surrounding new listings often leads to excessive optimism, and this can result in inflated valuations. Companies that fail to deliver on investor expectations can witness significant price corrections, leaving retail investors at risk of substantial losses. Investors are therefore being urged to scrutinise not just the growth potential of these companies but also their financial statements and management structures, says Ghosh. ‘Lately, IPOs have been driven by market sentiment, and we have seen increasing participation by retail investors’, she adds. ‘Though there are checks and balances in place, in a bullish market companies tend to price their IPOs higher, largely driven by the IPO wave and not necessarily the right valuation.’

SEBI steps in

In the autumn, SEBI issued the latest in a slew of amendments and initiatives ultimately designed to protect retail investors by streamlining processes for the public issuance of debt securities. ‘One of the reasons why people are investing so much is because there is a high degree of faith in regulation of the market’, says Prashant Gupta.

Since the listings of some ‘new age’ tech companies in 2021, the regulator has, among other things, limited the OFS (offer for sale) size for loss-making companies, improved key performance indicator (KPI) disclosures and clarified its expectation that loss-making companies have a clearly defined path to profitability. SEBI has also been proactive in urging investors to conduct thorough research and avoid impulsive buying and has been closely monitoring the quality of IPO disclosures, emphasising the importance of transparency to ensure that investors are adequately informed.

‘SEBI has become very active in reviewing the IPO documents and rulemaking for IPOs, particularly since 2021,’ says Rajiv Gupta. ‘For example, SEBI has come up with guidelines for KPIs, risk factors and various other sections of the IPO prospectus. There is also a focus on creating parity of information between private investors and public investors. For example, companies now have to consider disclosing all KPIs that are relevant for valuation in the IPO prospectus that they shared with pre-IPO investors.’

The introduction of KPIs as part of the SEBI Issue of Capital and Disclosure Requirements Regulations ensures that companies disclose key financial and operational metrics. This provides investors with measurable, specific and quantifiable indicators that provide a clear picture of a company’s performance, thus enabling them to make better-informed investment decisions.

Nusrat Hassan, Co-Chair of the IBA India Working Group, says financial literacy among Indian families has improved a great deal in recent years. ‘SEBI has been creating greater awareness among investors, and so relevant investment information is now available to everybody’, says Hassan, who’s also Managing Partner of Dentons Link Legal in Mumbai. ‘Previously, you could expect people in Mumbai and the other mega cities to understand IPOs, but now you can go into small towns and find traders discussing whether to invest in a forthcoming IPO over a cup of tea.’

‘If there is a fall in the performance of IPO companies, SEBI tends to go after the investment banks that handled the transaction’, explains Balasubramanian. ‘It examines their records and asks them what diligence they did and how that played into the disclosure. So, it’s a fairly interventionist regulator and that does help ensure some discipline.’

He says banks have to exercise significant discipline in client selection, and he sees considerable focus on diligence and disclosure issues in transaction execution. ‘Everyone recognises that this merry-go-round can’t go on and on indefinitely’, says Balasubramanian. ‘At some point there’s got to be a resetting and a resizing, and that will come – whether in six months or a year from now, or beyond. There will then be a pause in activity while things reset, and we’ll then see the next wave.’ The difference this time around, he adds, is that the destiny of the market is more within local control than it was in the past, when it was ‘at the mercy of foreign institutions’.

The business of law

Despite potential headwinds from economic slowdowns and ‘the Trump factor’ – referring to the second presidency of Donald Trump in the US – India’s IPO market is expected to maintain its strong momentum during 2025. Market enthusiasm remains, driven by robust investor sentiment, and a healthy pipeline of companies plan to launch their IPO by the middle of the year.

While the domestic legal market has experienced an unprecedented churn of partners and teams in this practice area, international firms with a ‘One Asia’ approach to the region are handling the increased India workload in part by diverting resources previously active on China’s capital markets rather than adding new headcount. ‘I’ve been around for a long time and seen the cyclicality’, says Balasubramanian. ‘The important rule in law firms is do not over-build based on current conditions, and similarly, do not “cut into the muscle” if things are slow because the markets do come back. We’ve always tried to maintain a certain equilibrium between those two things.’

Balasubramanian’s corporate finance team at Freshfields is active on both mergers and acquisitions (M&As) and capital markets. He says a significant uptake in the former is probably a clearer indication of long-term investor sentiment. ‘That’s because most of these IPO investments are illiquid investments whereas if investors are going to put a lot of money into an illiquid, private M&A transaction in India, that has got to be grounded in a pretty strong sense of confidence that the economy and growth prospects are sound’, he explains.

He says there’s substantial M&A interest from global ‘strategics’ – for example, multinational corporations – right across sectors such as infrastructure, consumer, industrials and financial services, as well as a significant increase in activity from classic financial investors such as private equity, on both the buy and sell side and in trying to IPO their portfolio companies.

‘Financial investor sentiment and strategic investor sentiment are strong, institutional investor sentiment appears to be strong, and this all then drives the stock market, stock prices and IPO volumes’, says Balasubramanian. ‘So, we are seeing an alignment of all of these at the present time, and India is one of the very few large economies where you’re seeing this alignment. The country is seen as the big opportunity at the present time. It is in a bit of a sweet spot where the underlying fundamentals are on a trajectory that still makes investors want to invest in the market.’

Stephen Mulrenan is a freelance writer and can be contacted at smulrenan@lextelpartners.com

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