Equity issuances could top $40 bn in 2024, says Kotak Investment Banking

Kotak Investment Bank expects equity issuance to top $40 billion (Rs 3.3 trillion) this year underpinned by robust liquidity conditions.

The investment bank, which ranked first in 2023 on the Bloomberg equity capital market (ECM) league table, expects combined inflows of $50 billion (Rs 4.2 trillion) from domestic and foreign institutional investors (DII and FIIs), which will help absorb the new paper supply entering the market and help prevent “bubble formation” in the secondary market.

In 2023, about $38 billion was mobilised by the ECM — closer to the peak of $39 billion seen in 2020 —making India the fourth-best market in fundraising globally. In 2023, DII flows stood at $22.3 billion, while the net FII inflows were $20.5 billion.

Out of the $38 billion ECM activity, $24 billion was on account of sell-downs (private equity exits and other secondary market sales via block deals). The year also saw a moderation in initial public offering (IPO) volumes and a reduction in average IPO size.

The total IPO mop-up stood at $6.4 billion in 2023 versus $8.2 billion in 2022. While the average issue size fell to $110 million from $265 million in 2020.

The average listing gains stood at an encouraging 33 per cent, making the BSE IPO index the third-best-performing such index globally.

Kotak Investment Bank expects the momentum in sell-downs to continue this year by PE/VC exits.

The investment bank said 2024 will likely witness IPOs in spaces like electric vehicles, fintech, and consumer technology.

The bankers at Kotak said IPOs have witnessed the best diversification across sectors in 2023 compared to the preceding eight years. The share of the financial sector in the IPO mobilisation pie fell from an average of 56 per cent in CY2015-18 to just 13 per cent in CY23.

Kotak Investment Bank believes over the next two years, about 15- 20 unicorns could come out with IPOs.

When asked about the tepid post-IPO performances, post a listing of some new age companies in the past. The investment bankers said these companies are a new phenomenon, and markets are still learning to price them when they come with an issue.

The forthcoming IPOs from new-age companies will largely be from those who have turned profitable, they said.

"This time, there is a greater focus on near-term growth and profitability. We saw elevated pricing because of ebullience in equity markets, which is unlikely to be repeated,” said S Ramesh, managing director and chief executive officer of Kotak Investment Banking.