Booming primary market in India lures funds away from pricey stocks

By Chiranjivi Chakraborty and Baiju Kalesh
 

The ongoing boom in new-share offerings in India has caught the fancy of global funds, who seem to be shunning the nation’s secondary market for its high valuations.
 

Global funds net bought shares worth $6.6 billion through initial public offerings, preferential allotments and sales to large investors in 2024 so far, the highest since the record year of 2021, according to National Securities Depository Ltd.’s data. In contrast, they’ve pulled $3.6 billion from local shares during the same period.

The divergence comes as Indian secondary-market stocks are among the priciest in the world, at about 24 times 12-month forward earnings. For global funds, the allure of gaining earlier exposure to Indian companies through the primary route remains strong as the country readies for more than $10 billion in IPOs in the second half of the year, including that of Hyundai Motor Co.

“The long-only money from the US and Europe is increasing” for India, said Kailash Soni, head of equity capital markets at Goldman Sachs Group Inc. “Beyond the emerging market funds, meaningful conversations are taking place with global portfolio managers” for investments in IPOs, he said.

India has become one of the busiest venues globally for initial public offerings this year. Companies raised over $12 billion through IPOs and primary share offerings this year, more than double the amount raised in the same period in 2023, data compiled by Bloomberg showed.

The follow-on public offering by Vodafone Idea Ltd. in April — priced at a 15 per cent discount to its shares traded on the bourses — showed the benefit of buying new shares, compared with those in the secondary market. 

Investors in Vodafone Idea’s $2.2 billion offer sit on notional profits of more than 45 per cent, which is nearly double the gains that would have been made had they bought the shares from the exchanges on the eve of the FPO. 

“The primary market issues are at comparatively lower valuations while in the secondary market the valuations continue to remain high,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services Ltd.