Global investors have taken notice of India’s current new-share offering boom, but they appear to be avoiding the country’s secondary market due to its high valuations.
According to data from National Securities Depository Ltd., global funds have purchased shares worth $6.6 billion through initial public offerings, preferential allotments, and sales to major investors in 2024. This amount is the highest since the record year of 2021. On the other hand, in the same time frame, they have taken $3.6 billion from local shares.
The divergence occurs because, at almost 24 times 12-month forward earnings, Indian secondary-market stocks are among the most expensive in the world. Given that India is getting ready for more than $10 billion in initial public offerings (IPOs) in the second half of the year, including Hyundai Motor Co., the appeal of getting early exposure to Indian companies through the primary route is still strong for foreign funds.
According to Goldman Sachs Group Inc.’s head of equity capital markets Kailash Soni, “the long-only money from the US and Europe is increasing” for India. He stated that for investments in initial public offerings (IPOs), “meaningful conversations are taking place with global portfolio managers, beyond the emerging market funds.”
This year, India has emerged as one of the most popular places in the world for IPOs. According to data provided by Bloomberg, companies raised over $12 billion this year through primary share sales and initial public offerings (IPOs), more than twice as much as they did during the same period in 2023.
Vodafone Idea Ltd.’s April follow-on public offering demonstrated the advantages of purchasing new shares over those in the secondary market. The offering was priced at a 15% discount to the company’s shares that were traded on the bourses.
With Vodafone Idea’s $2.2 billion offer, investors stand to gain more than 45% in notional profits—nearly twice as much as they would have if they had purchased the shares on the exchanges the night before the FPO.
The chief investment strategist at Geojit Financial Services Ltd., V K Vijayakumar, stated that “the secondary market valuations continue to remain high while the primary market issues are at comparatively lower valuations.”