What could be the immediate impact of loosening MPS (minimum public shareholding) norms for large issues?
Pranav Haldea: This is good news on an overall basis. India is getting ready for large capital companies, and that is a positive. This is essentially targeted towards a few large issues which are in the pipeline. It is not that we can expect any market-wide impact per se and just to put this in context, as on date, there are just 10 companies which have a market cap of more than Rs 5 lakh crore and just five companies with a market cap of over Rs 10 lakh crore. So, going forward, the impact would be limited to maybe two or three large IPOs.
We have seen that a lot of these IPOs based on their sheer size, sometimes take a lot of time to get clearances from SEBI. Do you believe that these new MPS norms or suggestions right now could increase the pace at which larger IPOs are hitting the market and could they also see the kind of subscription that comparatively smaller IPOs are seeing at the moment?
Pranav Haldea: Well, that has not really been the concern. Even if we look at the consultation paper which came out last night, it is not really talking about the time it is taking for approval per se. One issue which has been mentioned is that the market is not able to absorb such large issues, where I have a slightly different point of view. There is no dearth of depth in the market as several issues have shown in the Indian capital market and even if I go back about 20 years, in 2007, the Reliance Power issue attracted subscriptions worth Rs 7 lakh crore. There was just a single IPO 20 years back.
Even if we look at some of the issues of last year in 2024, I can remember Bajaj Housing Finance attracted a lot of capital. So, I do not think depth of the market is really a concern. If any issue is attractively priced, there is enough money, enough takers for it – both institutional and individual investors.
The other issue which has been often brought about is that if you have a large IPO, then it sucks out the liquidity from the secondary market. Post Covid which is post 2020, the numbers say it all. Both primary and secondary markets have consistently outdone each other on a year-on-year basis. So, there is enough capital which is waiting and available to be invested in both the secondary market and primary market.
However, one thing I do agree with – which has been mentioned in the consultation paper – is a very fair point, that a lot of the recent large IPOs which have hit the market already have significant public holding at the time of IPO. We have to also look at this in the context of the changing nature of the Indian market. So, from the traditional promoter-owned companies, you are now getting a lot of companies which are already backed by private equity and venture capital investors and in these companies, there is already significant public holding at the time of IPO. For such companies, a high dilution is not really required. So, it is a fair point. Also going forward, minimum public shareholding becomes irrelevant because they already have a significant number of public shareholders.While we shift focus from the equity market and talk about the IPO market, the biggest attraction is that already there is strong traction and interest being seen in the primary market, but along with it, the bigger question is which sectors are showing stronger trends to list in the current scenario, especially on consumption boost and new-age technology companies.
Pranav Haldea: Well, absolutely. One of the heartening facts of the IPOs that we have seen over the last few years is the broad-basing of sectors. I was saying this somewhere else as well recently that on one end, there are the new-age technology companies and on the other end, several traditional manufacturing companies are coming out with IPOs. So, this is across the board. The late 2010s – which is between 2015 till about 2019-20 – was dominated by BFSI. There were a lot of financial services and insurance companies, but that is changing. Of course, a lot is said about the new-age tech companies and our data shows that there are roughly 90 such companies which are in the pipeline which have either filed with sebi or are waiting for approval or have announced an intention for an IPO and at the same time you are seeing a lot of these traditional companies as well. One of the key things which has happened over the last few years is a lot of Indian promoter families have realised the value which comes out with an IPO. From always holding the point that we do not want to let control go, they have now moved to a stage wherein they are seeing wealth creation happening as a result of the IPO. We are seeing a lot of interest from these traditional companies. We have to remember that India is a market which is dominated by promoter, family-owned companies. A lot of these companies are now looking at the IPO market and seeing a lot of investor interests as well.