By Atul Parakh
India’s domestic institutional investors are most active participants in the stock market as well as in the IPO market. The domestic fund flows are also massive, monthly SIP is at its peak, bank deposits, fixed deposits are on decline, and ELSS schemes are attracting investment, insurance policies sales are on rise.
All these changes happening in the financial world are visible and funds are indirectly going to the domestic institutional investors. It shows the trust of small investors in mutual funds and other financial institutions which indirectly influences the financial market and companies preparing for the IPOs.
The benchmark indices Nifty 50 and Sensex 30 are trading near to their all-time-high. Due to this, market sentiments are positive and unlisted companies are rushing to file IPO to raise funds from the public.
Domestic institutions are looking for opportunities to maximise their returns by actively participating in the IPOs which further boosts the IPO bids resulting in oversubscribing in the DII category. In this blog, we have discussed how domestic funds are shaping the future of IPO and how retail investors can benefit from it.
Future of IPO in the Indian Stock Market?
The future of IPOs in the Indian share market looks promising, good and driven by a growing economy, increasing the retail investor’s participation and rise of innovative sectors like technology, e-commerce and renewable energy.
As we know, India is a developing country, and more Indian companies seek to go for a public offer to raise funds so domestic funds are surely going to flow in the new-age companies which have high growth potential compared to the matured large-cap companies.
Domestic institutional investors, such as mutual funds and insurance companies, will play a crucial role in stabilising these offerings, providing the necessary capital to sustain large IPOs.
Moreover, the rise of retail investors, fueled by digital platforms and government initiatives, will further democratise access to public markets.
New age Indian startups majorly technology based firms are likely to dominate the upcoming IPO craze which reflects the major shift toward digital transformation.
India’s financial market regulator frameworks are from time to time getting updated and evolving as the market conditions become more favourable for investors. It indicates that India’s IPO market is set to experience massive growth, attracting global attention in the coming years.
How Does Participation of Domestic Funds Benefit IPO?
Increased Liquidity in IPO: Domestic funds provide massive liquidity support and a significant source of capital for Initial Public Offers, ensuring that sudden selling pressure after the listing gets absorbed quickly.
The higher liquidity makes it easier for the companies to gain the trust of the investors to trade the shares and improve the success of the IPO. The active participation of domestic funds often stabilises the public offering, resulting in a decrease of volatility and dependency on foreign investors.
Stability: India’s domestic funds showing interest in participating in the IPO market. It boosts the confidence of the small investors and sends a positive signal to the market about the future prospects of the company.
The confidence boosts the credibility of the IPO, attracting retail and other market participants. DII’s participation supports IPO post-listing, preventing high price fluctuations bringing stability to the prices and creating a suitable environment for trading.
Support Startup and New Age Firms: Domestic Institutional Investors give support to innovative startups by investing in their IPOs when private and angel investors exit to cash out their investment. DII tries to take risks by investing in new-age companies, which may turn out to be a multibagger in future.
This supports the new-age companies in expanding their capital base, working on innovation and driving growth in the future. DII’s long-term investment approach provides stability to the share price of the newly listed companies and keeps the market cap stable.
Improves the IPO Investors sentient: There are two types of IPO investors who participate in the IPOs. One is those who are applying for the listing gains and other one are those who believe in the company’s fundamentals and bet for the long-term.
DII’s participation improves the sentiment of both the investors which positively impact the IPO listing and support share price to hold the listing gains.
Balancing the Foreign Influence: The funds of domestic institutional investors balance the influence of foreign investors in the IPO. It is often seen that FII take early exit in IPO which may invite sell-off in the stock price of the particular scrip but DIIs commitment to long-term investment approach balances the FII influence and prevents sharp selling. This reduces volatility and helps maintain stability in the domestic market during times of global uncertainty.
Conclusion
The craze of IPO investing is likely to grow more in the coming years. As the domestic funds are actively participating in the IPO to become a part of new-age companies, the future of India’s IPO market looks good and promising for making higher returns.
In the future, as domestic funds continue to grow, their role in supporting and shaping IPO markets will likely become more crucial, particularly in developing and sustaining the growth of Indian companies across various sectors.
(About The Author: Atul Parakh is CEO at Bigul, the digital arm of Bonanza)
(Disclaimer: Views, recommendations, and opinions expressed are personal and do not reflect the official position or policy of Financial Express.com. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)