If the big thumbs-up to IPOs of new age Indian companies in 2021 is any indication, the future may be brighter and younger for Indian indices. A total of 108 companies from the new economy sector, with a valuation of $435 billion are IPO ready.
CMS Info Systems, MobiKwik, Skanray Technologies, Byju's are few companies that have either floated their IPOs or are thinking of bringing an IPO in the coming months.
2021: A case in point
The current year witnessed a flurry of IPOs, but the striking part of this story was the dominance of new-age internet companies. Out of 53 IPOs that came out this year, a major chunk of IPO money - 37.28 % - was raised by just seven such companies.
The interesting fact about these seven is that all of them are below the average age of the MSCI India Index, which is 21 years. These include Paytm (Rs 18,300 crore), Zomato (Rs 9,375 crore), Nykaa (Rs 5,352 crore), Easytrip (510 crore), CarTrade (Rs 2,998 crore), PB Fintech (5,625 crore) and Nazara Technologies (Rs 583 crore). Collectively, these new-age companies raised ₹42,743 crore, translating into 37.28% of the total IPO collection of ₹1.14 lakh crore. The skewed weight of these IPOs shows the potential they have in unlocking the value of the Indian capital market.
The IPO frenzy
In the financial history books, 2021 will go down as the most glorious year for IPOs. The Indian IPO ecosystem flourished on the back of investors’ optimism, due to low global interest rates and surging liquidity. As per a Ernst and Young report, global investors poured in record $453 billion across different equity markets - a 67% increase in the IPO proceeds over the preceding calendar year. Indian companies raised $17 billion through IPOs, translating into 3.75% of the global IPO proceeds. If you zoom in on the seven new-age Indian companies, their IPOs contributed 1.4% to the global IPO proceeds.
When one super-imposes the two data sets: 37% of money raised by IPOs in 2021 year-to-date was through seven-new age companies and that only 5% of the MSCI India index is made up of the new economy sector, the possibilities of growth of the Indian stock markets appear phenomenal.
MSCI sees India in a new light
Morgan Stanley Country Index (MSCI) of India is one of the oldest indices in Asia Pacific ex-Japan. As per the Goldman Report, most of the stocks in the NIFTY and MSCI India indices have more than 20 years of listing history, making India among the oldest indices in the region. Contrary to India, China has the youngest equity index.
The current MSCI India index is dominated by old economy sectors, which make up more than 50% of the index, followed by the financial sector at 26%. Only 18% of the index is software companies while a measly 5% is formed by the new economy sector. The Goldman report says that Indian equity indices could see a larger representation of the new-economy sectors over the next 2-3 years.
If you look at the MSCI China Index, the average listing age of companies is just 9 years. New Chinese companies comprise about 60% of MSCI China Index, up from 20% a decade ago, and about half of the daily exchange turnover. The report also pointed out that in China, since 2005, the returns from the new economy sector were 17X as compared to 3X from the old economy sector.
According to Venture Intelligence data, there are 67 private companies in India that have achieved unicorn status; their combined valuation is $215 billion. These unicorns belong to the new economy sector that are IPO ready. Eighteen of these unicorns have generated revenues of at least $100 million in the past financial year. Moreover, there are 41 private companies that are not unicorns, but have generated revenue of at least $100 million in the past financial year, which are also IPO ready. The combined worth of these 41 companies is estimated to be $220 billion.
So, the inclusion of the new-age companies in Indian indices may not only impact the average age of the index but also the impact the return from the index. With the maturing of the Chinese market coupled with tightening of regulations by the Chinese government, India could be a lucrative destination for global investors, provided there is a higher influx of new-age companies in the Indian markets.