Betting on India growth story: Fresh capital raised via IPOs highest in over a decade, points to capex revival

Capex revival in works: This year, the fresh capital raised through initial public offerings (IPOs) has hit its highest level in over a decade, reports ET. This signifies the anticipated resurgence in capital expenditure by India’s private sector which believes that the rapidly growing economy will soon stretch the current capacities.
Out of the total initial public offering proceeds of Rs 27,435 crore announced or collected in 2023, approximately half come from fresh issues. This means that these funds will be injected into the capital structure of the issuers, either to finance capital assets or to retire existing debt garnered for capacity expansion.
For instance, JSW Infrastructure’s Rs 2,800-crore public offering consists entirely of primary shares. 88% of Samhi Hotels’ Rs 1,370-crore public offering consists of primary shares. Recent IPOs, including those by SignatureGlobal, Yatra Online, and Zaggle Prepaid Ocean Services, also feature significant fresh issue components, ranging from 70% to 85%.
Bankers note that companies are gearing up for an economic expansion and are making capital investments to capitalize on the expected boom. Dharmesh Mehta, MD & CEO of DAM Capital, explained that most recent public issues come from the manufacturing sector, seeking substantial capital infusion for both capital expenditure and acquisitions. He added that these corporations are strategically preparing for growth, buoyed by a positive outlook.

In 2023, around 50% of the IPOs that successfully raised funds are from the manufacturing sector, while 35% belong to other capital-intensive industries like hotels, hospitals, logistics, and construction. Notably, the banking, financial services, and insurance (BFSI) sector accounted for only two IPOs this year.
Abhijit Tare, CEO-Investment Banking at Motilal Oswal Financial Services, pointed out that companies, amidst the market enthusiasm, are actively securing fresh capital to strengthen their balance sheets for future growth. Many mid-level companies are expanding their capacity to align with the China+1 strategy, while others are preparing for capacity-building under Production-Linked Incentive (PLI) schemes.
In the past decade leading up to 2022, IPOs were primarily used for meeting internal financial needs, with most funds directed towards existing shareholders. In 2022, only 30% of the total funding of Rs 59,302 crore came from primary issuances, with the remaining Rs 41,643 crore raised through the sale of existing holdings by investors, according to data from Prime Database. This marked a decline from the 36% ratio observed in 2021. The ratio was a meager 13% ratio in 2020.
In the first quarter of FY24, projects worth Rs 5.96 lakh crore were announced, the highest in five years. While the government has been driving investments in recent years, private capital expenditure, which has a substantial impact on economic growth and job creation, has lagged behind.