The Indian stock market has recently witnessed an unprecedented surge in initial public offerings (IPOs), catapulting it to the forefront of Asia's IPO landscapeThis resurgence is driven by companies like Swiggy and Hyundai, positioning India as the world's second-largest equity financing market, trailing only behind the United StatesInsights from KPMG suggest that the National Stock Exchange of India could potentially outpace the Nasdaq, making it the largest primary listing exchange globally, a notable feat in the competitive arena of capital markets.

As we delve into the dynamics of the Indian capital market, it becomes clear that we are currently experiencing one of the busiest periods in its historyV Jayasankar, Managing Director of Kotak Investment Banking, emphasizes the attention India is garnering, stemming from a ‘democratization’ of investmentsWith robust domestic capital inflows, an increasing number of households are directing their funds towards local equities

This phenomenon, according to Jayasankar, is pleasantly surprising for stakeholders and investors alike.

In 2024, the Indian stock market is marked by a plethora of smaller trades as numerous companies rush to capitalize on the high valuations still prevalent in the marketA banker based in Mumbai highlights that, while the volume of transactions has indeed surged, the average transaction size has plummeted by approximately 75-80% over the past two yearsThis suggests a clear intent among companies to liquidate and take advantage of favorable market conditions before they change.

Despite the burgeoning activity within the primary and secondary markets, the Indian economy is showing signs of a slowdown, with corporate earnings taking a hitRecent data reveals that GDP growth for the third quarter has dropped sharply to 5.4%, marking a two-year lowThis decline has prompted foreign portfolio managers to exercise caution regarding the potentially volatile stock market

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Evidence of this wariness is illustrated by the record capital outflow from the Indian stock market, surpassing $11 billion in October and an additional $2.5 billion in November, pressuring the market further.

Nevertheless, many bankers remain optimistic about the continued prosperity of India's IPO landscape into the new yearThey note that the influx of funds is set to continue as long as market conditions are favorable and liquidity remains highOne banker commented, “The quality of issuances aside, if the market sustains support and liquidity stays abundant, we can expect considerable activityThe state of the first two quarters of 2025 is unlikely to differ significantly from our current observations.”

Globally, investment bankers are also viewing India through an optimistic lensHowever, they caution that India's relative growth could be overshadowed by a substantial rebound in the US and other markets

Gareth McCartney, Co-Head of Global Equity Capital Markets at UBS, predicts a normalization of global IPO market activities around 2025, with significant increases in transaction volumes in both the US and EuropeNevertheless, he asserts that if India continues its upward trajectory, it would not surprise him.

From a macroeconomic perspective, the slowdown of the Indian economy inevitably influences the stock marketCompanies facing declining earnings may see their stock prices fall, coupled with a general market apprehension regarding future expectations amidst sluggish economic growth.