Ramesh Damani Warns of Liquidity Crunch as South Korean Giants Target India’s IPO Market
Veteran investor Ramesh Damani has raised concerns about the overheating of India’s vibrant primary market. He warns that a slew of Initial Public Offerings (IPOs) from South Korean multi-nationals, aiming for high valuations for their local businesses, could significantly drain liquidity from the market.
In a conversation with CNBC-Awaaz, Ramesh Damani, a member of the Bombay Stock Exchange (BSE), highlighted the potential impact of the ‘K-pop’ IPOs, a term he used to describe popular South Korean brands like Hyundai, LG, and Samsung.
According to Damani, these upcoming IPOs could absorb substantial liquidity from the secondary market, indicating a need for caution among investors. He noted, “At some point, we’ll have the liquidity sucked out from the market.”
Damani’s remarks come amid a surge in market activity, particularly in the mid and small-cap segments, which he believes have become overvalued. After a strong market rally, he has begun to reduce his exposure to mid and small-cap stocks, shifting his focus to large-cap names.
This strategic move reflects his growing concern over the market’s sustainability at current valuation levels.
These comments are particularly pertinent given the recent approval by the Securities and Exchange Board of India (SEBI) for Hyundai Motor India’s proposed $3 billion IPO, slated to launch in October. Additionally, LG Electronics India and Samsung India are reportedly preparing to enter the primary market soon.
If realized, the Hyundai Motor India IPO would be the largest in India’s history, potentially setting a new benchmark for the market.
Damani pointed out that South Korean multinationals believe they can command high valuations for their Indian businesses, which could result in substantial capital inflows. This influx of capital from high-profile IPOs could lead to a liquidity crunch in the secondary market, as investors flock to these new opportunities.
The heightened activity in India’s primary market has led to companies raising approximately $9 billion through IPOs in 2024 alone, according to data from Bloomberg. This frenzy has not only attracted individual investors but also major mutual funds. The Association of Mutual Funds in India (AMFI) reported in August that large mutual funds have been actively investing in newly-listed companies such as Brainbees, Ola Electric, and Unicommerce.
The robust demand for IPOs has resulted in massive oversubscription numbers for many public issues. On average, companies debuting in India have seen listing day gains of 30%, significantly higher than the global average of 22%, as per Bloomberg data. This strong performance underscores the intense demand and bullish sentiment in the Indian market.
At least three more public issues, each worth over a billion dollars, are expected to hit the market soon. This includes the much-anticipated IPO of Softbank-backed Swiggy, which recently upsized its offering to $1.4 billion in response to growing competition in the grocery delivery sector. The impending IPOs of LG Electronics India and Hyundai Motor also contribute to the heightened anticipation.
While the current IPO boom is indicative of strong investor confidence and market optimism, Damani’s warnings should not be taken lightly. The influx of high-value IPOs could strain the market’s liquidity, potentially leading to increased volatility. Investors may need to be more discerning in their stock selections, focusing on fundamentally strong companies that can withstand market fluctuations.
Damani’s shift from mid and small-cap stocks to large-cap names is a strategic move to mitigate risks associated with overvaluation and potential market corrections. Large-cap stocks generally offer more stability and are less susceptible to market volatility compared to their smaller counterparts.
Ramesh Damani’s concerns highlight the potential risks in India’s overheated IPO market, particularly with the impending ‘K-pop’ IPOs from South Korean giants. While the market frenzy has created significant opportunities, it also brings challenges that investors need to navigate carefully. As the market braces for these high-profile IPOs, the focus should remain on maintaining a balanced and diversified portfolio to mitigate risks associated with liquidity constraints and overvaluation.
The next few months will be crucial for the Indian stock market as it navigates through this wave of new listings. Investors, both institutional and retail, must stay vigilant and make informed decisions to capitalize on opportunities while safeguarding against potential downsides. The evolving market dynamics underscore the importance of strategic planning and a cautious approach in an increasingly competitive and fast-paced investment landscape.