Desperate Times, Desperate Measures: Behind India’s Investment Frenzy
India’s IPO boom masks distress: retail investors chase stocks and mutual funds amid stagnating incomes and rising inflation, not confidence.
The Gist
The Indian retail investment landscape is witnessing an unprecedented surge, with investors pouring over Rs 2,700 crore into IPOs in just four hours.
- Key IPOs include a service marketplace with questionable business fundamentals.
- The company reported a significant profit increase, raising concerns about its timing ahead of a major IPO.
- Despite high household debt and inflation, retail investors are flocking to equity markets, driven by desperation rather than strategy.
The appetite of Indian retail investors appears to know no bounds.
The Economic Times says investors forked out over Rs 2,700 crore in just four hours on September 9 to invest in IPOs of a range of companies.
A key one is a marketplace for services whose business model is conceptually challenged and practically unsound.
Moreover, the company reported a handsome profit.
It’s Capitalism, After all
This is good news except that the timing of these rosy numbers ahead of a mega IPO meant to mostly help its venture capital investors exit their investments should surely raise an eyebrow or two.
Diving in, the company’s revenue from operations jumped 38% in the last year to Rs 1,144 crore, a rise that is creditable but also begs the question as to what happened in the last year that caused people to hire the services of more carpenters and masseurs or such in such large numbers.
Meanwhile, profits jumped dramatically to Rs 239.8 crore, which is obviously a remarkable turnaround from a net loss of Rs 92.7 crore in FY24.
Of course, the profits would have been less spectacular were it not for the Rs 211 crore recognition of a deferred tax asset, all figures from HDFC Securities.
India was the second-largest IPO market in the world last year, raising over $20 billion and this year that figure could touch $28 billion.
If all goes well for the companies in the race, that’s another ...
The appetite of Indian retail investors appears to know no bounds.
The Economic Times says investors forked out over Rs 2,700 crore in just four hours on September 9 to invest in IPOs of a range of companies.
A key one is a marketplace for services whose business model is conceptually challenged and practically unsound.
Moreover, the company reported a handsome profit.
It’s Capitalism, After all
This is good news except that the timing of these rosy numbers ahead of a mega IPO meant to mostly help its venture capital investors exit their investments should surely raise an eyebrow or two.
Diving in, the company’s revenue from operations jumped 38% in the last year to Rs 1,144 crore, a rise that is creditable but also begs the question as to what happened in the last year that caused people to hire the services of more carpenters and masseurs or such in such large numbers.
Meanwhile, profits jumped dramatically to Rs 239.8 crore, which is obviously a remarkable turnaround from a net loss of Rs 92.7 crore in FY24.
Of course, the profits would have been less spectacular were it not for the Rs 211 crore recognition of a deferred tax asset, all figures from HDFC Securities.
India was the second-largest IPO market in the world last year, raising over $20 billion and this year that figure could touch $28 billion.
If all goes well for the companies in the race, that’s another several hundred thousands of crores of investor savings transferred into the hands of institutional investors, founders and promoters.
Nothing wrong, after all, it is capitalism.
Desperate Times, Desperate Investments
Except that small investors seem to be investing out of sheer desperation rather than strategy.
And that applies to large and small investors locked into Indian markets.
Indian institutional investors, including mutual funds, are buying stock because there is no place else to invest.
Small investors are putting money into mutual funds and investing directly because high inflation and stagnant incomes are making them desperate for avenues other than traditional bank deposits.
Most youngsters may not even know what a bank deposit is.
And poorly regulated content on social platforms powered by stockbrokers, funnelling traders into slick apps, completes the chain and flow of funds.
Dhirendra Kumar of ValueResearch in a recent article pointed out that debt is climbing — household debt load is now nearly 38 per cent of GDP, and liabilities are rising faster than savings.
The most visible sign is that credit card outstandings surged from Rs 2.53 lakh crore to Rs 2.92 lakh crore in just a year.
When viewed together, combined with the sheer flows into equity markets at a time when the fundamentals are not so strong, the signs are worrying.
Fear And Frenzy
Not that anyone cares, the number of individual brokerage accounts has crossed 200 million now or one for every seven Indians, as an article in The New York Times on India’s investing frenzy pointed out.
The individual retail investor story is actually similar to other markets. Wall Street is moving similarly and quite irrationally, you could argue.
For instance, each time there is a negative jobs report, markets jump up. Why? Because there could be an interest rate cut, which will bring in more capital.
Gold prices are skyrocketing too, hitting fresh highs, along with Wall Street.
They are rising because of the apprehensions among investors of the US economy and the impact of tariffs and the post-Trump world, not to mention wars.
It’s not often that fear and greed coexist so effortlessly.
