The primary market puzzle: Too much, yet too little?

Time of India

01-06-2025

Typically, when primary markets are buzzing with palpable action, it is often a reflection of surging business confidence and economic momentum. When companies raise large sums of money through IPOs and QIPs (Qualified Institutional Placements), that new capital often flows into productive uses—new projects, capacity expansion, technology upgrades, and other capital investments.
Given the well-known multiplier effect of such investments, this can set off a virtuous cycle of economic growth. That is how usually the rub-off effect plays out for the economy from the robust primary flows. Is that the case now too?
FY25 saw a remarkable surge in capital raising, with over ₹3.14 trillion mobilized through IPOs and QIPs—a level rarely seen before. In fact, it's hard to recall any prior instance when Indian markets saw such a deluge of primary fund inflows. It could very well be a historical first.
So, the natural question is: Are we about to witness a new wave of economic growth, this time powered by private
capex
turn?
Let's dive in to dig deeper to find the answers.
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For this exercise, all that we need to do is to go back and assess how the funds raised in the previous year translated into actual capital investments. In terms of
fundraising
from primary markets, FY24 was not far behind the year gone by (FY25).
It was equally a blockbuster year in its own right - though the overall quantum was smaller compared to the surge seen in FY25, it still marked a significant uptick in the primary market led primarily by
QIP
.
Markets witnessed fundraising of over Rs 1.40tn from primary markets in the year FY24, predominantly driven by QIPs which constituted over 54% of the overall quantum. This much is well known. But what has not received the deserved attention is how these funds were utilized subsequently.
Surprisingly, only a little over a quarter of the capital raised was actually deployed in new projects or any capacity expansion. A significant share went towards debt repayment and general-purpose corporate expenditure, while a substantial portion found its way into the hands of institutional investors or promoters through Offer for Sale (
OFS
) route.
The story is no different for FY25 with new capital projects receiving a meagre share of the overall fundraising. While this is good for the promoters and institutional investors, not so good for the economy. One doesn't need to go too far to understand this than to look at the much-trumpeted Hyundai
IPO
that happens to be the largest ever IPO India has seen. It was entirely an Offer for Sale
(OFS) by the parent company, Hyundai Motor Company, involving the sale of a 17.5% stake in its Indian subsidiary. No new shares were issued, and the Indian entity did not receive any proceeds from the IPO.
It is not going to stop here. Looking at the pipeline of IPOs, the story is likely to follow a similar script even in the current year. Many more MNC promoters are lining up to tap into the premium valuation that India offers to cash out in a hurry, especially given their financial challenges back home. It is a question of time before the LGs and Whirlpools of the world swing into this seductive IPO/QIP syndrome.
Imagine, what kind of multiplier impact it would have had on the growth if a larger share of the fundraising had gone into new capital projects. That much for the IPO boom.
It's intriguing—and somewhat concerning—that India Inc. has yet to fully unleash its animal spirits to invest in new projects and capacity expansion, especially at a time when the sun is clearly shining on the primary markets. For context, the share of private sector investment as a percentage of GDP has been stagnating around 11% for several years.
There was a brief glimmer of improvement in FY23, when this figure inched up to 12.3% from 11.4% in FY22. However, this momentum failed to sustain. Despite a booming primary market in FY24, private investment slipped back to 11.2% and is estimated to have further dipped below the 11% mark in FY25—the lowest in over a decade, excluding the Covid-induced slump of FY21 when it fell to 10%.
Global surplus capacity in many commodities, persistent Chinese dumping and the ongoing tariff related uncertainties could be the factors that are keeping India Inc. hesitant when it comes to unleashing new projects. It is hard to blame India Inc for not doing its due.
Given the subdued global outlook, these challenges are unlikely to recede any time soon. This means that the wait for the ever-elusive turn in the private capex cycle may be longer than previously hoped by the markets. While the market may continue to pin its hopes for a quicker turn, one needs to keep a tab on where the money gets utilized from the ever-increasing fund raise in the primary markets for any hints on such a turn. Interesting Times!
(The author, ArunaGiri N is the Founder CEO & Fund Manager at TrustLine Holdings)