Bajaj Housing Finance's Blockbuster Debut: A Reflection of India's Booming IPO Market

India's capital markets have been a global bright spot, with a surge of local enthusiasm towards initial public offerings (IPOs) fueling concerns about liquidity-driven valuations. Bajaj Housing Finance Ltd.'s recent trading debut, which more than doubled in value, is a prime example of this trend, showcasing the frenzy surrounding new listings in the country.

Tapping into India's Liquidity-Driven IPO Frenzy

A Resounding Success for Bajaj Housing Finance

Bajaj Housing Finance Ltd., the home-loan unit of India's largest shadow lender, has made a remarkable debut on the stock exchange. The company's shares surged by an impressive 136%, reaching 165 rupees per share, compared to the offer price of 70 rupees. This exceptional first-day gain is the best-ever performance for IPOs in India valued at over $500 million. The overwhelming response to the 65.6-billion-rupee ($781 million) offering, which drew bids exceeding $39 billion, underscores the immense appetite of investors for new listings.

India's Thriving IPO Market

India has emerged as a global leader in capital raising, with investors drawn to the prospect of substantial first-day gains. On average, new listings in the country have seen gains of more than 30% this year, a trend that has caught the attention of market regulators. A recent study by the market regulator revealed that most retail investors tend to sell half of their IPO holdings within a week, highlighting the frenzy surrounding these offerings.

Liquidity Fueling Valuation Concerns

The surge in demand from domestic retail investors and institutions has propelled new listings in India to raise $8.6 billion in 2024, surpassing the levels of the two preceding years. This rush has been driven, in part, by the rich valuations of listed stocks, which are among the world's priciest. Experts warn that the gush of liquidity in the market is pushing up valuations, raising concerns about the sustainability of these lofty levels.

Bajaj Housing's Advantage: Parentage and Track Record

Bajaj Housing Finance's IPO debut has also benefited from the strong brand recognition and stellar track record of its parent company, Bajaj Finance. As part of India's oldest conglomerates, Bajaj Finance has a proven history of wealth creation, with its shares delivering an impressive annual return of around 40% over the past decade, more than double the performance of the NSE Nifty 50 Index.

Leveraging Parentage and Low-Cost Funding

Bajaj Housing Finance's access to low-cost funds, courtesy of its strong parentage, gives it a distinct advantage over its peers. According to a note from Mumbai-based brokerage Sharekhan, the company has outperformed the industry in the last five years, achieving a compound annual growth rate (CAGR) of around 29%. The analysts remain optimistic about the company's growth prospects, citing its robust performance and the favorable industry outlook.

Riding the Wave of Major IPOs in India

Bajaj Housing Finance's successful debut is part of a broader trend of large IPOs in India that have built on their first-day gains. Last month, Ola Electric Mobility Ltd. and baby-products retailer Brainbees Solutions Ltd. both raised significant amounts and are currently trading more than 35% above their issue prices.

The Pipeline of Upcoming Major IPOs

The IPO frenzy in India is set to continue, with several high-profile listings on the horizon. Hyundai Motor Co. is expected to raise as much as $3.5 billion from the listing of its Indian unit in the coming months, while South Korea's LG Electronics Inc. is also considering an IPO of its Indian business that could raise up to $1.5 billion. Additionally, the popular food-delivery platform Swiggy Ltd. is reportedly preparing to file for a public listing, potentially seeking to raise more than $1 billion.