Before You Invest in an IPO, Ask This Important Question
India raised $21.8 Bn through IPOs last year.
That's roughly ₹1.9 lac cr.
Let that sink in.
That's almost equal to the entire Gold ETF industry in India.
At a time when gold was hitting record highs...
Indians still poured an equivalent amount into IPOs in 1 Yr
Which raises a fascinating question
What exactly were investors buying... and who was selling?
Before applying for an IPO, most investors check
✓ Valuation
✓ GMP
Very few ask a simpler question
Who is actually receiving my money?
Because many of India's biggest IPOs weren't primarily about raising growth capital.
They were Offer For Sale (OFS) transactions.
The company receives little of that money.
The seller does.
And increasingly, the sellers are global parent companies.
According to a Reuters analysis
• Nestlé India trades at roughly 77x earnings versus
22x for its Swiss parent.
Yet India contributes only about 2% of Nestlé's global revenue.
• LG Electronics India trades at roughly 59x earnings
versus 44x for its South Korean parent.
India contributes about 4.5% of global revenue.
• When Hyundai India listed, it was valued at roughly $18 billion
close to 40% of the parent's market value at the time.
Despite contributing only about 6% of Hyundai's global revenue.
At first glance, that sounds irrational.
But markets don't pay for size alone.
They pay for growth.
And while most the of the world is struggling.
India has exactly that , GROWTH.
Just this week, India's FY26 GDP growth came in at 7.7%.
Stronger than forecasts that circulated through much of the year from institutions such as the IMF, World Bank, OECD and several global investment banks.
While much of the developed world debates stagnation...
India offers
• Rising incomes
• Manufacturing tailwinds
• A growing consumer base
• Decades of growth runway
The world's investors see India's future.
Global companies see it too.
Investors aren't valuing India's present.
They're valuing India's future.
Which is precisely why global shareholders are selling a piece
of their India story to Indian public markets.
And Indian investors are happy to buy it.
None of this is wrong.
OFS is a legitimate and important part of capital markets.
But it does raise an important question
Are you funding a company's next phase of growth?
Or are you providing liquidity to an investor
who is cashing out after a successful run?
Those are two very different transactions.
The next time you read an IPO prospectus, don't start with valuation.
Start with one section
"Objects of the Issue."
Because before asking whether an IPO is expensive...
You should first understand where your money is actually going.
Originally published on LinkedIn
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