India’s stock market has become one of the most attractive markets in the world in the last few years. Due to the rapidly growing economy and strong participation of investors, there has been a tremendous boom in the IPO market here. However, foreign companies are taking advantage of this boom not to expand their business, but to earn profits on investments and send money to their countries.
According to data from market research firm Prime Database, only one in six foreign companies listed in India after 2024 has raised fresh funds. All other companies have sold their shares through Offer for Sale (OFS). In OFS, the existing investors of the company sell their stake to the common investors, while the company does not get any new funds.
Hyundai and LG withdrew the highest amount
According to statistics, foreign parent companies have raised around $5 billion through IPO of their units in India. The contribution of Hyundai Motor and LG Electronics in this has been more than 80 percent. This means that for every $1 raised from these IPOs in India, more than $59 has reached the headquarters of foreign companies.
This trend still continues. The proposed IPOs of Walmart’s Indian payments company PhonePe and the Indian gaming unit of Sweden’s Modern Times Group are also based on the OFS model. Apart from this, companies like Coca-Cola and Carlsberg are also seen moving on the same path.
High valuations are making India attractive
Experts believe that the high valuation available in the Indian market is attracting foreign companies. The valuations of Indian units of many foreign companies are much higher than their parent companies.
For example, Nestle India’s price-to-earnings (P/E) ratio is around 77 times, while its Swiss parent company’s P/E ratio is around 22 times. Similarly, the valuation of LG Electronics India is also higher than its South Korean parent company. This is the reason why foreign companies are earning better returns by selling stake in the Indian market.
increasing pressure on rupee
Experts say that the withdrawal of money by foreign companies through IPO is also affecting the Indian rupee. Since 2024, the rupee has weakened by about 13 percent against the dollar. This year also a decline of about 6 percent has been recorded.
According to Axis Bank economist Tanay Dalal, IPO-related capital outflows are continuing to put pressure on the rupee. At the same time, selling by foreign portfolio investors is also making the situation more challenging.
Concern increases amid record IPO pipeline
India will be the second largest IPO market in the world after America in 2025. Last year, 367 companies raised $21.8 billion through IPO. Currently, IPOs worth about $26 billion are awaiting regulatory approval.
However, there is a growing concern among experts and policy makers that IPOs are now becoming an exit medium for early investors and foreign companies instead of raising capital for the expansion of companies. If this trend continues, it may affect both capital formation in the country and the stability of the rupee.
