IPOs have returned with a bang, but are they a true indicator of an improved economy? Gautam Kagalwala looks at the reasons for the revival of primary markets and the role of the regulator

The current financial year is one of the best for initial public offerings (IPOs) in India, with ₹491 billion (US$7.6 billion) raised in the first seven months of the year according to a recent State Bank of India research report. This amount has surpassed Ernst & Young’s estimate of US$5 billion for the year, and is already greater than the total capital raised between the 2012 and 2016 financial years.

There has been increased interest among retail and strategic investors for IPOs, and companies in response have sought to attract capital in order to fund expansion plans.

The insurance sector has been a significant driver of this trend with large issues by General Insurance Corporation of India (GIC Re, US$1.7 billion), New India Assurance Company (NIACL, US$1.4 billion), SBI Life Insurance (US$1.3 billion), HDFC Standard Life Insurance (HDFC Life, US$1.3 billion) and ICICI Lombard GIC (US$838 million).

The general insurance business has been growing at a healthy rate, with US$17 billion in premiums in the 2017 financial year. Market penetration remains low, with only 3.4% of the population having a general insurance policy, so the potential for growth is high. The sector is projected to reach US$350-400 billion by 2020. The IPOs should serve as a shot in the arm for insurance companies, but the stocks of the insurance companies suffered mixed fates upon listing. The share prices of GIC Re and NIACL went on a decline immediately upon listing owing to disagreements about their valuations, while HDFC Life and ICICI Lombard performed well. For the companies it is desirable to see strong performances in the secondary markets due to the impact on additional stock issues, future credit prospects and prestige.


The primary market had seen a relative lull following the 2010 and 2011 financial years, when US$7.1 billion and US$7.6 billion were raised, respectively. On the other hand, the BSE Sensex has been on the rise since December 2011. The ability of the insurance companies to opt for IPOs can be traced back to recent regulatory changes. “The Insurance Laws (Amendment) Act, 2015, allowed for a composite foreign investment – foreign direct investment and foreign portfolio investment – limit of 49% of the paid-up equity capital of an Indian insurance company. It further clarified that indirect foreign investment of banks – which often are the Indian promoters of insurance companies – will not be taken into account for the 49% limit,” says Gaurav Gupte, a partner from the capital markets practice of Cyril Amarchand Mangaldas.

The 2015 amendments also changed the General Insurance Business (Nationalization) Act, 1972, and allowed government-owned general insurance companies to raise capital. Gupte worked on the IPOs by GIC Re and ICICI Lombard and ICICI Prudential Life Insurance Company, and each was the first in its sub-sector to go public. “Being the first, each was a unique, exciting and learning experience,” he says.


Lokanath Kar, the chief legal and principal compliance officer at ICICI Lombard, says that by 2017, many of the private sector non-life insurance companies had been operating for 15 years and were therefore naturally ripe for listing. The sector regulator, the Insurance Regulatory and Development Authority of India (IRDAI) introduced the (IRDAI) Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance Regulations, 2015, and also the Listed Indian Insurance Companies Guidelines, 2016. “The statute and the regulations together paved a clear path for the insurers desirous of going public to act upon it,” says Kar.

ICICI Lombard’s shares were oversubscribed three times and listed on the bourses on 27 September. “The experience to be listed is beyond enrichment and contentment,” he says. “To complete the entire listing process in a span of four months has set the benchmark for others to follow.”

Deepak Kinger, chief of risk and compliance at ICICI Prudential Life Insurance, says the IRDAI has been very proactive, and has had extensive dialogue with companies to exchange points of view to ensure a speedy resolution of various challenges. “Further, the timelines within which both IRDAI and SEBI [the Securities and Exchange Board of India] have indicated a go-ahead to the issues reflect the excellent inter-regulatory coordination,” he says. ICICI Prudential was the first life insurance company to have an IPO, in September 2016.

However, Kar says his company had to deal with multiple regulatory authorities. “The process and approach followed by different regulatory bodies are different, and that causes some amount of confusion in approaching them separately,” he says. “In view of the same, at least for IPOs, a single window and timely approval mechanism may be of great help. This approach will definitely smooth out the entire listing process and enable greater transparency at the outset.”

Abhimanyu Bhattacharya, a partner at Khaitan & Co who specializes in capital markets, describes SEBI as an “extremely proactive regulator”. Bhattacharya led the team that acted as domestic counsel to the bookrunning lead managers for the IPO of GIC Re. “SEBI engages with various market intermediaries, including investment banks and regulators, to understand the manner in which regulations governing the IPO process can be streamlined in an efficient manner,” he says. “For example, SEBI has now permitted issuers to adopt material thresholds for disclosure of civil litigation pending against issuer companies, and has also permitted Category II AIFs [alternative investment funds] to sell shares post IPO, as long as they have held such shares for a period of one year.”


The main statutes for companies and merchant bankers are as follows:

  1. Companies Act, 2013, read with Companies (Prospectus and Allotment of Securities) Rules, 2014:
  2. Securities Contracts (Regulation) Act, 1956 read with Securities Contracts (Regulation) Rules, 1957;
  3. Securities and Exchange Board of India Act, 1992, read with the following regulations:
    • SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009;
    • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015;
    • SEBI (Merchant Bankers) Regulations, 1992; and
    • SEBI (Framework for Rejection of Draft Offer Documents) Order, 2012;
  4. Foreign Exchange Management Act, 1999, read with FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000; and
  5. Consolidated Foreign Direct Investment Policy (effective from 28 August 2017).

Note: The acts, rules, regulations and statutes mentioned above are not exhaustive. Industry-specific and state legislation may also apply.

Source: Kanga & Co


Companies look at subscription figures, whether a share has been purchased in the upper price band, and its performance immediately upon listing. However, lawyers have other concerns. “While the trust that investors pose in transactions (as reflected in subscription figures) is a pat on the back for all parties involved in the process, it may not be the best metric of the diligence, competence or creativity of lawyers, or even the complexity of the deal,” says Manan Lahoty, a capital markets partner at Luthra & Luthra.

“Law firms advising on IPOs have to ensure that due diligence is carried out suitably, the rights of their clients are protected to the best possible extent, and any transaction-specific issues are recognized and dealt with early to help clients achieve their commercial objectives within expected timelines.” He adds that in the long run lawyers know they did a good job if the transaction is not called into question by any regulator.

“The combined impact of demonetization, GST [goods and service tax] and RERA [the Real Estate (Regulation and Development) Act] has contributed to a push away from the cash market, and has created additional interest in securities as an asset class,” says Lahoty, who has also observed a gradual shift away from traditional Indian investment classes of gold and real estate. “[This] bodes well for capital markets, at least in terms of increased liquidity and availability of funding.”

The current period of activity has resulted in Lahoty working on several IPOs this year such as NIACL, Reliance Nippon Life Asset Management, Housing and Urban Development Corporation and Godrej Agrovet. He is also working on the upcoming IPOs of Reliance General Insurance Company, Seven Islands Shipping, Acme Solar Holdings and others.


IPOs have allowed companies to raise capital and benefit from greater trust and brand recognition. However, these have not been the only reasons, as private equity (PE) investors have played a big part in encouraging companies to list. “A large number of companies that have listed in the past few years have some form of PE or another infused in the capital of the company,” says Chetan Thakkar, a capital markets partner at Kanga & Co. “The PE investors make it imperative for the company receiving funding to get the equity shares of the company listed in the future in order to provide a favourable exit option to them.”

A recent example has been Matrimony.com, which carried out a US$76 million IPO in September 2017. The IPO allowed the complete exit of Bessemer and partial exit to Mayfield and CMDB funds. In this regard, the market has become less wary of companies where early investors are seeking to exit.

Thakkar adds that IPOs can be triggered within a sector due to its growth potential and favourable legislation, but also competition with the sector. “Competitive interactions give companies in that sector little or no choice but to raise their capital in order to compete with their rivals, who have already gone public,” he says. When asked whether we can view the spate of IPOs as an indicator of economic well-being, he says: “Companies will generally come out with IPOs only when demand for equity is high, and when people are more likely to invest in stock, which is ultimately dependent on overall economic well-being.”







General Insurance Corp of India

US$1.7 billion

₹874 (US$13.55)


25 October

New India Assurance

US$1.4 billion



13 November

SBI Life Insurance

US$1.3 billion




HDFC Standard Life Insurance

US$1.3 billion



17 November

ICICI Lombard

US$838 million



27 September

Au Small Finance Bank

US$297 million



10 July

Avenue Supermarts

US$290 million



21 March

Eris Lifesciences

US$270 million



29 June

Cochin Shipyard

US$228 million



11 August


US$192 million


Stock exchange


*List price as per NSE