Numerous Indian companies and multinational subsidiaries in India are heading for IPOs in the next few months, as funding capital projects amid India’s infrastructure boom takes precedence over other corporate finance activities.

Vodafone Idea (Vi), India’s third-largest telecom services operator (213 million subscribers), has just completed mega rounds of capital raises so far in 2024, with the final piece, equipment-vendor financing, concluding on July 18. The company has major obligations on capex, debt service, 5G spectrum purchases, dues to equipment vendors, among others, and has designed a capital-raising plan using multiple corporate finance levers in 2024, including asset sales, follow-on public offers, preferential equity sales to a company promoter, and equity allotment to equipment vendors, all of which have been completed for now.

No company’s struggles epitomize the impact of cutthroat competition in the Indian telecom market more than Vi’s. As its larger Indian rivals, Reliance Jio (484 million subscribers) and Bharti Airtel (382 million subscribers), have already completed 5G rollouts across the country, Vi is not even out of the gate yet. Vi will commence its 5G rollout in the next few months, expecting to spend $3 billion to $4 billion. While Hyundai India’s IPO later this year is on track to set a record, it is Vodafone Idea (Vi) that will have ended up raising the largest amount of money, INR 360 billion ($4.3 billion), in corporate India in 2024.

Unlike its larger and well-capitalized rivals, Vi has never turned a profit, largely due to hyper-competitive pricing of telecom services, making its recently demonstrated capital-raising prowess remarkable. According to a June 2024 presentation by Vodafone, Indians consume 20 gigabytes of data per month, which is the highest in the world but pay the lowest data costs in the world, at an average of $2.10 per user per month. This price per gigabyte is certainly cheap compared to Brazil at $5.70 and China at $6.60 per user, but astonishingly low when compared to the US consumer’s monthly cost of $45.60 per user.

According to Vi, tariffs in India have risen by just 4% in 11 years and suggest that a hike is long overdue. This combination of expected revenue increase from higher tariffs, the launching of 5G services, and supportive government policies (reduced spectrum costs, longer amortization of dues, and conversion of debt owed to the government to equity) have likely buoyed the confidence of investors and led to several successful issuances of new equity.

On July 18, Vi confirmed that it issued the first tranche of common stock to its equipment suppliers, Nokia Solutions and Networks India (NSNI) and Ericsson India, as part of its equipment-vendor financing plan. NSNI was issued 256.7 million shares and 158.4 million shares to Ericsson, raising a combined $80 million. This tranche is part of a larger issue of 1.03 billion shares to NSNI and 633 million shares to Ericsson; the combined value of this complete issue is $300 million. Following the completion of the full allotment over time, NSNI will hold a 1.5% stake and Ericsson will hold a 0.9% stake in Vi. This allotment of shares follows the $250 million worth of equity sold to the Aditya Birla Group, one of the promoters of the company; Vodafone Plc is the other promoter; both holding a combined 37.3% stake. The largest shareholder is the government of India, holding a 23% equity stake. The Indian government became a majority shareholder after Vodafone Idea opted to accept a government plan to convert the interest it owed on its debt to the government into equity instead of paying the interest in cash. Vi has a total of $26 billion in outstanding debt, almost all of it owed to the Indian government for spectrum purchases.

Vi’s initial issue of common stock to NSNI and Ericsson India and earlier to one of its two promoter groups, Aditya Birla and Vodafone Plc, while dramatic, has come after two still larger capital raises this year. In April, Vi first raised $2.2 billion in a follow-on public offer (FPO), which is a subsequent offer of shares to the investing public by a listed company, and then in mid-June sold 487 million shares representing an 18% stake in Indus Towers, one of the world’s largest telecom tower operators also listed in India, raising $1.8 billion. The block sale of Indus Towers stock will be used to reduce its outstanding debt by that amount. Following this equity sale, Vi now holds just a 3.1% stake in a company that it once held a 21.5% stake in, along with Bharti Airtel, India’s dominant telecom provider, which now owns 49% of Indus Towers.

It was only in April 2020 that the Reserve Bank of India (RBI) removed foreign investment restrictions on certain rupee debt. JPMorgan placed the bonds on watch for inclusion in October 2021.

As of June 28, it’s official: 27 Indian G-secs are permitted by the RBI for investments by non-resident investors, under the Fully Accessible Route (FAR) bonds. Only these FAR bonds can be added to the index and will have the index maximum 10% weight added at the rate of 1.0% per month over the next 10 months.

Indian G-Secs will have the highest duration of all index constituents of seven years and an above average yield to maturity of 7%. Among the conditions for inclusion are macro stability, fiscal prudence and economic growth.

India’s inclusion is a significant opportunity for global bond investors as they now have access to one of the worlds fastest growing major economies. Asian emerging markets weight in the JPM GBI EM index will rise to 47.5% by March 2025 from 40% now. India currently has the second largest outstanding local debt stock available to foreign investors at $415 billion, after China’s $2.2 trillion. Annual traded volume of bonds is $350 billion in India and $380 billion in China, accounting for 9.2% and 9.8% respectively of total EM traded volumes.

In anticipation of the inclusion, institutional investor positioning happened through swaps. Bond traders say that approximately $9 billion had come in prior to June 28. Emerging market bond flow data from JPMorgan showed that $4.43 billion alone went into Indian bonds from foreign investors over the month preceding the index inclusion. Between $25 billion and $30 billion of passive foreign institutional allocation will come to India because of the index inclusion.

According to JPMorgan, foreign ownership of Indian government debt is expected to rise from 2% to 4.4%. Indications are that Indian G secs will be added to other indices such as the Bloomberg EM Local Currency Government Index from January 2025. 

The Hyundai India IPO that was announced earlier this year has become a bellwether for the health of Indian stock markets and particularly its IPO market, now that the South Korean carmaker has reportedly filed a draft red herring prospectus with the Securities and Exchange Board of India (SEBI) on June 15.

Hyundai India expects to raise between $2.5 billion to $3 billion from this IPO, valuing its Indian operations (which is its third largest revenue generator after the US and South Korea) between $22 billion and $28 billion. Depending on the final amount raised, Hyundai India IPO could be the second largest or largest in India, following the $2.7 billion IPO of the Life Insurance Corporation of India in July 2022, which for now remains the country’s largest IPO ever. Hyundai’s IPO is being managed by investment banks Kotak Securities, JP Morgan, Morgan Stanley and HSBC.

Latest reports also indicate that Korean consumer electronics giant LG Electronics is also looking to list its Indian subsidiary and has hired JP Morgan and Morgan Stanley as advisors, though no formal announcement as to the timing of the IPO has been made. Several of the domestic companies looking to IPO this year are global private-equity backed where early investors are looking to cash out. This includes the IPO of OYO, India’s most successful hospitality startup that is looking to raise $1 billion and Ola Electric, another venture backed start up manufacturing electric scooters, looking to raise approximately $600 million. Ola is being advised by Bank of America Securities India, Goldman Sachs India, Citiglobal India and Kotak Securities.

While the Indian IPO market has been hot in the past few years, the rapidly growing depth of the market is attracting more attention from fast growing, but still privately held, companies as well as subsidiaries of multinational corporations. As of June 14, 136 companies had successful IPOs in India, raising $6.3 billion, this includes $2.2 billion in a follow-on issue of shares by Vodafone India in April. In the second half of 2023 the Indian equity market crossed the $4 trillion mark and is currently valued at $4.9 trillion as per the National Stock Exchange of India, pushing Hong Kong aside to become the world’s fourth largest stock market by market cap, behind Japan, China and the US. According to Bloomberg, the market capitalization of the Indian stock market has grown by $1 trillion in three years, while markets in China and Hong Kong have lost $6 trillion in market cap since 2021. This growth in Indian market cap was achieved by a combination of both rapidly expanding corporate earnings and a jump in valuations. Indian equity markets are also now among the most expensive in the world at over 23 times 1-year forward earnings, albeit being one of the best performing major global markets.

The booming Indian IPO trend says a lot about the health of the Indian retail investor. India has always seen strong IPO demand with enthusiastic retail participation. This has expanded in recent years, as now 140 million retail investment accounts are active, and this is being attributed to the growth in digital infrastructure. Retail investors have been pumping in approximately $2 billion a month into mutual funds and in the month of May pumped in $4.18 billion, an 83% year-on-year increase. Indian mutual fund assets now stand at 58.6 trillion rupees ($702 billion), having increased by six times between 2014 and 2024.

Initially, the T+0 standard is being applied to 25 large-cap, blue-chip stocks, and upon satisfactory performance, will be extended to the rest of the market. The sped-up settlement cycle is a step up from India’s previous one-day settlement system. Indian exchanges started T+1 in 2021 with a similar phase-in, starting with blue chips, and was fully implemented by early 2023.

US exchanges are transitioning to T+1 from a T+2 cycle. Even as India moves to same-day settlement, Indian regulators, exchanges, and clearing houses have already started pushing further, beta testing for real-time settlement, expected to be realized next year. Indian exchanges were previously among the earliest to move to T+2, in 2003; the eurozone only followed suit in October 2014 and the US in 2017. The EU and the UK are still evaluating a switch to T+1, with no firm date announced.

“Digitization is the main driver of the rapid strides in Indian equities and derivatives infrastructure,” says Vishal Aunchalia, a former executive at India’s National Stock Exchange, who consulted on the settlement projects. “A sophisticated payments infrastructure must be in place to enable this kind of evolution of the settlements system.” Key to enabling India’s drive for faster and ultimately real-time settlement is the lightning speed with which banking transactions are executed in India. Transfers from client to broker accounts happen instantaneously, meaning clients have funds available to them to initiate trades the instant they move money, rather than in two to three days, as remains the norm elsewhere.          

Retroactive taxation is a thing of the past in India, as the country’s finance minister introduced Taxation Laws (Amendment) Bill 2021 to the Indian parliament on August 5. The new amendment withdraws tax demands made following a 2012 amendment that allowed retrospective taxation on the transfer of ownership of Indian assets by foreign companies.

The now ruling Bharatiya Janata Party (BJP) had publicly opposed the 2012 amendment when it was in the opposition, but was slow to act to nullify the law when it came to power in 2014.

Between 2012 and 2020, the Indian government attempted to retroactively tax 17 foreign multinational companies. In May, Cairn Energy won against the Indian tax authorities at the Permanent Court of Arbitration and took the unprecedented step of seizing overseas assets belonging to the Indian government to recover taxes that it had been forced to pay.

Cairn’s win came after years of battling the Indian government in Indian courts and international tribunals. The government accused Cairn of avoiding taxes on a 2006 reorganization of its Indian subsidiaries and seized its nearly 10% residual shareholding in erstwhile Cairn India. A further refund is due to Cairn in an unrelated matter in which the income tax department seized assets. The total estimated refund is close to $1.4 billion. Cairn’s stock jumped 26% in London trading on August 6, after the new amendment to the tax laws was announced.

Some other cases of retroactive taxation before Indian courts and international tribunals that now stand resolved include Vedanta Resources’ purchase of a controlling stake in Sesa Goa, Mitsui & Co’s acquisition of an Indian company in 2007, SABMiller’s acquisition of Foster’s India, AT&T’s sale of Idea Cellular India, and Sanofi Pasteur Holdings’ acquisition of Shanta Biotech. The transaction that triggered the entire saga in 2012 was the sale of Hong Kong–based Hutchinson Whampoa’s Indian telecom assets to Vodafone.

UK-based Cairn Energy filed suit in the Southern District of New York in mid-May against state-owned Air India, to seize assets by way of enforcement of a late-2020 $1.2 billion arbitration decision against the Republic of India by the Hague-based Permanent Court of Arbitration under the UK-India bilateral investment treaty.

It is exceedingly rare for a foreign company to seek seizure of Indian government assets held within and outside of the country, including cash accounts and shares of the flagship national carrier, soon to be privatized. Cairn seems to have the force of law from a third jurisdiction behind it, and other companies may follow suit.

Cairn’s complaint originates with a 2012 revision to the Indian tax code. The change was made in direct response to an Indian Supreme Court decision that denied the government’s right to any tax from the sale of Indian assets by a Hong-Kong–based company to a UK-based one.

Stymied by the court, the government devised the new rule on taxation of offshore transactions involving Indian capital assets, deeming any gains arising from the transfer of shares or interest in any offshore company as taxable “if the share or interest derives, directly or indirectly, its value substantially from the assets located in India,” with a clause making it retroactive to April 1, 1962.

The Indian government then proceeded to send out bills. Cairn was hit for $3 billion in capital gains taxes and penalties in March 2015 for a 2006 internal reorganization of its Indian entities. The government even seized 10% of Cairn India’s shares—worth $1 billion—as partial payment.

Cairn isn’t the only company challenging India’s government on this issue. In February, Earlyguard, a UK subsidiary of Mitsui & Co., began arbitration regarding India’s $338 million tax demand based on a sale it made in 2007. But by seeking help from US Federal Courts to seize Indian assets, Cairn is taking a sharp stance. Turnabout is fair play, as the saying goes.

As India emerges from one of the world’s strictest Covid-19 lockdowns, the office and commercial real estate sector appears to have come through unscathed. Landlords have reported 95% to 99% rent collection rates through the pandemic, and the sector is now seeing a ramp-up in global private-equity attention.

In the last three months of 2020, Canada’s Brookfield Asset Management and New York’s Blackstone Group purchased $2 billion and $1.5 billion, respectively, of rent-yielding commercial properties in Indian metropolitan areas. Brookfield acquired 12.8 million square feet of office space in the single largest real estate deal in Indian history, and Blackstone picked up a 21 million-square-foot portfolio of properties. These included five completed office towers, four under construction, nine retail malls and two hotels, all from Prestige Estates, a leading developer of malls and offices in southern India. Blackstone’s objective is to turn these properties into REITs listed on domestic stock exchanges.

The two blockbuster deals came on top of $2 billion in smaller deals concluded by investors last year, taking foreign investment in Indian commercial real estate to $20 billion since 2011. Blackstone is now the largest owner of Indian commercial real estate, with close to $10 billion invested. The firm has already listed two REITs on domestic exchanges, including India’s first publicly traded REIT in April 2019; two more are slated to list in 2021.

The trend is now well established. According to global real estate consultants, Knight Frank, 62 million square feet of Indian commercial space have been converted to REITs in the last decade and another 144 million square feet held by foreign private equity, sovereign wealth and pension funds are to be converted over the next three to four years.

Two clear reasons underlie foreign-investor appetite for Indian commercial real estate. First, yields are close to 8% according to Bloomberg, compared with 3.5% to 5% in other big Indo-Pacific markets, which Indian properties are benchmarked against. Second, the rentals are underpinned by IT, fintech, pharmaceutical research and biotech companies: booming sectors that are considered stable tenants.

While 2020 will be remembered as the year of successful tech initial public offerings (IPOs) after a disappointing 2019, the immense success of US online insurance distributor Lemonade’s IPO—more than doubling in value on day one—made online insurance startups a focal point in the fintech world. Lemonade’s value lies in its popularity with millennials searching for home and rental insurance online. Similarly, in India, a younger, digitally savvy generation is now powering online insurance sales in an unprecedented manner.

Digital disintermediation in the Indian insurance industry is proceeding quickly. Well-financed online insurance startups have emerged, with Policybazaar now the dominant player. Backed by SoftBank and Singapore’s Temasek, each of which own a 15% stake, Policybazaar has a 50% market share in online insurance sales and is readying a 2021 IPO, likely to be in the $500 million range (a $3.5 billion valuation range), with listings in the US and India. As of August 2020, the company reported over one million transactions a month across life, auto, home and investment-linked insurance products. The huge success of the SoftBank-backed Lemonade IPO is prompting a speedier IPO from Policybazaar, which is widely expected to be the first of India’s 21 startups with valuation in excess of $1 billion to IPO.

The insurance sector hasn’t fully participated in the digital banking, payments and financial disintermediation boom in India until now. With the improving regulatory environment, global giants such as Amazon and Ant Financial have also started to invest in the distribution of home, medical and auto insurance in India. Google has been reportedly looking to invest $150 million in Policybazaar. With insurance penetration at just 3.7% of GDP versus a 6.3% global average, insurance sales are now one of the fastest growing financial sectors in India, growing at 15% per year.

In a striking departure from Facebook’s habit of acquiring companies outright, the social media giant announced a $5.7 billion investment buying a 9.9% stake in Reliance Jio on April 22 in what is the company’s single largest investment outside the US. Reliance Jio is the wholly owned digital services and telecommunications subsidiary of Reliance Industries, the $83.2 billion Indian conglomerate controlled by Asia’s richest man, Mukesh Ambani. This investment has the potential to be a masterstroke given Reliance Jio’s modern nationwide 4G mobile, fibre to the home (FTTH) network and deep penetration of the Indian digital marketplace with 388 million mobile subscribers, all achieved in just four years. Reliance Jio’s mobile and broadband services are integrated with JioMart, a digital marketplace for small businesses, which will be the area of focus for the new partnership.

Reliance Jio will integrate Facebook’s WhatsApp into the Jio platform and its retail business, which could enable the use of WhatsApp as a transaction and customer service mechanism. With 400 million users—that is, one-third of the population—WhatsApp is already India’s preferred means of social media communication but Facebook has been unable to monetize this dominance despite building capability in commerce and payments. This failure was due in part to disputes with the national payments regulator (National Payments Corporation of India) over data localization. While Facebook’s effort stalled, the digital real-time payment space developed very rapidly: 10.0% of GDP now flows through the real-time digital unified payments interface (UPI) just three years after the government launched it. Walmart’s digital payments platform PhonePe, Google Pay and Indian payments giant Paytm combined control 90.0% of the system’s 1.3 billion average daily transactions. 

The Facebook-Reliance Jio deal is an indication of where India’s digital payments space is going and how the nature of foreign investments in that space is being shaped by government policy. After Facebook’s competitors Walmart and Amazon made significant investments in Indian online retailing business and domestic acquisitions, the Modi government changed the rules to favor domestic online retailers and the millions of small retailers threatened by competition from the two global behemoths. Both companies adapted to these changes by repositioning their online platforms to cater to the country’s 60 million small businesses rather than be directly consumer-facing. 

As early entrants into Indian e-commerce, Walmart and Amazon faced steep learning curves in adapting their business models to local conditions. Walmart spent $16 billion acquiring a majority stake in the popular B2B platform Flipkart (owner of PhonePe) and Amazon invested $5 billion and counting to set up street- and mall-based kiosks to facilitate online purchases and conclude agreements with Indian railways to ferry packages. Teaming up with a very powerful and savvy domestic partner will allow Facebook to leapfrog over the costly developmental difficulties faced by Amazon and Walmart as they built supply chains from scratch and adapted to 3G networks. The potential for Facebook-Reliance Jio to aggregate the country’s highly fragmented retail businesses is enormous given that only $60 billion out of $1.1 trillion in retail sales are conducted online. Successfully monetizing WhatsApp through this partnership would reduce Facebook’s dependence on mobile ads for revenue and could provide a template for future deals in other markets.

India took a big step into the digital future in October 2016, when its government and the Reserve Bank of India launched the Unified Payments Interface, a real-time nationwide digital payments platform. Regulated by the RBI, the UPI facilitates interbank transfers, allowing the instant transfer of funds between two bank accounts on a single mobile platform.

The platform was a first-of-its-kind innovation, and as of now it’s enjoying significant success. In January, the total number of monthly transactions hit 1.3 billion, with 148 public- and private-sector banks participating through 48 different mobile apps. That’s up from 10 million monthly transactions with nine participating banks in October 2016. The government’s target is one billion transactions a day, underscoring its zeal to digitize the economy.

The UPI may not be alone for long. Google’s top management recently presented a letter to the US Federal Reserve asking it to consider a real-time national payment mechanism based on the Indian design. The Bank for International Settlements said in a recent study that the Indian payments system demonstrates how a central bank can be a proactive and equal partner with private-sector counterparts in fostering technological innovation in finance.

Google’s interest in extending the concept is understandable; Google Pay, Paytm and PhonePe (owned by Walmart and valued at $7 billion) are the top three digital payment apps in India, with a 90% market share. Google calculates that 10% of India’s GDP now flows through the UPI. Already there is a global investment demand for startups in the Indian payments space: In December, Paytm reaped $1 billion (reaching a $16 billion valuation), which remains India’s largest private-equity raise.

With the UPI functioning smoothly, financial services distribution and consumer lending are expected to be key drivers for these payment apps. Paytm has already started distributing IPOs, and PhonePe launched mutual fund sales via its mobile app. In an October 2019 report, Morgan Stanley projected that transactions through the UPI could reach $2.5 trillion annually by 2029, or 26% annual growth from 2019.