India’s IPO boom signals market depth, but caution advised: Santosh Rao

India has emerged as the fourth-largest IPO market in the world, a milestone that reflects the growing depth and maturity of its capital markets. However, according to Santosh Rao from Manhattan Venture Partners, investors must tread carefully amid the rush of new listings.

“That is always a good sign, but you have to be careful,” Rao told ET Now in an exclusive interaction. “Sometimes when there are too many IPOs, there is a concern about a bubble brewing and all that stuff. It happened here also in the late 1990s.”

He added that while several high-quality businesses are hitting the market, not all companies coming through the IPO window have solid fundamentals. “There are always some good companies in there, but some others get in because of the tailwind. Overall, people have to be careful just as in the US — invest in companies that have good potential, a solid business plan, and a path to profitability. That’s the main thing,” he cautioned.

Rao pointed out that during past market booms, some firms went public based purely on lofty expectations rather than sustainable earnings. “You have some companies, as we had in the past, where profits were expected way down the line if all the stars lined up — that did not really make sense. But there are some good companies with strong fundamentals and good industries that have a clear path to profitability, and those are the ones to look for in IPOs — and that applies everywhere,” he said.

Global Headwinds and India’s Resilience

Discussing the global market setup, Rao observed that while the US markets have seen mixed signals, the fundamental backdrop remains steady. “Every country has its own fundamentals. The US market is right now in a bind — on one hand, the labour market is kind of softening; on the other, some data from Citibank is showing that unemployment claims are actually falling. Even though you see announcements, layoffs are not that bad,” he explained.

According to him, the US economy is still holding up well. “Fundamentally, the US market is still good, and there are a lot of cuts coming down — one more cut by the end of the year and two more after that. So there is some tailwind going into that, which is positive sentiment,” he said, adding that such optimism tends to carry over to other major markets, including India.

Rao also highlighted the changing dynamics of global capital flows. “One thing I read and follow is that the relative advantage of investing in India — for retail money and for companies to move to India instead of China — because of tariffs, that arbitrage or profit gap is kind of diminishing,” he noted. “Hopefully, there is a resolution to the tariffs issue, and that will help India more at this point in terms of foreign money coming into the country.”

India Poised to Benefit from Cooling Oil Prices
On India’s outlook amid the broader global developments, Rao remained upbeat. “India should do well in this setup because every time oil prices are down, that is always good — that’s more money in people’s pockets, so that’s always a good tailwind,” he said.

He emphasised that the Indian economy continues to be among the fastest-growing globally. “Even though there is a slight disturbance here because of this tariff talk and other stuff, overall it is a very good place to invest. I’m sure it will pick up more and more as the dust settles and we get some more clarity,” he said.

Rao also underlined the strengthening partnership between the US and India. “Talking to some experts here, the US believes India is a big partner — will be a big partner going forward — and similarly vice versa. So I think in the end that will settle, and India will go back to what it was before this noise came in about everything going on,” he observed.

Wrapping up on an optimistic note, he said, “Net-net, I expect — and even from some of the companies reporting in India — they are doing very well. So, I have a positive opinion about the Indian market and its outlook.”