{"id":46274,"date":"2024-10-08T16:13:28","date_gmt":"2024-10-08T10:43:28","guid":{"rendered":"https:\/\/www.equentis.com\/blog\/?p=46274"},"modified":"2025-11-10T13:34:40","modified_gmt":"2025-11-10T08:04:40","slug":"the-clash-of-ipos-and-mutual-fund-sips-what-it-means-for-investors","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/the-clash-of-ipos-and-mutual-fund-sips-what-it-means-for-investors\/","title":{"rendered":"The Clash of IPOs and Mutual Fund SIPs: What It Means for Investors"},"content":{"rendered":"
<\/div>\n

Initial Public Offerings (IPOs)<\/a> and Systematic Investment Plans (SIPs) in mutual funds<\/a> have become two significant investment avenues in India. While both offer investment opportunities, they can sometimes collide in ways that impact market liquidity, stock prices, and investor returns. Understanding the dynamic between these two is essential for investors looking to invest in the stock market<\/a>.<\/p>\n\n\n\n

Market capitalization has grown by 55%, compared to a 22% rise globally, indicating the domestic market’s substantial strength. One key reason for the stock market’s strong performance is the nation\u2019s collective belief in its domestic economic growth. Even as international investors had mixed opinions, domestic fund flows into equities have surged, fueling a market rally.<\/p>\n\n\n\n

Over the last few years, domestic institutional investors (DIIs) have invested $107 billion, far outpacing foreign institutional investors (FIIs), who invested just $19 billion. This robust DII inflow has significantly contributed to the market’s remarkable gains.<\/p>\n\n\n\n

Source: Economic Times<\/a><\/p>\n\n\n\n

Market Performance Comparison<\/strong><\/h2>\n\n\n\n

The impact of these inflows is evident in the performance of key indices:<\/p>\n\n\n\n

Nifty 50<\/strong>: Up by 31% over the past 12 months.<\/h3>\n\n\n\n
\"\"
Source: NSE<\/a><\/figcaption><\/figure>\n\n\n\n

Nifty Midcap 100<\/strong>: Increased by 48%.<\/h3>\n\n\n\n
\"\"
Source: <\/strong>NSE<\/strong><\/a><\/figcaption><\/figure>\n\n\n\n

Nifty Smallcap 100<\/strong>: Surged by 50%.<\/h3>\n\n\n\n
\"\"
Source: NSE<\/a><\/figcaption><\/figure>\n\n\n\n

<\/p>\n\n\n\n

In the past 12 months, the Nifty<\/a> index has surged 31%, with mid-cap and smallcap indices outperforming by 48% and 50%, respectively. While robust corporate earnings and GDP growth initially supported this rally, the increasing supply of shares could alter this dynamic.<\/p>\n\n\n\n

Inflation and Market Rally<\/strong><\/h2>\n\n\n\n

India\u2019s strong GDP growth of over 8% and robust corporate earnings were key drivers of the market rally. However, the rapid rise in stock prices was also fueled by demand-pull inflation<\/a>, where increased money supply pushed stock prices higher.<\/p>\n\n\n\n

As the stock market rose, more companies began capitalizing on the positive sentiment. This surge in supply, as companies rushed to sell shares and raise funds, signals a shift in market dynamics.<\/p>\n\n\n\n

The Surge in IPOs<\/strong><\/h2>\n\n\n\n

Several sectors, including tech and manufacturing, have seen companies file for IPOs to raise funds for expansion. According to recent data, by September 2024, around 120 companies had filed for IPOs, up from 112 in 2023 and 89 in 2022.  Source: Economic Times<\/a><\/p>\n\n\n\n

The Collision Between IPOs and Mutual Fund SIPs<\/strong><\/h2>\n\n\n\n

When many IPOs hit the market, the supply of new stocks surges. This can create a liquidity strain in the market, as funds are diverted towards purchasing IPO<\/a> shares. As a result, mutual fund inflows via SIPs may face challenges absorbing this increased supply, potentially leading to short-term volatility in stock prices.<\/p>\n\n\n\n

In the last fiscal year, mutual fund SIPs contributed INR 1.99 lakh crore to the market, with monthly inflows averaging INR 18,900 crore in 2024.<\/p>\n\n\n\n

The number of companies filing for IPOs has soared. By September, 120 companies had filed for share sales, compared to 112 in 2023 and 89 in 2022. INR 64,485 crore was raised through IPOs in 2024, up from INR 49,436 crore last year.<\/p>\n\n\n\n

In the first nine months of 2024, companies and private equity firms raised INR 1.65 lakh crore\u2014the highest in three years. The market is set for more, with another INR 60,000 crore worth of IPOs in the pipeline, including major players like Hyundai Motor, Swiggy, and NTPC Green.<\/p>\n\n\n\n

As these IPOs hit the market, the secondary market faces a unique challenge: how will the supply of new stocks affect prices and overall liquidity? Source: Economic Times<\/a><\/em><\/p>\n\n\n\n

Impact on the Secondary Market<\/strong><\/h2>\n\n\n\n

The secondary market, where existing shares are traded, could experience a decline in liquidity when investors rush to subscribe to IPOs. With limited funds available, institutional and retail investors may need to divert their resources from the secondary market to participate in IPOs, resulting in slower growth or a temporary dip in existing stock prices.<\/p>\n\n\n\n

Mutual Fund SIPs: Will They Keep Up?<\/strong><\/h2>\n\n\n\n

One critical question is whether mutual fund inflows through SIPs can sustain the increasing stock supply from IPOs. Despite steady SIP contributions, which saw a modest 3% rise in August 2024, the sheer volume of upcoming IPOs\u2014an estimated INR 60,000 crore in the coming months\u2014raises concerns about the market’s capacity to absorb this supply. Source: Economic Times<\/a><\/p>\n\n\n\n

<\/p>\n\n\n\n

Potential Risks<\/strong><\/h3>\n\n\n\n

Several factors could threaten the ongoing market rally:<\/p>\n\n\n\n