Hyundai’s IPO is a big test for gilded markets

Slow and steady. Concerns are growing about the sustainability of India's frothy equity markets. The debut of Hyundai Motor's local unit is set to be the country's biggest initial public offering and may help to measure the anxiety.

The $3.3 bln share sale in Mumbai is off to a decent start; the issue was 18% subscribed by close of play on Tuesday, the first day to bid for stock. It taps local markets touching record highs on surging domestic retail inflows and where valuation multiples are soaring: MSCI India trades at a record 25 times forward one-year earnings, above its 10-year average of 19 times, per LSEG data. Stock market fever is so widespread local news publications are live-blogging the Hyundai deal's progress.

It's one of a volley of deals that has catapulted India to the top of league tables for Asia's biggest equity capital market by primary issuance. Hyundai India's listing will boost local fundraisings via IPOs to nearly $13 billion so far this year, taking the tally to the highest since 2021, per Dealogic.

Hyundai's deal itself looks fully priced and is set to put a a floor under the carmaker's value. Hyundai India's target market capitalisation of up to $19 billion is 26 times its earnings in the year to March 2024, compared to about 29 times for Maruti Suzuki , the leader in the world's third-largest auto market. Its $46 billion Seoul-listed parent trades at barely 5 times, LSEG data show.

For now, shares in the unregulated grey market are changing hands above the price range. However, the premium has plunged in recent weeks, suggesting that initial public trading may not be as explosive as seen in some recent deals. This could also reflect worries about recent sluggish demand for cars: the sector's sales to dealers fell for the first time in 10 quarters in the three months to the end of September.

Or it could simply reflect a harsher reality. Of the six stock market listings in India that raised at least $2 billion since 2007, only two churned out gains after the first three and six months, per Dealogic. In the run-up to the deal, bankers reckoned Hyundai India's listing would get away easily. That may still be the case. If it trades well in the secondary market, that will be a real sign of the Indian market's robustness.

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Hyundai Motor's sale of shares in its Indian unit was 18% subscribed on Oct. 15, the first day of the deal's launch, according to data from exchanges. The carmaker has priced the up to $3.3 billion issue in a range of 1,865 to 1,960 rupees per share. The Mumbai listing would secure a $19 billion market capitalisation for the unit at the upper end of the price range. Its South Korean parent is selling a 17.5% stake in the business and no new shares will be issued. The deal is India's largest IPO .