India’s IPO boom fuels market divide
India’s stock market displays a sharp divide. The Nifty 50 index has returned just 6.04% over three years, trailing midcap and smallcap gains, while the primary market thrives. From January to August 2026, 62 mainboard IPOs raised ₹73,674 crore, with 126 SME IPOs adding ₹5,738.88 crore. If September listings achieve full subscriptions, 2026 could exceed ₹1 lakh crore in IPO fundraising, extending a trend that saw ₹1,75,914.29 crore raised in 2025 and ₹1,59,783.76 crore in 2024.
The momentum remains unbroken. Six IPOs launched on September 9, the first such grouping in nearly three decades. August alone hosted 23 issues, July 12, and June 7. The pipeline holds 159 SEBI-approved companies awaiting listing, including Jio Platforms, which is believed to begin investor outreach as early as next week.
The secondary market’s sluggishness reveals deeper tensions. While 40 of the 50 Nifty stocks remain positive over three years, only 7 have declined over five years. Yet the broader index’s negative 6.43% return over the past year—alongside a 35.35% drop for ITC—demonstrates how swiftly investor sentiment can reverse.
Capital is shifting, not vanishing. Santosh Meena, head of research at Swastika Investmart, observes that domestic liquidity—from SIPs, mutual funds, and retail buyers—has kept IPO demand strong even as foreign institutional investors (FIIs) sell secondary shares. FIIs favor IPOs for fixed-price allocations and new exposure, avoiding valuation risks in midcaps and smallcaps, which trade at 29x and 33x earnings, respectively.
Promoters drive record IPO monetization
The IPO surge includes significant promoter monetization. Offer for sale (OFS) transactions now account for 61% of mainboard proceeds, meaning much of the capital exits existing holdings rather than funding growth. Grant Thornton Bharat’s report shows India contributed 14% of global IPO listings in March 2026, second only to China.
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This activity carries unintended consequences. The sheer volume of IPOs absorbs liquidity. Meena warns that domestic secondary inflows have fallen from ₹1.42 lakh crore in March to ₹35,000–40,000 crore by July, August, as funds flow into new issues. Navy Vijay Ramavat of Indira Securities notes that rapid IPO listings, such as ESDS Software, Lumino Industries, and Tempsens Instruments, each oversubscribed 150, 300 times—keep capital circulating between listings instead of returning to secondary trading.
Foreign investors deepen the split. FPIs sold ₹13,918 crore in secondary stocks in September alone while investing ₹1,306 crore in IPOs. Over 2026, FII outflows from secondary markets total ₹2.84 lakh crore, compared to ₹47,154 crore flowing into primary issues. In the 12 months through August, FIIs sold ₹3.38 lakh crore in secondary shares but committed nearly ₹80,000 crore to IPOs and QIPs.
Structural shifts fuel primary market demand
The primary market’s strength stems from structural changes. Domestic savings, through SIPs, retail participation, and mutual funds, have created a self-reinforcing demand cycle. Grant Thornton Bharat’s report highlights that investor appetite has shifted toward companies with stronger fundamentals, better governance, earnings visibility, and more disciplined valuations.
Early signs of caution are emerging. Average IPO oversubscription has fallen to 39 times in FY26, down from 71 times in FY25. Listing-day gains have dropped to 7% from 29%, and the average annual IPO performance stands at negative 17%. Investors still participate, but their approach has grown more selective.
The NSE’s planned ₹30,000 crore IPO may impact market liquidity. The pattern shows OFS deals now dominate 61% of mainboard proceeds, prioritizing shareholder exits over company growth.
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Investors grow cautious amid cooling hype
Investor behavior has adjusted to the new environment. Retail and institutional buyers, once accustomed to oversubscription rates above 100 times in 2021, 22, now face a more discriminating market. Grant Thornton Bharat’s data confirms average IPO oversubscription at 39 times in FY26, down from 71 times the prior year. Listing-day gains have compressed to 7% from 29%, reflecting stricter valuation scrutiny. The average annual performance of listed IPOs since debut is negative 17%, indicating investors now prioritize fundamentals, governance, and earnings visibility.
Domestic savings sustain the primary market’s resilience. SIPs, retail participation, and mutual funds continue driving demand even as FIIs remain net sellers in secondary markets. Over the past year, FIIs sold ₹3.38 lakh crore in listed equities while investing nearly ₹80,000 crore in IPOs and QIPs. Their preference for fresh exposure over existing holdings, particularly in technology, renewables, and consumer staples, reflects perceived undervaluation in IPOs compared to midcaps and smallcaps, which trade at 29x and 33x earnings, respectively.
Liquidity pressures are mounting. Domestic secondary inflows have plummeted from ₹1.42 lakh crore in March to ₹35,000, 40,000 crore by July, August, as funds redirect toward new issues. Ramavat highlights how rapid IPOs, such as ESDS Software, Lumino Industries, and Tempsens Instruments, all oversubscribed 150, 300 times—create a cycle where capital moves between listings instead of returning to secondary trading. OFS transactions further drain liquidity by extracting capital rather than reinvesting it.
The gap between primary and secondary markets has become structural. While the Nifty 50 has returned just 6.04% over three years, with 27 stocks in negative territory over the past year, the IPO market’s momentum relies on domestic savings and promoter exits. The unresolved question is whether this cycle can persist as the pipeline expands, or if liquidity constraints will force a reassessment of valuations and growth prospects. The market’s future may depend on how quickly investors adapt to an environment where careful evaluation replaces speculative participation.
