Editorial     

Published: November 15, 2025
Updated: November 15, 2025

IPO boom hides OFS malady

It is interesting to note that the IPO (Initial Public Offering) market is booming at a time when the stock market is dawdling along aimlessly with a downward inclination, on account of domestic as well as global uncertainties. After the market raised over $ 20 billion through the IPO route during fiscal 2024, the story seems to be repeating in the current year (2025) if the actual performance of the IPO market during the first three quarters (January to September) is any indication. Financial experts believe that this IPO boom seems to be a sustainable trend powered by India’s structural growth story and the necessity for private capital for companies, supported by a proactive regulatory environment.

However, for the IPO ecosystem to remain healthy, companies must price issues reasonably. On their part, investors must evaluate company fundamentals rather than ‘narratives’, and the market regulator must continue tightening oversight of disclosures. Analysts, market observers and investors, all agree that in too many Indian IPOs today promoters mint money while the public is left holding overpriced shares. Though the IPO market is booming and there is heavy buying by investors, post listing new investors find themselves losing out. During the current year so far, fewer issues listed on the exchange are quoted above the issue price than those quoted below their offer price. If promoters don’t leave anything on the table for investors, how long will the investing public clamour for IPOs?

Recently, V Anantha Nageshwaran, Chief Economic Advisor to the Indian government, raised serious concerns over IPOs becoming exit vehicles for early investors in an enterprise, noting that this was undermining the role of the capital market. He added that the country’s capital market should evolve not just in scale but also in purpose. He remarked that while India has succeeded in developing a robust and sophisticated capital market, the same may have also contributed in part to short-run earnings, management compensation and market cap.

If anyone goes through the number of IPOs that have entered the market so far this year, one would be shocked at the huge number of Offers for Sale (OFS). Effectively, IPOs have increasingly become exit vehicles for early investors rather than a mechanism for raising long- term capital.

Fifty-five Indian companies have entered the capital market with their IPOs in the AprilSeptember period of this fiscal year, raising nearly Rs 65,000 crore. But most of these issuances were OFS by existing investors, with a very little quantum of new share issuances which would benefit a company. There is a need for risk-taking as well as long-term investing. Otherwise India, as it has discovered in the course of this year, will find itself falling short with respect to strategic resilience, let alone building strategic indispensability in a world where we want to be one of the largest players in the coming years.

It is surprising that market regulator SEBI does not bother about this issue. In fact, an OFS should be limited to 10-15 per cent the size of the issue.

Again, many retail investors have turned IPOs into a form of gambling. They apply for shares in the IPO and sell them off as soon as they get them. To counter this trend, SEBI should put in place a one-year holding period.

The market regulator should also pay attention to the increasing trend of overvaluation. Taking advantage of the free pricing policy, many promoters, ‘egged on’ by their merchant bankers, fix exorbitantly high prices for their shares. SEBI should, taking a cue from the days of the Controller of Capital Issues, fix norms for merchant bankers to arrive at a reasonable offer price. If such remedial actions are not taken, the IPO ecosystem will turn into a Great IPO Gamble.