Indian Investors Face IPO Risks

The Great Indian Stock Sale: A Gold Rush on Shaky Ground

An intense appetite for equity investment is fuelling an unprecedented fundraising boom across India. The nation, which stands as Asia's third-largest economy, is witnessing a thriving market for companies listing publicly for the first time. This surge continues unabated, seemingly indifferent to the pressures of global trade disputes or wider international uncertainties. The sheer volume of capital entering the market raises critical questions about the sustainability of this trend and the potential risks for enthusiastic investors.

This phenomenon is not merely a niche financial event. It represents a significant shift in the nation's investing mindset. Millions of ordinary citizens are pouring their savings into the market, some for the very first time. They are driven by the promise of rapid returns and the accessibility of new investment platforms. This widespread participation is reshaping India's financial landscape, creating vast opportunities alongside considerable challenges. The excitement is palpable, but experts urge a healthy dose of caution.

A Torrent of New Capital

Major corporations are successfully attracting record-breaking levels of investment. In recent days, several prominent companies have made their stock available to the public. These include the Indian arm of LG Electronics, the South Korean conglomerate, and the financial services powerhouse Tata Capital. Global co-working firm WeWork India also joined the rush, securing substantial funds. These events highlight the deep well of available capital waiting to be deployed in promising enterprises.

A public listing provides a mechanism for privately held businesses to transition into the public domain. Companies use this process to offer their stock publicly for the inaugural time, leading to a debut on a public stock exchange. This primary market activity is fundamentally different from the secondary market, where investors simply trade existing stocks among themselves. It represents a crucial step for a company’s growth, offering access to significant capital for expansion and innovation.

Unprecedented Market Scale

The numbers behind this trend are staggering. During the initial three quarters of 2025, some 79 firms secured a combined $11.5bn (£8.58bn). Investment bank Kotak Mahindra Capital Company predicts that a robust schedule of listings in the last three months will contribute another $10-11bn. This would push the total value of the market for new listings in India beyond the $20bn threshold for the year. Such a figure marks a historic high for the nation’s capital markets.

These figures do not even encompass the fundraising activities of India's numerous smaller and mid-scale businesses. When this segment is considered, the true scale of the capital-raising activity becomes even more immense. The market’s depth reflects a broad-based confidence in the country's economic future. It also signals a new level of maturity for India's financial ecosystem, which is now capable of supporting such a high volume of public offerings.

Diverse Opportunities for Investors

Companies from a wide spectrum of industries are leveraging the route for public listings. This includes modern technology firms and major e-commerce players. Businesses in retail, infrastructure, and the health sector are also taking the opportunity to go public. This diversity presents Indian investors with a variety of investment options that is uncommon in other developing economies. It allows them to build portfolios that span the entirety of the nation's economic activity, from traditional industries to cutting-edge technology.

V Jayasankar, a managing director at Kotak Mahindra Capital Company, notes that this variety is a key driver of the market's strength. He explained that a steady flow of capital has been maintained not just by large institutions. Regular investment schemes, which involve scheduled monthly payments from ordinary retail investors into mutual funds, have also ensured that appetite for fresh listings remains robust and consistent.

The Fruits of Economic Growth

The intense activity in the public listing market is not solely a result of high investor demand. It is also a direct consequence of India’s prolonged economic expansion during the last ten years. This period of growth has produced a healthy stream of businesses in various sectors. These businesses have now reached the required size and development to make a successful public debut. They are ready to leverage public funds to fuel their next phase of growth.

Abhinav Bharti, the head of equity capital markets for India at the US investment bank JP Morgan, believes this is only the start of the movement. He suggests that the current conditions are creating a new normal for the Indian market. He confidently predicts that India will regularly see an IPO scene valued at $20bn as a regular annual occurrence, with a strong possibility of this figure increasing in future years as more companies mature.

A Climate of Exuberance

While the wave of new stock listings indicates a developing investment landscape, experts warn that the prevailing euphoria demands careful consideration. The excitement surrounding initial offerings is reaching a peak, creating an environment where investors might overlook fundamental risks. Kranthi Bathini from WealthMills Securities notes that a great deal of exuberance is currently driving decisions. He strongly recommends that investors choose carefully and perform detailed analysis.

Mr Bathini insists that a careful study of a company's financials is essential before committing capital. The temptation to invest blindly in the hope of quick profits is strong, but it is a strategy fraught with peril. The current market mood rewards careful analysis and punishes impulsive behaviour. Investors who take the time to understand the underlying value of a business are far more likely to achieve long-term success.

Disconnect with Market Realities

This IPO frenzy is unfolding against a backdrop of lacklustre returns across India's wider equity markets. The nation’s primary Nifty-50 index, which represents its biggest and most traded firms, has advanced by a mere 6 per cent in the current year. Meanwhile, indices that monitor the performance of smaller and medium-sized businesses have actually recorded negative returns. This disconnect between the IPO excitement and overall market performance is a significant point of concern for analysts.

The sluggishness of the wider market suggests that the enthusiasm for new listings may be driven more by speculation than by a fundamentally bullish outlook on the economy. It raises questions about whether the high valuations of these new companies are justified. The contrast highlights the unique psychology of the IPO scene, where the promise of a new story can temporarily overshadow broader economic indicators and trends.

Concerns Over High Valuations

Beyond the sluggish performance of established indices, high stock valuations have also concerned market analysts. Many experts believe that the prices at which companies are offering their shares are too high, leaving little room for future appreciation. These concerns are compounded by escalating worldwide political tensions and the lingering threat of trade tariffs. The 50 per cent tariffs on Indian goods proposed by Donald Trump, the US President, for instance, create a significant cloud of uncertainty over the economic outlook.

Ironically, these very concerns might be a factor in the strong fascination with newly listing enterprises. V Jayasankar suggests that with the secondary market offering limited prospects for gains, many investors now view public listings as a superior avenue for generating profits. The primary attraction is the prospect of securing a significant 'pop' in a stock's value right after it lists, with many hoping for an immediate 15-20% profit.

The Post-Listing Reality Check

However, the reality of post-listing performance often fails to meet these high expectations. Estimates indicate that about 50 per cent of the firms making their market debut this year are now valued lower than their initial offering price. Kotak Mahindra Capital Company’s own analysis confirms this trend, showing that just 43 out of the 79 firms that went public in 2025 have provided positive returns to their investors. This stark reality serves as a powerful reminder of the risks involved.

Mr Jayasankar suggests a few reasons for this underperformance. He posits that some IPOs may have been priced too high for investors from the outset. In other cases, a generally downbeat market mood may have dragged down the price of newly listed stocks. The inherent volatility of smaller firms, which made up most of the public debuts during the initial three quarters, also plays a significant role.

A Market of Smaller Players

The greater volatility of the market this year can be partly attributed to the profile of the companies going public. Most of the enterprises entering the market in the initial three quarters were smaller entities. These businesses, by their very nature, have a greater tendency for susceptibility to market swings and economic headwinds. Their share prices can fluctuate dramatically, making them a riskier proposition for investors seeking stable, long-term growth.

A shift in this trend is anticipated during the year's last quarter. Historically, this period usually has a higher concentration of bigger, higher-calibre corporations making their public debut. Mr Jayasankar notes that these more established businesses often have stronger fundamentals and a more proven track record. Their listings are typically met with greater institutional interest and can bring a sense of stability and confidence back to the market after a period dominated by smaller, more speculative offerings.

Foreign Investors Remain Sceptical

While domestic Indian investors have been eagerly acquiring new share offerings, a noticeable disinterest has come from their foreign counterparts. In fact, foreign investors have been net sellers, divesting from Indian stocks in the current year by over $20bn. This divergence in sentiment between local and international players is a telling indicator of the underlying risks perceived in the Indian market.

Kranthi Bathini describes global investors as being in a “wait-and-watch mode.” He observes that India’s status has shifted dramatically in their perception within a few months. The country has transitioned from a top investment location to one of the least attractive. This change is largely attributed to worries about tariffs and other unpredictable factors. Their minimal involvement in the scene for new listings reflects a wider decrease in portfolio investments flowing to India.

Domestic Euphoria Versus Global Caution

The absence of foreign capital presents a clear sign that local retail investors may be getting swayed more by euphoria than by a sober assessment of business principles. A whole system, from investment bankers to stock market analysts, is actively working to create and then sustain this optimistic climate. Vivek Kaul, an economics commentator, writes that this ecosystem works diligently to sustain the excitement, often through aggressive marketing and bullish forecasts.

Mr Kaul acknowledges that the frenzy can be fun and that it is largely a contest of impressions and publicity. However, he cautions that it is not a dependable method for transforming a small investment into durable financial stability. The current climate encourages speculative behaviour, which can lead to significant losses for those who are not careful. The stark contrast between domestic enthusiasm and foreign scepticism should serve as a cautionary tale for small investors.

The Technology-Driven Retail Rush

The recent surge in retail investor participation has been significantly enabled by technology. The proliferation of user-friendly mobile trading applications from companies like Zerodha, Groww, and Upstox has democratised access to the stock market. These platforms have made it incredibly simple for anyone with a smartphone and a bank account to purchase and sell shares. This ease of access has introduced a vast number of new participants, particularly from smaller towns and cities, to equity investing for the inaugural time.

This technological revolution has lowered the barriers to entry that once kept the stock market an exclusive domain of the wealthy and well-informed. Now, with just a few taps on a screen, individuals can invest in the latest IPO. While this is a positive development for financial inclusion, it also introduces new risks. Many of these first-time investors lack the financial literacy to navigate the complexities and volatility of the market, making them vulnerable to making poor decisions based on hype.

Regulatory Scrutiny and Investor Protection

The Securities and Exchange Board of India (SEBI), the country's market regulator, is closely monitoring the IPO boom. Aware of the potential risks, especially for small investors, SEBI has implemented several measures to enhance transparency and accountability. The regulator has tightened disclosure norms, requiring companies to provide more detailed information about their business models, financial health, and the intended use of the funds raised through the IPO.

Furthermore, SEBI has introduced stricter rules regarding the valuation of technology-based companies, which often lack a history of profitability. There are also lock-in periods for large institutional investors and company promoters, preventing them from selling their shares immediately after listing. These regulations are designed to curb excessive speculation and protect the interests of retail participants by ensuring a more stable and transparent market environment for new listings.

The Shadow of Political Influence

Political stability is a crucial factor that underpins investor confidence. The outcome of India's recent general election has provided the market with a degree of certainty regarding policy continuity. A stable government is generally seen as favourable for the economy, as it allows for long-term planning and consistent implementation of economic reforms. This political backdrop has undoubtedly contributed to the positive sentiment among domestic investors, encouraging their activity in the new listings market.

However, any signs of political instability or unexpected policy shifts could quickly dampen this enthusiasm. The market remains sensitive to government actions, particularly in areas like taxation, foreign investment rules, and industry regulations. While the current political climate is supportive, investors remain watchful for any developments that could alter the economic landscape. The interplay between politics and market dynamics will continue to be a key factor shaping the future of the IPO boom.

Learning from Past Mistakes

This is not the inaugural occasion India has witnessed such intense excitement around its stock market. The dot-com bubble of the late 1990s and the infrastructure boom of the mid-2000s also saw similar periods of frenetic activity, followed by painful corrections. These past episodes offer valuable lessons for today's investors. They demonstrate that markets influenced more by excitement than by solid business principles are inherently unstable. Many investors who were caught up in the euphoria of previous booms suffered significant financial losses when the bubbles eventually burst.

The key takeaway from these past cycles is the timeless importance of due diligence. Investors who focus on the long-term fundamentals of a business—its profitability, competitive advantage, and quality of management—are better positioned to weather market volatility. Ignoring these principles in favour of chasing short-term trends is a recipe for disaster. The current IPO frenzy is a test of whether a new generation of investors has learned the lessons of history.

The Road Ahead: A Pipeline of Unicorns

Despite the cautionary signals, the IPO party in India shows no signs of slowing down, at a minimum for the near term. A formidable line-up of highly anticipated companies is preparing to enter the market in the upcoming months. This includes the Walmart-backed digital payments giant PhonePe and the country’s largest mobile telecommunications operator, Jio. These are businesses with massive user bases and significant brand recognition, and their public offerings are expected to attract enormous interest.

In addition to these established names, several prominent unicorns—technology start-ups with a valuation exceeding $1bn—are also in the queue. Companies like the social commerce platform Meesho and the investment app Groww are planning their market debuts. The arrival of these well-known consumer brands will probably maintain the high level of excitement and participation from retail investors, ensuring that the scene for public listings stays a key focus of India's financial world for some time to come.

A Market at a Crossroads

The market for new listings in India is at a pivotal point. It is being propelled forward by powerful domestic forces, including a growing middle class, rising financial literacy, and unprecedented access to investment platforms. This internal momentum is creating a vibrant and dynamic environment for capital formation. However, this domestic optimism is running headlong into a wall of global uncertainty and scepticism from international investors. The financial scene is being pulled in two different directions.

The future trajectory will depend on which of these forces proves stronger. If the fundamentals of the debuting companies are solid and they deliver on their growth promises, they may be able to win over foreign capital and sustain their valuations. Conversely, if performance falters or if global economic conditions worsen, the current euphoria could quickly evaporate, leading to a sharp market correction that could harm the very retail investors who are currently driving the boom.

The Verdict: A Sustainable Trend or a Fleeting Bubble?

The ultimate question is whether this IPO rush represents a sustainable maturation of India's capital markets or a speculative bubble destined to pop. The arguments for sustainability point to the country's strong economic growth, favourable demographics, and the genuine need for capital among a new generation of world-class companies. From this perspective, the current activity is simply a reflection of India's arrival on the global economic stage.

However, the arguments for a bubble are equally compelling. The disconnect with the broader market, the sky-high valuations, and the exodus of cautious foreign money all suggest that the current excitement may not be grounded in reality. The fate of the market will likely be decided by how the businesses themselves perform. The enduring lesson for every investor, big or small, remains the same: diligence, prudence, and a focus on long-term value are the only reliable shields against the dangers of market euphoria.