Before diving into India’s biggest-ever IPO year, ask yourself a simple question:

 

What kind of IPO investor are you really?

 

• Are you the Confident opportunist, the direct IPO applicant refreshing GMPs, scanning DRHPs, and chasing listing pops?
• Are you the Silent Compounding seeker, the SIP-based investor whose fund manager participates in IPOs on your behalf?
• Or are you the High-Risk Treasure hunter, dabbling in SME IPOs for the thrill of big oversubscriptions and multibagger hopes?

 

India’s Biggest IPO Year - A Reality Check

 

By the end of the year 2025, India’s primary market is expected to have mobilised over ₹1.6 lakh crore, approximately USD 19 billion. It is on track to surpass the psychological ₹2 lakh crore mark for the first time. Around 80 mainboard IPOs have hit the market in FY25, and India has even outpaced the US Nasdaq in funds raised, cementing its status as a capital formation hub.

 

 

But beneath those record numbers lies a paradox: while the fundraising is unprecedented, the “IPO trade” has become structurally less rewarding for individual investors.

 

Average listing gains have compressed from around 30% during the earlier boom to single digits, with a roughly 9% increase in the latest cohort. After factoring in transaction costs, capital lock-in, and the risk of poor post-listing performance, the risk-reward equation has shifted decisively.

 

The Illusion of Easy Money – And the Behaviour Behind It

 

For much of 2020–2023, many investors were conditioned to believe that IPOs were nearly risk-free: apply, receive an allotment, enjoy a significant listing pop, and exit. That script worked when valuations left room for upside, liquidity was abundant, and issues were often under‑priced to ensure “good optics”.

 

Today, investment bankers have learned from those cycles. Pricing has become more aggressive, extracting maximum value at issue itself and leaving only a thin margin for listing‑day euphoria.

 

Behavioural biases make this transition hard to accept. Recency bias keeps investors anchored to memories of outsized listing gains. Lottery preference draws them to highly oversubscribed or SME issues in search of “jackpot” outcomes. Herding leads to applications based on subscription figures and social media chatter, not fundamentals.

 

For direct IPO investors, the message is uncomfortable but necessary. The era of blind applications for quick flips is essentially over.

 

Follow the Money: Fresh Capital vs Exit Capital

 

The most critical question in this market is not “How big is the IPO?” but “Where does the money go?”

 

Recent analysis suggests only about 26% of 2025 IPO proceeds are earmarked for capital expenditure and real business growth. Around 63% of funds are flowing out through Offer for Sale (OFS) from existing shareholders, which include promoters, private equity investors, and venture capitalists, as they monetise their stakes. That distinction is critical:

 

When marquee names like Hyundai India or Swiggy come with significant OFS components, it signals that sophisticated insiders view current pricing as attractive for exits. That does not make such IPOs uninvestable, but it should raise the bar for valuation and business quality.

 

For direct IPO investors, a practical rule of thumb is: if the fresh issue is less than, say, 25–30% of the offer and the business is not a clear category leader, treat it as a trading opportunity at best, not a default long-term holding.

 

The Mutual Fund Edge: Winning in a “Losing” Game

 

Here is the most striking paradox. Many large IPOs since 2021 have delivered poor or even disastrous stock returns, with some down 50–98% from their listing. Yet top mutual fund schemes have continued to post excellent 5-year returns and retain high star ratings.

 

Domestic mutual funds have been the dominant anchors, accounting for roughly 38% of anchor book investments since 2021. Schemes like Nippon India Small Cap Fund have invested nearly ₹2,800 crore in IPO anchors alone. Several of these schemes still deliver annualised returns upwards of 25–30% over five years.

 

How is this possible?

• Anchor positions are often tactical, not permanent. Fund managers may cut stakes to near zero within months, locking in listing gains or limiting damage.
• IPOs form a relatively small part of diversified portfolios; winners in other stocks and sectors can offset losses.
• Institutions have research teams, pricing models, and execution systems that give them a structural edge in assessing and exiting issues.

 

For SIP-based investors, the takeaway is not to chase IPOs separately. Your mutual funds participate in the IPO market for you, while absorbing single‑stock risk inside a broader portfolio. However, with the SEBI reforms increasing the quota and the lock-in period from 30 to 90 days, the returns delivered by these mutual funds are impacted.

 

The SME IPO “Casino”: High Odds, Thin Exits

 

If the mainboard requires caution, SME IPOs demand an even higher risk filter. With 200+ SME listings in 2024–25, this parallel market has seen spectacular oversubscription numbers, sometimes exceeding 100 times.

 

However, beneath the surface, trading volumes are often thin, bid–ask spreads are wide, and institutional participation is limited. Moreover, governance and disclosure standards can lag behind mainboard peers. Particularly, when sentiment turns, exits can dry up, leaving investors stuck in illiquid positions.

 

There exist numerous genuine wealth-creating SME stories, particularly where earnings compound and governance improves. Yet ex ante, distinguishing them from the rest is difficult, even for professionals.

 

For most investors, SME IPOs should be treated as satellite “risk capital,” allocated a small share of the equity portfolio, money that can be afforded to lose.

 

What History Teaches: From 2007 to Wave 3.0

 

India has seen at least three major IPO waves:

• 2007–08: Infrastructure and global liquidity boom, which ended with the global financial crisis.
• 2021: Zero‑rate world and tech euphoria, followed by sharp de-rating and 50–70% declines in many loss-making new‑age IPOs.
• 2023–25 (“Wave 3.0”): Driven more by manufacturing, defence, green energy, and domestic consumption themes than by cash-burning tech.

 

This time, the likely risk is not a uniform crash but a “quality divergence”: strong franchises with earnings support and sensible valuations may continue to do well, while weaker names, especially in SMEs and high‑OFS issues, face sustained pressure as liquidity thins.

 

Regulation and Flows: What Could Change the Rules Again?

 

SEBI has already signalled concern over froth in segments of the IPO market, especially SMEs. Potential regulatory responses include tighter disclosure norms, higher listing requirements, or longer lock-ins for specific categories of shareholders.

 

On the demand side, India’s strong domestic flows, SIPs, pension money, insurance, and alternative investment funds, provide a structural base of equity demand that can cushion FPI volatility. But they do not eliminate price risk; they slow the cycle.

 

A Strategy for the Sophisticated Investor

 

India’s IPO landscape is not broken; it is maturing. In a maturing market, the same IPO boom yields very different outcomes for different types of investors. Whether you are a direct IPO applicant, a SIP-based long-term investor, or an SME explorer, your strategy must evolve with the market. To navigate this environment effectively, here is a consolidated, persona-aligned playbook.

 

If you are the Confident Opportunist, note that the old “apply–list–exit” rhythm no longer defines the market. Listing gains are thinner, OFS shares are larger, and pricing is tighter. Skill now matters more than speed. Use this four-point discipline framework before applying.

 

Your advantage now comes from selective participation, not blanket applications.

 

You, the Silent Compounding Seeker, are the quiet winner of this IPO cycle. Without tracking GMPs or applying directly, you already participate in the best IPOs through your diversified funds.

 

For the High-Risk Treasure Hunter, SME IPOs offer the thrill of 100x oversubscription and significant listing pops, but also carry the risk of thin liquidity and governance uncertainty. To survive and succeed, treat SME IPOs strictly as high-risk, satellite allocations, not core investments. Prioritise companies with improving governance, credible auditors, and clear earnings visibility, and avoid applying solely on oversubscription hype or grey market buzz.

 

My dear readers, a shift in strategy from “Buy at IPO, Sell at Listing” to “Wait, Assess, Hold” is now required. It is often smarter to let post-listing price discovery play out and accumulate strong businesses once volatility has settled. Returns increasingly reward investors who analyse rather than assume, select rather than chase, and treat patience as a strategic asset. The IPO is no longer a lottery. It serves as a litmus test for both the company and the investor.

 

The IPO pipeline into 2026 remains strong. But the returns will favour investors who understand their persona, adapt their strategy, and align behaviour with the realities of a maturing primary market. The game hasn’t ended. Only the rules have changed.

 

Best Regards

 

Dr. Tarunika Jain Agrawal Ph.D. 

Alpha Research

 

Disclaimer:  The perspectives provided reflect our expectations of the economy, market, and investments, which may or may not materialize. Investors are encouraged to conduct their own due diligence before investing.