India’s IPO Frenzy: Sustainable Boom or a Bubble in Disguise?

India’s capital markets are once again at the center of attention. In the first half of 2025, despite initial volatility around national elections and global macro tightening, IPO activity has made a strong comeback. As of June 2025, 13 mainboard IPOs have collectively raised over ₹21,259 crore. A pipeline of more than 20 issues is expected in the second half of the year. Adding to the momentum is the ₹12,500 crore IPO of HDB Financial Services, marking the largest offering of the year so far and positioning itself as a key barometer of market sentiment. This resurgence, while promising, raises an important question: is India entering a phase of sustainable capital formation, or is the market once again drifting toward exuberance?

What’s Driving the IPO Momentum?

1. Domestic Liquidity Is Holding Up the Foundation

The resurgence in IPO activity is not occurring in isolation. Domestic liquidity continues to remain strong. Monthly SIP inflows touched an all-time high of ₹26,688 crore in May 2025. Active SIP accounts have now reached 8.56 crore, with nearly 59 lakh new accounts added in a single month. This consistent flow of household capital is creating a stable base for primary market absorption, especially in the mid-cap and small-cap space where institutional participation is lower. At the same time, mutual fund assets under management have crossed ₹72.2 lakh crore, marking a steady rise from the ₹66–70 lakh crore range in 2024. This shows that retail confidence in long-term financial products is growing, even amidst short-term valuation concerns

2. Institutional Capital Is Returning

Foreign portfolio investors (FPIs) had briefly turned risk-averse during the election quarter, but inflows have rebounded. In May 2025 alone, FPIs invested over $2.3 billion into Indian equities, with a strong tilt toward financial services and manufacturing-linked businesses. This renewed interest from long-only global allocators is helping anchor large IPOs like HDB Financial and could support upcoming listings from sectors such as EV infrastructure, SaaS, and logistics.

Structural Shifts in the IPO Market

• A More Balanced Sectoral Spread

Unlike the IPO wave of 2021, which was concentrated around consumer tech and loss-making unicorns, the current wave is more balanced. In 2025, IPOs have come from a range of sectors—financial services (HDB), healthcare (Aakaar Medical), enterprise services (Awfis), and digital logistics (TBO Tek). This diversification is a sign that the broader economy—not just speculative pockets—is now fueling the market

• Improved Issuer Quality

There is a visible shift in the quality of companies coming to the market. Over 60 percent of IPO-bound firms in 2025 have shown consistent profitability or clear visibility toward positive cash flows. In contrast to the 2021 cycle, companies today are not just looking for exit capital for early investors, but also fresh equity to fund growth, deleverage balance sheets, or invest in capacity expansion.SEBI’s regulatory reforms—including T+3 listing timelines, faster refund processes through UPI, and enhanced disclosure norms—have also improved process efficiency and investor confidence.

The Cautionary Undercurrents

While the structural factors look supportive, it is important to acknowledge signals of excess.

Valuations Are Stretching

Several IPOs are being priced aggressively. HDB Financial Services, for example, is being offered at a price-to-book multiple of approximately 3.7x. While this is broadly in line with listed NBFC peers, the pre-IPO unlisted market had priced it even higher. Grey Market Premiums (GMPs) for HDB currently stand at 70–80 percent—suggesting that secondary demand is being driven by short-term listing gains rather than long-term valuation logic.

This pattern is not limited to one issue. Several mid-size IPOs in Q2 2025 have shown GMP spikes well beyond reasonable pricing benchmarks, raising concerns of speculation overpowering fundamentals.

Equity Fund Flows Are Slowing

Despite strong SIP numbers, net equity mutual fund inflows dropped to ₹19,013 crore in May 2025, a 22 percent decline from April and the lowest in over a year. This could be an early indicator of retail fatigue or asset reallocation from equities to debt in light of changing interest rate expectations.

Implications for Stakeholders

• For Institutional Investors

Thematic investing in IPOs must now be accompanied by deeper diligence. Beyond headline growth and addressable market size, investors must examine customer acquisition costs, path-to-profitability, and promoter track records. The presence of large anchor investors is no longer sufficient comfort—governance and unit economics matter more.

• For Policymakers and SEBI

As IPO volumes pick up, SEBI must continue evolving disclosure norms. The introduction of stricter anchor investor lock-in norms, and more granular risk factor requirements in DRHPs could further enhance transparency.

At the same time, SEBI must actively work with exchanges and intermediaries to improve investor education, particularly around IPO risks and valuation metrics.

• For Retail Investors

Retail investors must move beyond the perception that IPOs are guaranteed wealth generators. The post-listing performance of several 2023 and 2024 IPOs—many of which now trade below issue price—proves that listing gains are no substitute for long-term investing discipline.

Investors would be well-served to treat IPOs with the same caution and analytical rigor as they would any equity investment—evaluating business quality, financial performance, and future outlook.

Closing Thoughts

India’s IPO markets in 2025 reflect a maturing ecosystem. There is greater diversity in issuers, improved regulatory architecture, and deeper pools of domestic capital. These are positive signs. Yet, the persistence of valuation froth, the rise of speculative GMP behavior, and a moderation in equity fund flows act as necessary caution signals.

The IPO boom is not a bubble—yet. But whether it becomes a new era of sustained capital formation or fizzles into a short-lived rally will depend on collective discipline. Issuers must price rationally. Investors must allocate thoughtfully. And regulators must continue to evolve.

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Disclaimer: This content is for informational purposes only and does not constitute financial advice. Please consult a licensed advisor before making investment decisions.