Whalesbook
India's IPO Market: A Tale of Two Halves in 2025
The year 2025 marked a significant period for India's primary markets. Companies across various sectors launched public issues, successfully raising a record ₹1.75 lakh crore through mainboard offerings and an additional ₹11,429 crore via Small and Medium Enterprises (SMEs). This impressive fundraising activity initially signaled strong investor confidence and a booming market.
However, as the year drew to a close, a different and concerning picture emerged. A substantial portion of these newly listed stocks, nearly half, were trading below their initial offering prices by late December. This stark contrast raised a critical question for investors: why did some IPOs deliver impressive gains while others faltered despite similar levels of investor enthusiasm?
The Mechanics of IPO Pricing
The value of an IPO is not solely determined on its listing day. The price is established weeks in advance through a careful assessment of several factors. These include the company's fundamental strength, such as its revenue growth, profitability, and cash flows. Peer valuations, both within India and globally, also play a crucial role. Furthermore, prevailing market conditions, including liquidity levels, interest rates, and overall investor risk appetite, significantly influence pricing. Demand signals observed during the anchor and institutional book-building phases are also key indicators.
Listing Day Pop Versus Long-Term Performance
A notable feature of India's IPO market is the substantial retail allocation, often around 35 percent. When combined with positive market sentiment and limited supply, this can lead to strong demand on listing day. Consequently, stocks can debut at significant premiums, even if their underlying fundamentals appear stretched upon closer examination. In 2025, 69 out of 103 mainboard IPOs listed above their issue price. However, the real test came later, with only 54 of these maintaining positive trajectories by late December. Once the initial frenzy subsides, sustained stock performance relies heavily on the company's ability to deliver on earnings, provide clear guidance, and maintain institutional support.
Size Matters: Why Small IPOs Struggled
Analysis of data from 2025 revealed a clear pattern concerning the size of IPOs. The worst-performing debut stocks were predominantly those with issue sizes below ₹1,000 crore. Many of these smaller offerings saw their prices fall by 30 to 50 percent below their issue prices. Smaller IPOs typically face challenges such as lower institutional ownership, thinner post-listing liquidity which makes trading more difficult, and a greater vulnerability to unexpected earnings misses. These factors combine to make their stock performance more volatile and susceptible to downward pressure.
Expert Insights on Valuation vs. Hype
Market experts have consistently pointed out that listing-day prices are often a product of sentiment and scarcity, whereas long-term returns are driven by tangible cash flows and effective business execution. Sudhir Bassi, Partner at Khaitan & Co, explained that IPO listing prices are influenced by a complex interplay of oversubscription levels, the uniqueness of the company, relative fundamentals, industry dynamics, and broader market sentiment on the day of the listing, making outcomes difficult to predict based on any single factor. Thomas V Abraham, Research Analyst at Mirae Asset ShareKhan, noted that listing-day pricing reflects business strength, growth momentum, earnings quality, and scalability, often amplified during favorable market phases. Anupam Saxena, an IPO consultant, added that issue pricing is guided by analyst assessments, including peer comparisons, projected cash flows, balance-sheet health, and planned use of funds.
The Shift Towards Fundamentals
While investor enthusiasm and heavy subscriptions can fuel sharp initial gains, market experts caution that such momentum is rarely sustainable without strong fundamental backing. Hype-driven price movements tend to fade as early excitement subsides, with long-term stock performance ultimately anchored in business fundamentals. Sustained rallies are often fueled by crowd psychology and market cues, but long-term success depends on measurable factors such as capital efficiency and earnings growth. Sectors like technology and AI, which saw sharp debut-day jumps amid strong demand, often corrected as quarterly results exposed gaps between investor expectations and actual performance.
Evaluating Post-IPO Performance
Market experts suggest that post-listing performance should be assessed based on evolving market judgment rather than fixed benchmarks like the IPO issue price. Once a stock is listed, price discovery shifts to continuous market evaluation, exposing companies to sentiment shifts and liquidity conditions. Sudhir Bassi clarified that the comparison with the IPO price is not always the right perspective, as the stock trades on the judgment of the entire market post-listing. Examples from 2024 and 2025 showed a divergence, with some IPOs making significant leaps while others sank quickly. Despite strong institutional interest, many stocks corrected as market conditions tightened and external pressures like foreign investor exits emerged. The market is increasingly looking for endurance players who anchor on proven metrics, not just launch fireworks.
Investor Priorities for 2026
Looking ahead to 2026, the Indian IPO market is expected to remain robust, but the lessons of 2025 have raised the bar. Investors are increasingly advised to focus more on cash flows and profitability over narratives and hype. Rewarding reasonable pricing rather than chasing aggressive valuations and preferring companies raising capital for growth initiatives over exits are also key recommendations. The broader takeaway is that the market is maturing, and IPOs will be increasingly evaluated on long-term value creation rather than short-term momentum.