Mutual funds have increased their share in recent IPOs to a multi-year high of 32.3%, pivoting toward primary market opportunities amid global geopolitical shifts. While institutional appetite is rising, data shows a divergence in performance between smaller and larger debutants, impacting valuation expectations for upcoming listings.
What Happened
Following the onset of the Iran conflict, Indian mutual funds have significantly ramped up their participation in initial public offerings (IPOs). Data indicates that these funds absorbed 32.3% of the total proceeds raised by 13 companies that launched their IPOs after late February 2026. This is a sharp increase from the 20% share held by mutual funds prior to this period of heightened geopolitical tension.
The Shift Toward Smaller Companies
Institutional interest is showing a distinct change in preference. While mutual funds have historically favored larger, more liquid offerings, there is a growing openness to smaller companies—specifically those with a market capitalization below ₹4,000 crore. Analysis shows that these smaller firms have delivered better listing-day performance compared to their larger peers since the end of February. Smaller companies tracked in this period achieved median listing gains of 6.2%, whereas companies with a market cap exceeding ₹4,000 crore recorded median gains of 3.1%.
Valuation and Listing Trends
The primary market is witnessing a cooling in listing-day premiums. IPOs launched since the conflict began have seen median listing-day returns in the single digits. This is a notable departure from the trends seen in 2023, when median gains surpassed 12% and reached as high as 49.2% in the September quarter. Consequently, companies that received SEBI approval for their IPOs prior to the current geopolitical climate may now face pressure to adjust their valuation expectations downward to ensure a successful listing in the current environment.
Historical and Liquidity Context
Institutional caution toward smaller IPOs is not new. Historically, large-scale mutual fund schemes have often been hesitant to invest in smaller-cap listings due to liquidity concerns—the difficulty of selling large positions without significantly affecting the stock price. Similar patterns were observed globally following past geopolitical and economic crises, such as the 1998 debt default in Russia. These historical hurdles often forced large funds to limit their exposure to the smaller-cap segment.
What Investors Should Track
As the primary market adjusts to these shifting conditions, investors may monitor the gap between the valuation expectations of promoters and the current appetite of institutional investors. Key monitorables include the success rate of upcoming IPOs, any trends in price discovery for companies with smaller market caps, and whether listing-day gains remain compressed or show signs of recovery as market conditions stabilize.