Indian IPOs Often Serve Insider Exits, Not Company Growth, Analyst Warns

CA Abhishek Walia, co-founder of Zactor Money, points out that while Indian IPOs have raised a record Rs 5 lakh crore in the past five years, the primary beneficiaries are often promoters and private equity investors looking for an exit. According to Walia, approximately Rs 3.3 lakh crore of this amount was used for these exits, not for company expansion. Of every Rs 100 raised, only Rs 19 was allocated to plant and machinery, Rs 19 for working capital, and a substantial portion was used to repay existing debt. The Reserve Bank of India has also noted a "tepid investment outlook" in project finance, contrasting with stock market enthusiasm.

Investor returns have also seen a downturn. While around 41% of IPOs in 2024 offered more than 25% returns, this figure dropped to just 15% in 2025. Furthermore, nearly 27% of IPOs since 2021 have listed below their issue price.

Walia emphasizes that the intent behind an IPO is key. When funds are used for capacity expansion or building new facilities, it benefits the economy. However, when they primarily facilitate early investors cashing out, retail investors often bear the brunt. The current IPO boom, he suggests, reflects monetized confidence rather than unstoppable growth, and real winners will emerge when the focus shifts from exits to expansion.

Impact: This news is crucial for Indian investors as it questions the common perception of IPOs as guaranteed easy money. It highlights that many IPOs serve as an exit strategy for early investors rather than a genuine growth engine for companies. This could lead to more cautious investment in IPOs, potentially impacting their demand and valuation, and shifting focus to companies genuinely funding expansion. Rating: 7/10.

Terms: - **IPO (Initial Public Offering)**: The process by which a private company first offers its shares to the public, typically through a stock exchange, to raise capital. - **Promoters**: The founders or initial owners of a company who often retain significant control and a substantial stake even after the company goes public. - **Private Equity Investors**: Firms that invest in private companies, often with the aim of profiting from an eventual sale or IPO. - **Working Capital**: Funds used by a company for its day-to-day operational expenses, such as inventory, salaries, and utilities. - **Listing Gains**: The profit an investor makes from the difference between the IPO subscription price and the price at which the stock begins trading on the stock exchange on its listing day.