By Saumitra Bhaduri, Professor, Madras School of Economics
India is currently experiencing one of the most vibrant initial public offering (IPO) cycles in the country’s market history. A total of around Rs 5.4 lakh crore has been raised by firms through IPOs between FY20 and FY24. At first glance, the situation appears to be a classic example of financial deepening. However, the capital markets matter for growth not because money changes hands, but because savings are transformed into new productive capacity. When the IPO boom is examined through this lens, the picture changes sharply. A growing share of India’s IPO proceeds may not be funding physical investment at all; increasingly, it is funding promoters’ exit.
The data points to a clear structural shift in India’s IPO market. In the mid-2000s, IPOs were overwhelmingly capital-adding: between 2007 and 2009, over 85-90% of proceeds came from fresh equity—Rs 32,000 crore in 2007 alone versus barely `2,000 crore via offer for sale (OFS). This balance weakened after 2010 and flipped decisively after 2016. Since 2017, OFS has dominated issuance, accounting for about 81% of proceeds in 2017, over 86% in 2020, and more than 60% through the post-pandemic boom.
Even as headline fundraising surged—from Rs 27,000 crore in 2020 to nearly Rs 1.7 lakh crore in 2024 and Rs 1.9 lakh crore in 2025 so far—the tilt toward exits has deepened: in 2024, about Rs 96,000 crore went to selling shareholders, and in 2025, OFS exceeding Rs 1.12 lakh crore has already dwarfed fresh capital of roughly Rs 75,000 crore. More listings, but far less net capital formation, leaving investors increasingly exposed to exit-driven offerings rather than growth-funding enterprises.
In contrast, the small and medium enterprises (SME) segment remains a genuinely capital-adding market. With Securities and Exchange Board of India (Sebi) capping OFS in SME IPOs, issues are overwhelmingly driven by fresh capital. Over the past decade, fresh capital has dominated SME IPO proceeds, with OFS usually below 10%. This trend has continued recently: SME listings have raised approximately 8,200 crore in fresh capital in 2024 and over 10,300 crore in 2025 so far, far exceeding the OFS.
The irony is clear—while many main-board IPOs increasingly function as exit vehicles, the SME platform, despite hosting smaller and riskier firms, aligns more closely with the primary market’s core purpose of funding growth through new risk capital.
More than two-thirds of the IPO funds in the last few years have not found their way into balance sheets. What escapes our attention often is the fact that even the one-third of the funds classified as ‘fresh money’ does not necessarily find its way into spending. Analysis of Sebi filings and bank research papers indicates that no more than 20-26% of the fresh issues are allocated to spending on such areas as factories, equipment, or infrastructure in the research and technology sector, which normally remains below 5%.
About 40% goes to refinancing of debt. A quarter goes to working capital. Therefore, of every Rs 100 that has been raised in the average IPO in the last few years, only Rs 8-10 can be traced back to the generation of new productive assets. For an economy that wants to raise manufacturing capacity, infrastructure depth, and long-term productivity, this is a worrying conversion rate.
This concern sits alongside another structural fact: India’s gross fixed capital formation has remained stagnant at around 31–32% of GDP for much of the past decade, well below the levels seen during earlier high-growth phases. At the same time, even as savings—despite their recent decline— are increasingly channelled into financial markets, the market is not reliably converting them into new productive capital.
A comparison with the US shows how institutional design shapes results. IPOs are explicitly structured as capital-raising events. In a typical US IPO, 70-85% of the issue consists of new equity issued by the company. Insider selling at the IPO stage is limited. Crucially, the IPO is treated as the beginning of a firm’s relationship with capital markets. More than 60% of US IPO firms raise additional equity within three years through follow-on offerings, using public markets repeatedly to fund growth.
In contrast, data shows that in India primary shares usually account for only 35-45% of IPO size, while exits by promoters and private equity investors are front-loaded, and fewer than 15% of Indian IPO firms return to the market for follow-on equity within three years. The IPO, in effect, becomes the point of monetisation.
To assess IPOs stringently, it would be useful to look beyond subscription to oversubscription ratios and listing day action. A basic capital-addition scoreboard that focuses on capital addition percentage, quality of proceeds utilisation, promoter support post-listing, proof of equity fundraising post IPO, and actual investment deliverables in three years has a consistent story to tell. Most IPOs in India since FY21 would fall well short of the midpoint on a scale of 100. Only a select few, possibly infrastructure, logistics, and manufacturing companies, would be rated as truly capital-addition IPOs.
This is no criticism of individual firms. It is a natural outcome of a system that is largely agnostic about capital entry and exit. Sebi has done well on disclosure, transparency, and inclusion. However, neutrality in rules does not mean neutrality in outcomes when incentives consistently favour early exits over long-term investment. Retail investors—who now form the core of IPO demand—are increasingly exposed to exit-focused flotations that often struggle to sustain performance after listing.
Finally, India does not need fewer IPOs, In fact, the current boom reflects confidence in the country’s economic future. However, it needs better-designed ones. Historically, when financialisation advances faster than productive capacity—lifting asset prices without strengthening the economy’s supply side—, the widening gap between buoyant markets and weak private investment eventually undermines the credibility of capital markets as engines of growth. A modest cap on OFS in first-time IPOs, stronger and graduated promoter lock-ins, clearer accountability on how proceeds are deployed, and easier access to follow-on equity issuance within a few years of listing would realign incentives toward capital formation without stifling markets.