Blasé Capital I PULL OUT
As the IPO (Initial Public Offering) frenzy ensues, retail investors seem to be selling existing stocks to buy new ones. With the market indices on a kind of a freeze, except in the recent past, people seem to think that there is more money to be made in IPOs, largely due to listing gains, or the difference between the offer and list prices, compared to stock price movements in the secondary market. Hence, it is worthwhile to sell the stocks they own, and buy the ones offered by the IPOs to maximise returns. In October, 2025, thanks to the large-scale IPOs in that month, and the next one, retail investors sold stocks worth more than Rs12,000 crore in the secondary market. Experts speculate that the money flowed into IPOs. This is true of both the newbies, and savvy stockholders.
For example, a cashier at a Delhi’s private club, who invests carefully, revealed that he pumped in money in an IPO for the first time. Fortunately, or otherwise, he got the full allotment because the stock he chose was Physicswallah, whose retail portion was barely subscribed. So, anyone who applied got the shares. He was pleasantly surprised when the stock, which was offered at Rs109, crossed the Rs160 mark. He waited for further gains. Sadly, the downward movement began. Finally, he sold the stock within days at Rs128. It still marked a gain of Rs19 per share, or 17 per cent, within a few days. For a year or so, sharp investors have done better, as they sold their IPO shares on the listing day. Many earned returns of up to 50 per cent. This became a full-time job. What was the need to focus on day-trading, or the secondary market, which was in a limbo?
While the retail investors have made money, they have been burnt, and scarred. Many IPOs listed listlessly, with minimal listing gains. Several hotshot IPOs bombed within weeks, and months, and were quoted at huge discounts to the offer prices. This started a debate on IPO valuations, and even the stock market regulator, SEBI, had to step in. It cautioned the investors, and stated that it was not keen to monitor valuations, and go back to the old socialist days of controls. The market needed to decide the worth of the shares, and buyers had to be careful of what they buy, and at what prices. However, a few experts feel that the role of SEBI is to stall, if not stop, a herd mentality, and excessive speculation. The hands-off approach can hurt more investors in the future, especially given the mindset of the promoters, and large institutional and individual investors.
A disturbing trend in the IPO market, as analysed by some experts, is the growing proportion of offer-for-sale. Such sales accounted for nearly two-thirds of the amount raised by IPOs in this calendar year. It implies that the promoters, and existing investors, especially venture capitalist, and private equity players, were selling the shares they owned to the new investors. IPOs were an exit option for them to monetise their holdings via high IPO valuations. This also means that the bulk of the money raised did not go to the companies but to the individual and institutional investors who sold a part of their stakes. In essence, two-thirds of the Rs1.5 lakh crore raised in 2025 went to line the pockets of the promoters and richer investors. In terms of private investments, it does not augur well for corporate growth, especially when the Government wants the private sector to substitute public spending, which drove growth in the recent past.
If the IPO trend is for the existing shareholders to make money at the expense of the new ones, it brings in other unsavoury factors into play. One of them is that the venture capitalists, and other non-promoter investors force the owners and founders to list as early as possible. There are pressures to get listed sooner than usual. This results in several premature IPOs. Evidence comes in the form of several firms, which opted for IPOs even as they incurred losses. In general, firms love to show higher profits in the 6 or 12 months before they decide to launch their IPOs. New investors, gullible or not, still buy such shares because they are not interested in the financial health of the firms. All that they care for is whether the list price will be considerably higher than the offer one. In a sense, IPOs turn into a game, and not an investment strategy.
One of the experts, who was quoted in a newspaper, explained, “There is a whole class of investors who are totally focused on IPOs. They apply (for) IPOs in multiple names, or through leverages, and then they are flipping it on listing, and that particular strategy, that particular activity is still generating very-very good returns.” Until this flipping opportunity exists, there will be a queue for IPOs. There is enough capital to chase such speculative, and risky returns. Indeed, as some experts contend, the valuations of IPOs of small start-ups, and SMEs are higher than established midcaps in the secondary market. This says something about IPO sentiments.
