India's IPO market has been booming, but a closer examination reveals a concerning trend: promoters and early investors are increasingly using IPOs as an opportunity to cash out, rather than to raise capital for company growth. This shift raises questions about the long-term health of the IPO market and the potential risks for retail investors.
In 2025, Indian IPOs have raised ₹1.51 trillion, but a significant portion of IPOs since 2021 are trading below their issue price. Data indicates that Offer for Sale (OFS) transactions, where existing shareholders sell their stakes, account for nearly two-thirds of the ₹5.4 lakh crore mobilized through IPOs between 2021 and 2025. This means that approximately ₹3.37 lakh crore went to promoters and early investors, while only ₹2.03 lakh crore was raised as fresh capital for company expansion. In the first seven months of 2025, out of the ₹54,394 crore raised through 32 IPOs, ₹33,302 crore went to shareholders cashing out, leaving ₹21,193 crore for the companies.
Several recent IPOs exemplify this trend. For instance, LG's ₹11,000 crore IPO went entirely to the Korean promoter, while Tata Capital's IPO saw over ₹8,600 crore going to promoter Tata Sons and early investors. Similarly, founders and pre-IPO shareholders cashed out over ₹5,000 crore in Lenskart's IPO, and the entire ₹3,000 crore issue of WeWork India was an OFS by existing stakeholders.
Chief Economic Advisor V. Anantha Nageswaran has expressed concerns that IPOs are becoming exit routes for early-stage investors rather than a means to raise long-term productive capital. Promoters and private equity investors, who often acquired shares at low valuations, are now using IPOs to exit at peak valuations, transferring the risk to public investors.
While OFS is not inherently problematic, it becomes concerning when it overshadows fresh issue components and valuations appear inflated. Market experts suggest that this trend signifies a maturing capital market ecosystem, where early investors realize gains and new-age companies require less capital. They argue that the focus should be on company quality and valuation, regardless of the fundraising structure.
However, the dominance of OFS in Indian IPOs has implications for the stock market. While it indicates strong investor confidence, it also means less direct capital is being injected into companies for growth projects. This can be a cause of concern for retail investors who are often lured by quick returns. It is crucial for investors to understand the aim of the IPO and whether the proceeds will be utilized for the company's growth. IPOs with a complete OFS component offer limited scope for investors, as the net proceeds will not be used for the company's expansion.
Despite these concerns, the IPO market is expected to remain active. The increasing appetite for new-age firms has made it easier for startups to provide exits to investors through public debuts. Venture capital firms like Peak XV Partners have already made significant returns on their investments in companies like Pine Labs and Groww.
In conclusion, while India's IPO boom presents opportunities for investors, it is essential to exercise caution and conduct thorough due diligence. The increasing trend of promoters cashing out through OFS raises concerns about overpricing and the long-term prospects of these companies. Investors should prioritize company fundamentals and valuations, and be aware of the risks associated with IPOs that are primarily driven by exits for existing shareholders.
