Who's afraid of IPO market? Policymakers should only worry about disclosure

Despite weak listing gains and rising anger among retail investors, long-term data shows the IPO pipeline is healthier than ever, and heavy-handed regulation would do more harm than good

There is anger in the air regarding the Indian IPO (initial public offering) market. The recent data shows that listing gains have declined. A significant proportion of companies listed in 2025 are trading below their issue price. Retail investors who flocked to these offerings in search of quick returns are disappointed. Commentators are using words like “trap”, “loot”, and “pump and dump”. There are calls for the Securities and Exchange Board of India (Sebi), the regulator, to step in and check valuations.

 

This creates a dangerous moment for policy. When the noise level rises, the desire to manage the headlines and the narrative creates pressure for the government to “do something”. This usually leads to bad regulation, which stifles market development. The Union finance ministry and regulatory leadership need to keep a cool head and look at the long-term data. The Indian IPO market is not broken. In fact, for the first time in history, it is functioning properly.

 

To understand the health of the primary market, we must look beyond the price movements of the last three months. We must look at the volume of issuance over the last two decades. Traditionally, India has suffered from a volatile “boom-bust” pattern in primary markets. We would have one euphoric year followed by three years of drought. This unreliability harms the creation of new firms. 

I have a thumb-rule for a healthy market: It is a good year when there are 36 or more mainboard IPOs. This averages out to about three per month. When the IPO market purrs away at this rhythm, it signals a functioning pipeline where unlisted firms can reliably do an IPO. We have rarely achieved this. From 2012 to 2020, we hit this benchmark in only one year: 2017. The rest of the time the market was sputtering. 

We are now in a remarkable situation. For five consecutive years — 2021, 2022, 2023, 2024, and 2025 — we have had 36 or more mainboard IPOs per year. We have never seen such a sustained run of IPO market access in Indian history. 

This consistency matters deeply. It creates incentives upstream for firm formation. The journey of entrepreneurship is brutal. For every one firm that gets to an IPO, there are 100 that try and fail. When the exit door is reliably open, venture capital flows in, and entrepreneurs take risks. The consistent delivery of exits from 2021 to 2025 is important. It bodes well for the Indian economy. 

Why, then, is there so much dissatisfaction? The complaint is that valuations are too high and investors are losing money. This line of thinking betrays a misunderstanding of financial markets and regulation. 

The expression “consumer protection” is powerful in politics. But in finance, well-protected consumers can and will lose money, based on their decisions. The role of financial regulation is to block fraud, not to prevent loss. Freedom includes the freedom to make mistakes. 

Consider the secondary market. If an investor buys shares of a listed company today and the price falls 20 per cent next week, nobody blames Sebi. Nobody argues that the government should have prevented the purchase. We accept that investing in shares contains risk. We accept that it is the buyer’s responsibility to judge the price. 

An IPO is no different. It is an arms-length transaction between a seller (the company or existing shareholders) and anonymous buyers. The seller of shares is exactly like a seller of onions. The onion seller tries to obtain the highest possible price for their goods. The buyer tries to pay the lowest possible price. Nobody objects when a farmer tries to sell onions at a peak price. In similar fashion, nobody should object when promoters or PE (private equity) funds try to sell shares at the highest valuation the market will bear. 

Sebi’s only mandate is to ensure the correctness and adequacy of the information provided. If a company discloses that it is making losses, or that its P/E (price/earning) ratio is 2000, or that its promoters bought shares cheaply three months ago— and investors still buy the shares — that is a market functioning correctly. There may be bad investment decisions, but these situations do not constitute regulatory failure as long as disclosure is sound. 

While the market volume is healthy, the IPO process in India does have problems. It is designed as a wedding party: A one-time marketing event designed to stampede investors into buying shares. There are cleaner ways to think about this. In 2021 I had outlined a mechanism, which remains relevant. We should separate the “listing” from the “offering”. (https://mybs.in/2ZgjidR)

In this reformed model, a company desiring to go public would first establish a track record of information disclosure and governance. It would comply with all listing obligations — quarterly results, board composition, disclosures — for, say, one year, without trading. At this point, the investing public would have a judgement about the valuation. 

Once this probationary period is over, the company would simply have a “quiet listing”. On a designated date, trading would commence. There would be no public offer, no marketing blitz, no “subscription window”. Existing shareholders could sell into the secondary market if they wish. If the company needs to raise fresh capital, it could do so after the price has been discovered on the screen, using the same mechanisms available to already listed companies. This approach removes the information asymmetry and the hysteria of the current IPO process. 

We are witnessing a historic deepening of our capital markets, driven by domestic liquidity and a robust pipeline of companies. The current wave of “failed” IPOs — where prices fall after listing — is actually a sign of a healthy, discerning market. It shows that the secondary market is capable of correcting clubs of investors in the pre-IPO stage. Policymakers must resist the urge to intervene. Do not mandate valuation caps. Do not restrict exit offers. Do not “protect” investors from their own mistakes. The engine of firm formation is humming. Let it run.

The author is a researcher at the XKDR Forum