There is merit in Sharma’s critique. A Securities and Exchange Board of India (SEBI) study of 144 IPOs between April 2021 and December 2023 found that 54 per cent of shares allotted (excluding anchors) were sold within a week of listing. Many retail investors exited most of their allotment within a year. This behaviour reinforces the view that IPOs are being treated as short-term trading opportunities rather than long-term wealth creators.
Compounding the problem is the structure of these IPOs. In many the Offer for Sale (OFS) portion dominates, allowing existing shareholders to cash out rather than enabling companies to raise fresh capital for expansion. This dynamics shifts the IPO’s function from funding innovation to enabling early exits. Tax policy has unintentionally amplified this trend. Recent capital gains reforms have made OFS-based exits relatively attractive: long-term capital gains (LTCG) are taxed at around 12.5 per cent, making early monetisation more appealing. This misalignment can incentivise insiders to prioritise their own liquidity over the firm’s long-term health.
Democratisation in Motion
But to focus solely on the excesses is to miss the structural transformation underway. India’s capital markets are deepening, and retail participation is becoming entrenched. According to the NSE’s Market Pulse, India raised a record Rs 1.67 lakh crore via IPOs in 2024, the highest among major markets. Simultaneously, the number of demat accounts is surging: fiscal year 2025 saw 41.1 million new accounts opened, signalling broad-based participation enabled by digital platforms.
Regulators too, are responding. SEBI is seeking to rebalance IPO structures to favour longer-term capital. In a consultation paper, regulator has proposed reducing the retail quota for very large IPOs (over Rs 5000 crore) from 35 per cent to as low as 25 per cent, while raising the qualified institutional buyer’s allocation from 50 per cent to 60 per cent. It has also suggested expanding the anchor-investor pool to include pension funds and insurers, who typically bring long-term discipline. Amid the froth, disciplined IPOs backed by strong fundamentals continue to perform. This suggests the market can distinguish when incentives align properly between genuine growth opportunities and empty hype.
The Structural Fault Line
India is not witnessing pure mania nor steady consolidation, but a deeper institutional design problem. Unless distortions are corrected, the IPO boom risks becoming a zero-sum game where insiders walk away richer, retail investors absorb losses and long-term capital formation suffers.
To channel this India needs decisive reforms. Apart from realigning fiscal incentives merchant bankers should be held to stricter standards to curb aggressive valuations geared toward listing pops. Equally vital is strengthening the investor ecosystem through better disclosures, stronger financial education and measures that discourage short-term flipping.
At a Turning Point
Shankar Sharma’s warning is provocative, but incomplete. India’s IPO boom reflects a fragile tension between a rising mass of new investors and distorted incentives favouring early exits. This is not just a bubble but a critical inflection point. If managed wisely, this could be remembered as the moment India’s markets truly opened up to millions of citizen-shareholders. If not, it may become a cautionary tale.
