IPO Rush: Public offers turn into exit route for promoters as they pocket majority of proceeds

The primary market is back on track, following a period of lull after a record number of listings in FY25. The overall investor sentiment for the primary market is upbeat with recent strong listings. The Q4 of FY25 witnessed a lacklustre response from the investors, with only 10 mainboard IPOs hitting the Dalal Street amid soured investor sentiment.

However, FY26 began on a strong note with nearly 22 IPOs hitting the street till July, garnering ₹38,411 crore from the issues, the NSE data showed.

The IPO market remains buzzing, with prominent names hitting the Street for issues and getting a strong response from the retail and institutional investors. But the question remains: whether the IPOs are creating enough growth capital to aid economic activity, or whether it is just an exit route for promoters who want to sell their stake and take the money home. Let's take a deeper look at it.

According to NSE data, In the first seven months of 2025, the primary market witnessed 32 mainboard IPOs raising nearly ₹54,400 crore from the primary markets. These 32 issues include prominent names such as Hexaware Technologies, HDB Financial Services, and Ather Energy. HDB Financial Services remains the biggest IPO of 2025, which raised ₹12,500 crore. While the Globe Civil Projects is the smallest mainboard IPO, raising ₹119 crore.

Most of the IPO investors, be they retail or small institutional investors, are lured by the quick returns IPOs tend to offer. Some IPOs see strong listing gains, while others are listless on the listing day and see a gradual upside.

Additionally, some issues fail to live up to the hype and continue to remain underperformers years after listing.

Hence, it is important for IPO investors, especially retail ones, to know and understand what is the aim of the IPO. If an IPO is a complete offer for sale (OFS), there is a limited scope for investors, as the net proceeds of the issue will not be utilised in the company’s growth, as the selling promoters will take their share.

However, when a public offer is a completely fresh issue or a combination of OFS and a fresh offer, it makes more sense for the investors to bet on those IPOs. Let's take a look at how IPO funds were utilised

Out of the 32 total issues till July 2025, 11 issues had an entirely fresh offer component raising ₹8,900 crore, while five issues had an entirely an offer-for-sale component raising ₹16,274 crore. Meanwhile, 16 IPOs were a combination of fresh issues and offers for sale, raising ₹29,157 crore.

In the entirety, out of the total ₹54,394 crore raised, ₹33,302 crore has gone in the pockets of shareholders who wanted to cash out, and ₹21,193 crore has gone to the company’s coffers for different objectives.

What does it mean for investors?

It means 60% of the money raised through these IPOs has led to easy exit for existing investors, and the remaining 40% has gone to the company for core business purposes or repayment of debt in some cases.

The higher offer-for-sale component in the public issue often indicates a short opportunity left for the new investors as the existing shareholders exit the business by selling their stake in the company. Moreover, the recent euphoria for the IPO encourages existing promoters/shareholders to increase their stake sales at higher valuations, making it a more costly affair for the new incoming investors.

For example, Hyundai Motors India, which was India’s largest IPO, was entirely an offer for sale worth ₹27,856 crore. Hyundai Motors India’s valuation was nearly 48% of its global parent’s, when the Indian unit only contributed 6% to the global parent’s revenue and 8% to the profit.

One 97 Communications, the owner of fintech platform Paytm, too, was a big IPO with a higher offer for sale component and still trades below its issue price.

Life Insurance Corporation of India IPO was also a big and entirely an offer-for-sale worth over ₹20,000 crore. The stock still trades below the IPO price of ₹930 apiece after hitting a record high only once at ₹1,080 apiece.

On the other hand, Zomato, which was a majorly fresh issue of ₹9000 crore and an offer for sale of ₹375 crore. The proceeds from the IPO were utilised to expand its quick commerce business, and have currently led to strong value creation for investors with the share price gaining more than 300% from the issue price of ₹76 per share.

In addition, IPOs with a high offer-for-sale component also consolidate further post listing, as new buyers wait for their fundamental growth to justify such lofty valuations, keeping the IPO investors in a lurch.

Secondly, a higher offer-for-sale encourages an increase in supply in the markets and reduces the liquidity, making the broader market demand depressed and making the market sluggish. Having said that, a higher offer-for-sale component does not necessarily mean a bigger opportunity missed. Sometimes it allows you to hold good companies for a longer duration.

Meanwhile, a higher fresh issue component gets more capital in the company’s books, which is utilised for expansion purposes or any other business-related activity, allowing investors to enjoy the benefits arising from the investment later in the journey.

IPOs are an opportunity to smartly utilise your money to enter strong businesses at the right valuations, which is often misutilised in the euphoric sentiment.