Smaller IPOs slow down as market turns selective, valuations trimmed; foreign banks gain ground

Indian IPO markets have gone from euphoric to subdued in the space of a year. Valuations of issues coming to market now are down 25-30% from their 2024 peak, foreign institutional investors have retreated, and retail money has also taken a step back. Yatin Singh, CEO, Investment Banking at Emkay Global Financial Services noted that so far, the fundraising activity this year is looking bleak, and it may take a few quarters more to see a recovery. Here are some edited excerpts from the conversation. Q: What's your read on why the IPO market has cooled so sharply in 2026? It comes down to the three segments of investors, which are domestic institutions, foreign institutions, and retail. Right now two of the three are missing. FIIs have been negative on India for a while. India is historically an expensive market valuation-wise, and a large part of FII flows have an American angle to them. With Indo-US trade dynamics being ambiguous, investors are in wait-and-see mode. Add to that the fact that India doesn't have an identifiable large AI theme. Global capital has concentrated into anything in the AI bucket which is mostly US, some China, some Taiwan and South Korea for semiconductors. India simply isn't part of that story right now. What's changed more recently is that even domestic retail investors have migrated. They were in equity markets for about a year, saw no returns, and then watched gold go through the roof. If you look at AMFI data over the last five or six months, net new funds into gold ETFs have gone up sharply, last month it actually outpaced equity inflows. That's the inflection point. Domestic mutual funds are holding things up through SIP flows, but most of those SIP monies are getting absorbed into maintaining their existing secondary market positions. Until FIIs start buying meaningfully and some retail investors return, those mutual funds won't be forced to look at fresh paper and that's what really drives IPO demand. Q: You've seen valuations drop 25-30% from the 2024 peak. Why are companies still coming to market at those levels? What option do you have? Even at a 30% haircut, listing is still better than going to private markets right now. Private market buyers will value you even lower. And for the new-age, asset-light, loss-making business models that are coming to market right now, debt isn't even an option because banks want collateral, they want profitability. Not every company has that. Look at Fractal: it was priced substantially below its pre-IPO round. Amagi was at a 40% discount to its last private round from a couple of years ago. This is happening across the board. What would trigger a recovery? There's a growing opinion that the AI trade is overplayed, that it's a bubble. When that unwinds, that capital needs another home. Some of it will come to emerging markets, and India would get a meaningful share of that. So a reversal of the AI trade could actually be a catalyst for India, even though India itself has no AI story. For IPO markets specifically, we need all three investor segments to be "in the mood" simultaneously. When they are, IPOs get subscribed 70, 80, 100 times, and all those bull market outcomes are quite within reach. In the current environment, even when a successful IPO happens, participation levels are far more muted compared to the exuberance of the past. Q: Have you seen the nature of IPOs change from last year to this one? In 2024, you had a high number of transactions at lower average sizes, there were a lot of Rs 400-600 crore IPOs going through. Today, any IPO below Rs 700-800 crore has almost completely vanished. The deals that are happening are much larger, so the aggregate fundraising numbers may look okay on paper, but as a banker I don't judge market health by the total amount raised. I judge it by the number of successful IPOs across all sizes. It also determines who wins the league tables. Large deals, especially new-age companies that need to market in the US under 144A rules, go to the Wall Street banks such Morgan Stanley, JP Morgan. Smaller, more numerous deals go to the domestic investment banks. So 2025 has been a foreign bank year. 2024 was a domestic bank year, as were the past few years before that. Q: Why are we seeing such a rise in the OFS-portion of IPOs? Two very different things are happening. For PE funds, it's straightforward — they are closed-ended vehicles by legal construct, and they have to exit at some point. An IPO is one of the means to execute that exit. For promoters doing OFS, part of it is opportunism, but a big part of it is SEBI's regulations around fresh issue capital. If you raise fresh capital in an IPO, you have to define exactly what you'll use it for, you have to document everything rigorously, and you cannot change the use case later because it's not fungible and there's a lot of red tape. Whereas with OFS, there are essentially no major compliance requirements. So what a lot of new-age companies have done, if you look at Swiggy, Zomato, or others, is that they've come to market primarily via OFS, gotten listed, and then six months later do a QIP for growth capital. QIPs don't require any of that documentation. Most people don't realise this is the playbook, and it allows promoters to by-pass SEBI regulation. Q: What's an issue you're particularly looking forward to and why? I'm excited about PhonePe. It's a Walmart-owned company doing an IPO in India, so there will be compliance situations that are completely unique, these things will become case studies for the entire industry. It will also be a large issue, and if it does well, there's generally a positive rub-off effect on the market broadly. But more importantly, if you look at the whole UPI pie, more than 70-80% is between GPay and PhonePe. So it is essentially, the IPO is a proxy on UPI which I think is one of the biggest things that has happened in India. There was a life before QR codes, and there is a life after.