The year 2025 marked a historic high for India's primary markets, witnessing an unprecedented rush of companies going public. Firms from diverse sectors queued up on the stock exchanges, mobilising a staggering ₹1.75 lakh crore through mainboard public issues, supplemented by an additional ₹11,429 crore raised by Small and Medium Enterprises (SMEs). However, as the year drew to a close, a contrasting narrative emerged. By late December, nearly half of the stocks that debuted during the year were trading below their issue prices, prompting a critical examination of the factors separating the winners from the losers.
The IPO Pricing Puzzle: Sentiment Versus Substance
An IPO's valuation is not a product of the listing day frenzy but is determined weeks in advance through a meticulous process. This process weighs company fundamentals like revenue growth and profitability, peer valuations in India and globally, prevailing market conditions such as liquidity, and demand signals gathered during the book-building phase. A defining feature of the Indian IPO market is the mandatory 35% allocation for retail investors, which often creates intense demand on the listing day. When this demand meets limited supply amid positive sentiment, stocks can debut at significant premiums, even if their underlying fundamentals appear stretched.
Data from 2025 illustrated this dynamic vividly. Out of 103 mainboard IPOs, 69 listed above their issue price. Yet, the initial euphoria was fleeting for many. By year-end, only 54 of those stocks maintained a positive trajectory. Once the initial buying frenzy subsides, a company's stock performance becomes tethered to its earnings delivery, clarity in future guidance, and sustained institutional support.
Size and Survival: The Small IPO Struggle
A clear pattern emerged from the 2025 data, highlighting the heightened challenges faced by smaller issues. The worst-performing IPOs were consistently those with issue sizes below ₹1,000 crore, with many plummeting 30% to 50% below their offer prices. These smaller IPOs are typically hampered by lower institutional ownership, thinner liquidity post-listing, and a greater vulnerability to any earnings disappointments, making them more volatile and prone to sharp corrections.
Expert Decode: The Fundamental Divergence
Market experts clarify that listing-day prices are driven by sentiment and scarcity, while long-term returns are anchored in cash flows and execution. Sudhir Bassi, Partner at Khaitan & Co, explained that an IPO's listing price is influenced by a complex mix of oversubscription levels, company uniqueness, and broader market sentiment, making outcomes difficult to pin on any single factor.
Thomas V Abraham, Research Analyst at Mirae Asset ShareKhan, noted that listing-day pricing reflects business strength and bidding intensity, often amplified during bullish market phases. However, he cautioned that sustained performance depends on measurable metrics like capital efficiency and earnings growth.
Anupam Saxena, an IPO consultant, added that while sectors like technology and AI saw spectacular debut jumps, many such stocks corrected as quarterly results revealed gaps between sky-high expectations and actual performance. He highlighted a shift in investor focus from 2024 to 2025: "While 2024 was driven by hype and volume, 2025 saw investors focus more on profitable companies with strong cash flows."
Case Studies: Hype Meets Reality
The divergence was evident in the performance of the year's largest IPOs. While mega-offerings from well-known names generated massive media buzz and listing gains, their post-listing journeys varied widely.
LG Electronics India listed at a impressive 50.44% premium (₹1,715 vs. issue price of ₹1,140). However, by December 31, it had corrected to ₹1,522.05, an 11.25% drop from its listing price. Conversely, Lenskart Solutions listed slightly below its issue price at ₹390 but climbed to ₹450.6 by year-end, delivering a 12.09% gain over its IPO price. National Securities Depository Ltd (NSDL) opened with a 10% premium and closed the year with a robust 32.89% gain over its IPO price.
This underscored a vital lesson: large issue size and debut-day fireworks create attention, but enduring returns depend on the market's reassessment of the stock's fundamental, sustainable qualities after the hype dissipates.
The Road Ahead: Lessons for 2026 and Beyond
As India's IPO market looks toward 2026 with a strong pipeline, the experiences of 2025 have raised the bar. The top performers of the year succeeded due to scalable business models, clear profitability paths, strong sector trends, and reasonable pricing.
For investors, the takeaways are clear: focus on cash flows and profitability over narratives, reward reasonable pricing instead of chasing aggressive valuations, and prefer companies raising capital for genuine growth initiatives rather than promoter exits. The market is maturing, with IPOs increasingly being judged on long-term value creation. As Sudhir Bassi aptly concluded, "The comparison with IPO price is not the right perspective. Upon listing, the stock trades on the judgement of the market as a whole."
(Disclaimer: Recommendations and views on the stock market and other asset classes given by experts are their own. These opinions do not represent the views of The Times of India)
