The stock market benchmark Nifty 50 has been in a downtrend for two years now, largely due to weak earnings, heightened geopolitical and geoeconomic risks, foreign capital outflows, and currency weakness.
Over the last two years, the index has lost 2%, while over the last year, it has declined 2.5%.
So far this year, the index has declined by over 7% after hitting a record high of 26,373 on 5 January. The last time the Indian stock market barometer crossed the 25,000 mark was on 27 February. Since then, it has been between 22,000 and 24,000.
The Nifty has been stuck below 25,000 for the last six months. While the US-Iran conflict, elevated oil prices, a mismatch between earnings growth and market valuations, and the lack of AI trade are the key factors behind the poor show of the domestic market, some experts believe that the market is also experiencing some sort of curtailed retail liquidity due to the flood of IPOs this year.
As brokerage firm Swastika Investmart highlighted, as many as 59 mainboard and 113 SME IPOs have hit the primary market this year, as of 25 August. These 172 IPOs have cumulatively raised about ₹77,400 crore, out of which ₹72,000 crore has been raised by mainboard IPOs.
Is the IPO boom contributing to the market downtrend?
Some experts believe the IPO boom is one of the reasons that is keeping the market under pressure. However, oil prices remain the biggest worry for the markets.
“Elevated oil prices and renewed boom in IPOs are the major reasons for the poor performance of domestic equity markets. The July oil import bill is a major worry on the rupee front, and hence, there exists a fear of possible selling by FIIs. If crude oil again breaches $100 a barrel, it could disrupt recent inflows from FPIs,” said G Chokkalingam, the founder and head of research at Equinomics Research.
Chokkalingam said the renewed boom in IPOs is limiting liquidity available to the secondary markets.
“Unless oil prices correct significantly or the IPO boom moderates substantially, the secondary market is likely to continue with its underperformance in the short term,” said Chokkalingam.
Harshal Dasani, Business Head at INVAsset PMS, also underscored that the IPO wave is a real headwind, though not for the reason usually cited.
“Supply of this scale, with 238 companies queuing to raise roughly ₹4.72 lakh crore, does cap index upside, because every rupee locked in a primary issue is a rupee not bidding for secondary-market stock, and the mechanism is most visible in the largest offers, where the ₹31,000 crore LIC OFS and the ₹11,693 crore SBI Funds Management issue absorbed institutional capital within weeks of each other. That is a genuine liquidity constraint, and it is one reason the benchmark stays rangebound even as breadth improves and earnings hold up,” said Dasani.
However, the retail-drain thesis is not supported by the data.
Dasani said retail participation in IPOs has actually been subdued this year, with average retail subscription across 28 mainboard issues at 12.8 times against far stronger institutional demand, and QIBs accounting for roughly 61% of FY26 issue size.
“Retail is not funding this wave; institutions and HNIs are. Meanwhile, retail’s own money continues to flow steadily into the secondary market through SIPs, which held above ₹31,000 crore for a fifth straight month. Retail liquidity is intact and disciplined,” said Dasani.
Weak secondary-market performance also seems to have made retail investors cautious about IPOs.
“The index’s drift is better explained by heavyweight underperformance, unresolved global macro, and FII flows only now turning, with the IPO supply acting as an additional weight rather than the primary cause. A functioning primary market at this scale deepens free float and brings quality paper to a market with structural domestic demand. Supply pressures the index in the short run and strengthens it over the cycle,” said Dasani.
Some experts, however, believe that IPOs are not sapping liquidity out of the market.
“It’s not that IPOs are sapping liquidity out of the market; it’s a reallocation effect. When the broader market starts to revive, IPOs tend to perform better than secondary market activity. Listing gains give short-term results, while secondary market returns take longer to play out. That speed differential changes investor behaviour,” said CA Kresha Gupta, Director and Fund Manager at Steptrade Capital.
Gupta pointed out that volatility has increased over the last two years, and the Indian stock market has undergone a natural revaluation as a result. Macroeconomic factors played a major role in the last two years, with uncertainty rising due to war disruptions, tariff imposition, FIIs pulling out money, export headwinds, and corporate earnings.
So, instead of deploying fresh capital into existing stocks, investors are more inclined to direct it toward primary offerings, chasing quicker, more visible returns.
“This is a timing and allocation shift, not a liquidity shortage. The money hasn’t left the market, it has just moved toward where the near-term return looks better,” said Gupta.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
