Small IPOs face listing delays as mutual funds turn selective amid broader market volatilities

“There is clearly more selectivity. In the ₹2,000–3,000 crore range, deals need sharper differentiation on growth, quality, and valuation to see strong traction,” said Raghav Gupta, joint chief executive officer, IIFL Capital. He added that there is rising participation from family offices, high networth individual/ ultrahigh networth individual (HNIs/UHNI) investors, and alternative investment funds (AIFs) while select global long-only investors continue to back mid-sized, high-quality stories.

The shift is changing the primary market landscape. Domestic institutional investors (DIIs), led by mutual funds, are showing increased preference for bigger, more liquid deals and leaving a growing pile of mid-sized initial public offering (IPO) filings in limbo.

“Larger mutual fund AUMs (assets under management) naturally gravitate towards bigger, more liquid deals, while recent volatility has made investors more valuation conscious. The bar has gone up, not the appetite gone down,” Gupta said, adding that some companies are exploring private capital either as a bridge or an alternative to IPOs. “This is opening up attractive opportunities for PE/VC (private equity/ venture capital) players to deploy capital in quality businesses.”

Backed by relentless Systematic Investment Plan (SIP) inflows and deeper participation in anchor books, DIIs are exerting far greater discipline on valuations than during the 2021 IPO cycle, Mint reported in February.

For context, nearly half of all companies (a little over 40%) to have filed draft papers have planned to raise ₹2,500 crore or less, according to Prime Database.

Bankers warn the pipeline jam could persist until equity markets stabilize and risk appetite for smaller listings returns, though differentiated businesses and sector toppers could still find takers at this time.

“If the mutual funds are seeing that the secondary market is giving them more attractive opportunities to put their money at work, they are less inclined to evaluating newer issues unless the business is differentiated or there is a huge value cushion,” said Vikas Khattar, managing director and head of Equity Capital Markets and FSG coverage at Ambit.

The trend shows there is a reset in how Indian companies access capital. “At this stage, investors in general are more selective about IPOs, and within those, their preferences are tilted towards larger-sized issues. When the market starts recovering, the risk appetite for IPOs will increase again,” Khattar said, adding that there will, however, continue to be exceptions for smaller, good companies looking to go public, even in volatile market conditions.

With a variety of businesses coming to the market, it is advisable to be more selective when investing in IPOs, Raunak Onkar, fund manager and research head, PPFAS Mutual Fund, told Mint in an emailed statement. As of 31 March 2026, Parag Parikh Mutual Fund’s (PPFAS) total assets under management stood at over ₹1.47 trillion.

Mint's February report noted that the average IPO premiums over the last private round have shrunk sharply for data covering 43 companies.

In 2021, select consumer and tech firms listed at roughly twice their prior valuations on average. By 2025, the average premium had moderated to about 20%, with several high-profile names even listing at discounts.

However, companies are still filing their papers despite slow momentum and are waiting to go public as soon as the market recovers, said Vikram Gawande of Blume Ventures, an early-stage venture capital firm which is a big proponent of companies tapping the public markets at an early stage. He added that niche plays as well as market leaders will continue to drive demand even with an issue size of ₹500-2,000 crore.

Companies relying on the public market to raise funds for growth or capital expenditure may evaluate options in the private markets. "For companies who need capital in the near term, conversations are beginning to emerge as they explore options to raise capital in private markets instead. At this stage, they're evaluating engagement with growth and private equity funds to meet their funding needs,” Gawande said.