Retail Investors Dump Secondary Market as ₹30,000-Crore IPO Frenzy Peaks

India’s equity landscape is witnessing its sharpest behavioural shift in years. Retail investors, long considered the backbone of the secondary market, have pulled out money at the fastest pace since FY19 while simultaneously pouring unprecedented capital into the booming IPO market. The trend reflects rising risk appetite, an aggressive pursuit of listing gains, and concerns over inflated valuations in the mid-cap and small-cap segments.

Retail Outflows Hit Multi-Year High

Retail investors have sold ₹4,729 crore worth of shares in the secondary market so far in FY26, the worst net selling spell since FY19, according to data from the NSE.

Retail investors turned net sellers in four of the first seven months of FY26.

October 2025 alone saw an outflow of ₹12,061 crore, the sharpest monthly selling of the fiscal year.

Interestingly, this selling spree has come even as benchmark indices are hovering near record highs, suggesting that profit-booking and fears of stretched valuations have begun to impact investor behaviour.

Massive ₹30,000-Crore Rush into IPOs

While exiting the secondary market, retail investors pumped a record ₹29,370 crore into IPOs in FY26 so far. This mirrors the broader IPO boom:

Capital raised in the Indian IPO market crossed ₹1.5 lakh crore in CY2025, among the highest ever.

As per YES Securities, the number of IPOs increased from 57 in 2023 to 86 in 2024 and further to 93 in 2025.

This sharp divergence — exits from listed stocks and entry into new issues — suggests that the lure of listing-pop gains has become overwhelming for retail sentiment, despite growing quality concerns.

OFS-Heavy IPOs: Are Promoters Cashing Out?

A deeper structural concern is emerging in the IPO market. Nearly 63% of 2025 IPO fundraising came via Offer for Sale (OFS), meaning the money goes directly to promoters and private equity investors, not to the company.

Hitesh Jain of YES Securities explains:
“A growing share of OFS raises questions about how much fresh capital is actually going into companies.”

This trend indicates that promoters and early investors are booking profits at high valuations, leveraging the euphoric environment to exit rather than expand operations.

Mixed Signals: Not All IPOs Are Overvalued

Market veteran Dipan Mehta offers a balanced view:
“Some venture-funded IPOs are coming earlier than they should, which is a concern. But for every two or three overpriced issues, one or two are reasonably valued with strong profits.”

Sharp post-listing corrections in companies such as Ola Electric, Urban Company and Lenskart underline the speculative nature of some offers. Meanwhile, good-quality IPOs continue to see interest, reflecting a divided market dynamic.

IPO ‘Flipping’ Culture Is Driving Demand

The spike in listing-day flipping is a key driver of the IPO frenzy.

“There is an entire class of investors applying through multiple names and leveraging capital. As long as flipping gives good returns, more investors will chase IPOs,” says Mehta.

This behaviour has turned IPOs into a short-term tactical trade rather than a long-term investment avenue, increasing volatility but sustaining demand.

Valuation Disconnect Between IPO and Secondary Market

As market expert Sandip Sabharwal points out:
“There are two different markets today IPOs launching at very high valuations and listed mid-caps that are actually cheaper.”

He says only some IPOs are conceding to fair-value expectations, reinforcing the view that retail investors may be overpaying for untested businesses while overlooking established companies trading at attractive valuations.

Why Retail Portfolios Aren’t at Record Highs

Despite the Nifty hovering near lifetime highs, retail portfolios remain under stress:

Small-cap and micro-cap indices have fallen 9–12% from their respective 52-week highs.

Many stocks bought during the 2021–2023 retail boom have yet to recover, pushing investors towards a “quick-return” IPO strategy.

This divergence explains why sentiment in the secondary market remains subdued even as benchmark indices appear strong.

Five-Year Retail Participation Story Remains Solid

Retail investors were among the strongest pillars of India’s equity markets from FY21 to FY25:

Cumulative net equity inflows: ₹3.82 lakh crore
Including IPOs: over ₹5 lakh crore

Retail investors now contribute over 35% of overall trading on the NSE. This financialisation — driven by mutual funds, digital platforms and rising financial literacy — suggests that the recent selling is more tactical than structural.

Outlook 2026

Apurva Sheth of SAMCO Securities suggests an asset-allocation-based diversified approach:

Equity: 40%
Precious metals: 30%
Debt: 10%
Cash: 20% to buy dips

He expects market corrections to provide entry opportunities and believes:
“Nifty could trade between 24,500 and 27,500 in 2026.”

The retail shift away from the secondary market into IPOs points to a growing preference for short-term gains. While some IPOs offer strong fundamentals, many are driven by promoter exits and lofty valuations. Should global or domestic sentiment turn, overvalued IPO exposures are likely to underperform compared to established listed companies trading at reasonable prices.