The number of companies that filed draft red herring prospectuses (DRHP) with the capital market regulator SEBI nearly halved in February as compared to previous month as sharp correction in the equity market dampened sentiment for new offerings. As many as 15 main board companies submitted their offer documents with the Securities and Exchange Board of India (SEBI) last month, down 48% from 29 IPO papers filed in January 2025, according to data from Prime Database. So far in March, two companies - Excelsoft Technologies and Meir Commodities India - filed their IPO papers.

In January 2025, 29 companies submitted their DRHP to raise ₹22,667 crore via IPO route, followed by 15 firms in February, looking to garner around ₹9,695 crore. In terms of listing, 10 main board IPOs debuted on the domestic bourses in the first two months of CY25, versus 16 in the same period last year.

So far in CY25, the 10 IPOs cumulatively raised around ₹16,000 crore, with nearly two-third garnered by two companies - Hexaware Technologies (₹8,750 crore) and Dr Agarwal's Health Care (₹3,027 crore). This is 37% lower than over ₹25,400 crore garnered by 15 companies in December 2024, which was the highest since February 2007, when 18 firms launched their public issue. Overall in CY24, 91 IPOs raised a total of ₹1,59,676 crore, sharply higher than ₹49,437 crore garnered by 58 IPOs in 2023; ₹59,939 crore by 40 firms in 2022; and ₹1,19,882 crore by 63 entrants in 2021.

What fizzled IPO momentum?

According to market experts, sharp correction in the secondary market amid valuation concerns, weak investor sentiments, and stumbling performance of newly listed entities have prompted companies to put on hold their IPO plans. Currently, eight of the 10 stocks debuted in CY25 are trading below their issue price, while more than half of the 2024 listed entities have delivered negative returns.

The slowdown in primary market aligns with sharp correction in the secondary market, triggered by sustained foreign investor outflow and a global tariff uncertainty. This correction has dampened investors’ craze for IPOs as they are less willing to invest in newly issued securities amid concerns about the overall market health and potential lack of liquidity for their future investments.

In the calendar year 2025, FIIs have withdrawn over ₹1.2 lakh crore from Indian equity market, while they have pulled out over ₹2 lakh crore since October 2024. The sustained selling by FIIs have dragged equity benchmarks Sensex and Nifty by up to 20% from their Sept’24 highs.

“The recent sell-off by foreign institutional investors (FIIs) in Indian equities has impacted the IPO market, particularly for new-age companies in the tech, AI, and fintech sectors,” said Mahavir Lunawat, Managing Director, Pantomath Capital Advisors. Traditional companies with strong fundamentals are being preferred over these new entrants, as investors become increasingly risk-averse due to global economic uncertainties, rising U.S. bond yields, and geopolitical risks, he said.

“The withdrawal of FIIs has made investors cautious about new IPOs. In this environment, investors are favouring established companies with proven track records over riskier new listings,” he said.

However, he expects the record-breaking IPO trend from 2024 to continue, with over 90 companies having filed draft prospectuses to raise approximately ₹1 lakh crore ($11.65 billion). India's position as Asia's leading market for IPOs, surpassing China in 2024, is also expected to be maintained in 2025, said Lunawat of Pantomath Capital.

Vaibhav Porwal, co-founder, Dezerv, said that IPOs will remain an important component of the market, but they are expected to be less dominant than last year. “An oversupply of listings, coupled with a recent market correction, is likely to make investors deploy capital more cautiously. This environment is steering the focus away from a broad-based IPO frenzy toward a more selective approach, with investors favoring high-quality stocks that align with the current macroeconomic conditions," he explained.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)