India's IPO market enters 'quality over quantity' phase as listing gains shrink: Grant Thornton

India's primary market may have clocked another record year in terms of fundraising, but investors became far more selective, rewarding companies with strong fundamentals while punishing aggressive valuations, according to Grant Thornton Bharat's latest report on the country's IPO market.

The report said FY26 was "a landmark year in scale but a defining one in character," as the market shifted "decisively from momentum to selectivity, where issuer quality, not sentiment, increasingly determined outcomes."

A total of 366 IPOs, including mainboard and SME issues, were launched during FY26, raising around ₹1.9 lakh crore. Mainboard listings hit a record 109 IPOs, raising nearly ₹1.77 lakh crore, while India accounted for 14% of global IPO listings in March 2026, second only to China by volume.

However, beneath the record headline numbers, investor behaviour changed markedly.

Listing gains shrink as investors turn selective

According to the report, average IPO oversubscription nearly halved to 39 times in FY26 from 71 times a year earlier, while average listing-day gains fell sharply to 7% from 29% in FY25. Average annual post-listing performance also slipped to -17%, signalling that strong subscription levels no longer translated into superior aftermarket returns.

"The clearest signal of the shift was a sharp compression in both demand and returns," the report said, adding that "oversubscription ceased to be a reliable predictor of performance, and institutional conviction and reasonable pricing became the true differentiators."

Grant Thornton noted that the pain was not evenly distributed. Smaller IPOs delivered average listing gains of just 2%, compared with 33-35% over the previous two financial years, while medium and large IPOs remained relatively resilient with listing gains of around 11%, highlighting a clear investor preference for scale, visibility and established track records.

The report summed up the changing market through three structural shifts: "Momentum to selectivity," "Narrative to fundamentals," and "Exuberance to normalisation." Investors increasingly prioritised governance, earnings quality, cash flows and transparency over thematic narratives, while Q4 FY26 reflected growing valuation fatigue as average listing gains turned negative.

Capital still available, but only for quality issuers

Despite weaker listing gains, the report stressed that capital remains available for companies with credible business models and sound governance standards.

Offer-for-sale (OFS) issues continued to dominate, accounting for 61% of mainboard IPO proceeds, although the share of fresh issues improved to 39% from 35% in FY25, indicating a gradual revival in growth capital fundraising. Investors increasingly viewed the fresh issue-to-OFS mix as a proxy for promoter alignment and long-term commitment.

The study also found that debt repayment accounted for around 26% of IPO proceeds, followed by capital expenditure and expansion at about 21%, reflecting investor preference for stronger balance sheets and disciplined capital allocation. Governance, promoter quality, related-party transactions and disclosure standards have now become "hard filters" that directly influence both demand and valuations, it said.

Sectorally, financial services led fundraising with nearly ₹59,800 crore raised across 12 IPOs, while consumer services and consumer durables attracted strong investor interest. Capital-intensive sectors such as power, telecom and textiles, however, recorded weaker or negative listing debuts, underscoring investors' preference for businesses offering earnings visibility and structural growth.

FY27 to remain 'constructive, but measured'

Looking ahead, Grant Thornton expects India's IPO market to remain active but increasingly discerning.

The report said primary markets are likely to stay "selective and timing-sensitive," with success depending on issuer quality, valuation discipline and domestic institutional support. It identified six factors that will shape successful IPOs in FY27, including market timing, valuation discipline, governance readiness, earnings visibility, institutional demand quality and post-listing communication.

Summing up the outlook, the report said, "FY26 confirmed that India's capital markets are moving into a phase defined less by momentum and more by maturity." It added that issuers would continue to access capital, but "the market will reward those who list at the right stage of readiness, not those who simply chase the window.