The IPO Market is Not Broken: Why Policymakers Must Stick to Disclosure
There is significant public anger and calls for regulatory intervention over the recent performance of the Indian IPO market, where a significant proportion of companies listed in 2025 are trading below their issue price. Commentators are using strong words like “trap” and “pump and dump.” However, the author, Ajay Shah, argues that this moment of high noise is dangerous for policy and that the market is, in fact, functioning properly for the first time in history. Policymakers must resist the urge to intervene in valuations and stick strictly to their mandate of ensuring sound disclosure.
The Myth of the Broken Market: Sustained IPO Access
The core argument against regulatory panic is the long-term health of the IPO pipeline. Traditionally, the Indian primary market suffered from a volatile “boom-bust” pattern (one euphoric year followed by three years of drought), harming new firm creation.
The Healthy Market Metric: Shah uses a thumb rule: a good year has 36 or more mainboard IPOs (averaging three per month), signaling a functioning pipeline.
Historic Consistency: India is currently in a remarkable situation, having achieved this benchmark for five consecutive years (2021 to 2025). This sustained run of market access has never been seen before and is crucial because it creates incentives for venture capital to flow and entrepreneurs to take risks.
The Mandate of Regulation: Disclosure, Not Preventing Loss
The complaint that “valuations are too high and investors are losing money” betrays a fundamental misunderstanding of finance and regulation.
Risk Acceptance: In the secondary market, when a share price falls 20% after purchase, investors accept the risk and do not blame SEBI. An IPO is no different; it is an arm’s-length transaction.
The Onion Seller Analogy: Just as a farmer tries to obtain the highest possible price for onions, promoters and Private Equity (PE) funds should be free to sell shares at the highest valuation the market will bear.
SEBI’s Role: The regulator’s only mandate is to ensure the correctness and adequacy of the information provided. If a company discloses high losses or a P/E ratio of 2000, and investors still buy, the market is functioning correctly.
“The role of financial regulation is to block fraud, not to prevent loss. Freedom includes the freedom to make mistakes.”
Reforming the “Wedding Party” IPO Process
While the market volume is healthy, Shah critiques the current IPO process as being designed like a “wedding party”—a one-time marketing event designed to stampede investors. He proposes a cleaner, reformed model to remove information asymmetry and hysteria:
Separate Listing from Offering: A company first establishes a track record of information disclosure and governance (e.g., quarterly results, board composition) for a probationary period (e.g., one year) without trading.
Quiet Listing: After this period, the company would simply have a “quiet listing.” Trading would commence on a designated date with no public offer, no marketing blitz, and no subscription window.
Capital Raising: If the company needs fresh capital, it can do so after the price has been discovered on the screen, using mechanisms available to already listed companies.
Conclusion: A Sign of a Healthy Market
The current wave of “failed” IPOs—where prices fall after listing—is actually a sign of a healthy, discerning market. It shows that the secondary market is capable of correcting inflated valuations made by pre-IPO investors.
Policymakers must resist the urge to intervene by mandating valuation caps or restricting exit offers. The engine of firm formation, driven by domestic liquidity and a robust company pipeline, is humming. Policymakers must and focus only on
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