HNI demand didn’t save them: 12 heavily subscribed IPOs of 2025 are still underwater

India's capital markets, particularly the Initial Public Offering (IPO) segment, have long been a barometer of economic sentiment and investor confidence. The year 2025, however, presents a nuanced picture, as nearly half of the 102 IPO listings are reportedly trading below their issue price. What's even more striking is that 12 of these 'underwater' IPOs were heavily subscribed, even by High Net Worth Individuals (HNIs), challenging the conventional wisdom that strong initial demand guarantees post-listing success. This trend signals a maturing, yet potentially volatile, phase for India's primary market, demanding a deeper understanding from competitive exam aspirants.

To grasp this phenomenon, let's first establish the background context. An IPO is the process by which a privately held company offers its shares to the public for the first time, thereby becoming a publicly traded company. The primary motivations for companies to go public include raising capital for expansion, debt repayment, increasing visibility, and providing an exit route for early investors. In recent years, particularly post-pandemic, India witnessed a robust IPO boom, fueled by ample liquidity, a surge in retail investor participation, and a generally buoyant equity market. Many companies, some with aggressive valuations, capitalized on this euphoria, leading to oversubscription in numerous issues. HNIs, often seen as sophisticated investors with deeper pockets and market insights, frequently participate in IPOs, and their heavy subscription is often interpreted as a strong vote of confidence.

What happened in 2025, as highlighted, is a significant departure from this optimistic narrative. An 'underwater IPO' refers to a situation where the current market price of a stock is lower than its initial issue price. The fact that nearly half of the 102 listings are in this predicament, and especially that 12 heavily subscribed issues (even by HNIs) are underwater, points to underlying market inefficiencies or shifts beyond mere subscription frenzy. This could be indicative of inflated valuations at the time of listing, changing macroeconomic conditions, sector-specific headwinds, or perhaps a more discerning investor base post-listing.

Several key stakeholders are involved in this dynamic. First, the **companies (issuers)** themselves, who sought to raise capital. Their valuation strategies, business models, and growth prospects are now under intense scrutiny. Second, the **investors**, including HNIs, retail investors, and Qualified Institutional Buyers (QIBs). While HNIs showed strong initial demand, their post-listing strategies (e.g., short-term flips) or misjudgment of long-term fundamentals could be factors. Retail investors, often following the lead of HNIs and QIBs, bear the brunt of losses when shares dip. Third, **investment banks and merchant bankers** play a crucial role as intermediaries, responsible for valuation, marketing, and managing the IPO process. Their due diligence and pricing strategies are critical. Lastly, **regulators like the Securities and Exchange Board of India (SEBI)** are pivotal in ensuring market integrity, transparency, and investor protection. SEBI's mandate, derived from the **SEBI Act, 1992**, empowers it to regulate the securities market and protect investors' interests. The **Companies Act, 2013**, also governs various aspects of public issue of shares by companies.

This trend matters significantly for India. Economically, a struggling primary market can deter future capital raising, impacting corporate expansion and job creation. It can also erode investor confidence, especially among retail participants, potentially leading to a shift away from equity markets. This has broader implications for capital formation, which is vital for India's economic growth trajectory. From a governance perspective, it puts SEBI under the scanner to ensure that market practices are fair and that companies are not exploiting market euphoria with unsustainable valuations. The government's economic policy of fostering a robust capital market, essential for achieving the 'Viksit Bharat' goal, relies on investor trust.

Historically, market cycles of boom and bust are not new. India has witnessed periods of excessive speculation followed by corrections, such as the dot-com bubble or previous bull runs. These events often lead to a 'flight to quality' and a greater emphasis on fundamental analysis over speculative demand. The current situation might be a sign of the Indian market maturing, where investors become less swayed by initial hype and more focused on long-term value. This could lead to a more balanced and sustainable capital market in the future.

Looking ahead, the implications are multi-faceted. Companies might become more conservative in their valuation expectations and delay IPOs until market conditions improve or their financials strengthen. Investment bankers might face increased pressure to conduct more rigorous due diligence and offer realistic valuations. For investors, it underscores the importance of thorough research, understanding business fundamentals, and not blindly following subscription numbers or HNI demand. SEBI might consider further tightening disclosure norms or valuation guidelines to enhance investor protection, although it generally allows market forces to determine pricing. The broader theme is one of market correction and a shift towards fundamental-driven investing, which, while painful in the short term, can lead to a healthier and more resilient capital market for India in the long run. This aligns with the principles of economic justice and investor protection, which are indirect reflections of the Directive Principles of State Policy enshrined in the Indian Constitution, guiding the state to secure a social order for the promotion of welfare of the people (Article 38).

In conclusion, the 'underwater IPO' phenomenon in 2025, despite HNI demand, is a critical indicator of evolving market dynamics. It's a reminder that market enthusiasm must be tempered with rational valuations and strong fundamentals, ensuring that India's capital markets continue to serve as a reliable engine for economic growth while safeguarding investor interests.