India’s Domestic Funds Push IPO Valuations Lower Amid Market Pressure

Domestic Funds Reshape IPO Landscape with Lower Valuations Amid Market Challenges

As domestic funds gain influence, IPO valuations are adjusting downward, reflecting broader market pressures.

Domestic Funds Gain Pricing Power

India’s domestic funds are taking a firmer stance on IPO pricing, leveraging their growing clout to negotiate better valuations. This trend is particularly evident in the context of the broader equity market’s struggles, where external pressures such as geopolitical tensions and economic uncertainties have led to a more cautious investment environment. According to data from Chittorgarh, the median price-to-book ratio for IPOs that raised at least ₹1,000 crore has seen a notable decline from 10.2 times last year to 7.4 times in 2026.

This shift reflects a more discerning approach by investors, who are now demanding discounts that align with the current market realities. The number of loss-making companies entering the IPO fray has also decreased, indicating a more stringent selection process by domestic funds.

Market Pressures and Their Impact

The Indian stock market has faced considerable pressure from various factors, including geopolitical tensions stemming from the Iran war, global trade disputes, and the rapid evolution of the artificial intelligence sector. These challenges have led to persistent foreign selling, which has, in turn, empowered local money managers to dictate terms more effectively. As a result, companies are increasingly compelled to offer attractive entry points to attract investors or risk postponing their IPOs altogether.

Ritesh Taksali, Chief Investment Officer at Edelweiss Life Insurance, noted that the dynamics have shifted significantly over the past year. “A year back, companies were not budging on pricing. Now you can get some companies at a good discount,” he remarked, highlighting a growing awareness among investors regarding the value and margin of safety in their investments.

Selective Investment Strategies Emerge

The share of domestic institutions in IPO proceeds has increased to 33% this year, up from 24% in 2021, underscoring their growing influence in the market. This trend has led to marquee listings, such as the National Stock Exchange of India, reducing their offering sizes in response to investor sentiment. The rapid-commerce firm Zepto Pvt. and the hospitality unit of Prestige Estates Projects Ltd. have also paused their offerings, reflecting a cautious approach in the current climate.

Gaurav Misra, head of equities at Mirae Asset Mutual Fund, emphasized the importance of thorough analysis in the current environment. “There has been a persistently reasonable amount of time spent on analyzing and tracking new firms,” he stated, indicating that investors are now more focused on ensuring value in their investments.

Key Highlights

• Domestic funds are negotiating lower IPO valuations amid market pressures.
• The median price-to-book ratio for large IPOs has dropped from 10.2 to 7.4 times.
• Geopolitical tensions and economic uncertainties are influencing investor sentiment.
• The share of domestic institutions in IPO proceeds has risen to 33% this year.
• Major listings are downsizing or pausing offerings in response to market conditions.

Investor Note: The evolving landscape of IPO valuations driven by domestic funds underscores the importance of strategic investment decisions in a challenging market. Investors should remain vigilant and assess the value proposition of upcoming offerings carefully.