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Domestic institutional investors (DIIs), led by mutual funds, are emerging as the decisive force in India’s IPO market, reshaping how new listings are priced. Backed by relentless systematic investment plan (SIP) inflows and deeper participation in anchor books, they are exerting far greater discipline on valuations than during the 2021 IPO cycle, experts said.

“DIIs now have a significant voice when it comes to valuations as compared to the 2021 IPO cycle,” said Sonia Dasgupta, MD and CEO of investment banking at JM Financial. Steady SIP inflows, she added, have boosted their influence across anchor books and public markets.

What began as consistent domestic fund flows has transformed into a structural shift in India’s capital markets. Institutional investors now hold the balance of power in IPO pricing: reshaping exit strategies, valuation expectations and the very criteria for going public.

That growing clout is prompting companies and private equity backers to recalibrate listing plans— prioritizing visible profitability, stronger unit economics and capital efficiency ahead of market debut, said Prashant Singhal, partner and India Markets leader at EY. “The era of funding cash burns through IPOs is fading,” he added.

The foundation of DII leverage lies in liquidity.

SIP inflows have grown at roughly 30% annually since 2020, creating a deep domestic liquidity pool waiting to be deployed. That firepower is increasingly visible in IPO anchor allocations.

In 2025, mutual funds (MF) alone contributed nearly 42% of average anchor books, edging past foreign portfolio investors (FPI) at 41%, Mint’s analysis of PRIME Database data showed. DIIs, including MFs, insurance companies and alternate investment funds, commanded nearly 60% of average anchor allocations.

The turnaround is stark. In 2021, FPIs dominated with about 63% of anchor allocations, while MFs accounted for roughly 30%. Since 2022, DIIs have held the majority even as the average anchor book size has remained stable over the years at about 34% of issue size, the analysis showed.

Foreign capital’s relative retreat has accelerated the shift, said Pushkar Jauhari, MD and head of private equity at ValueQuest. He noted that India competes with global markets for FPI flows and they allocate confidently in markets where growth and value-creation is predictable and valuations are attractive.

“This hasn’t been the case for us for a while as consumption and credit offtake slowed down,” he added. “Currency depreciation has added to the pressure as well.”

Since early 2022, the rupee has depreciated about 18% against the US dollar, eroding dollar returns for FPIs, forcing them to sell in public markets. Hence, DIIs now dominate public markets as well.

As of February 2026, DIIs held nearly a quarter of Nifty 50 companies compared with FPIs’ 24.3%. Across NSE-listed equities, DIIs own nearly 19% while FPI ownership has slipped to a 13-year low of 17%.

Relentless FPI selling has hung over markets for over a year, halting the post-pandemic rally in September 2024 and raising the bar for returns. The valuation discipline in IPOs has sharpened accordingly, experts said.

“The drive for immediate valuation increase has gone away,” said Singhal of EY. “Promoters and VCs (venture capital firms) are increasingly willing to compound value alongside public investors rather than maximise IPO-day gains.”

A separate Mint analysis found that private equity firms and VCs comprised just one-third of offer-for-sale portions in last year’s IPOs, down sharply from nearly 64% in the 2021 IPO wave. This suggests private investors are no longer rushing for the exit at IPOs and are increasingly willing to leave more value on the table for public shareholders.

The reset is visible in pricing.

Mint's analysis of Tracxn and Venture Intelligence data covering 43 companies shows average IPO premiums over the last private round have shrunk sharply. In 2021, select consumer and tech firms listed at roughly twice their prior valuations on average. By 2025, the average premium had moderated to about 20%, with several high-profile names even listing at discounts.

Urban Company and Pine Labs took a 26% and 34% haircut to their private valuations respectively during their stock market debut.

ValueQuest’s Jauhari noted that while investing in IPOs, investors are increasingly focusing on profitability track record rather than revenue growth alone, leading to more “sensible valuations”.

Singhal of EY added that founders are also conscious of public accountability and reputational risk, and don’t want their listings to struggle out of the gate either.

But even leaving value at the table doesn't guarantee success. Fractal Analytics listed at 26% discount to its last private round valuation last week. Yet, the stock is down 6% since then, as it fell prey to ongoing AI-led pessimism around technology stocks.

Experts said that amid abundant domestic liquidity and extreme global volatility, IPO timing is now as crucial as their modest pricing

History is also shaping behaviour.

Of the 63 IPOs in 2021, nearly one-third now trade below offer price and 30% of those have lost more than half their debut valuation, Mint’s analysis shows. Yet 33% are now multibaggers, including Anand Rathi Wealth which trades at over 11 times its issue price.

The optimism of the post-pandemic bull run spilled into 2022–2024 IPOs as well, with nearly half of debutants from those two years now trading below issue price. Among 2025 listings, nearly 60% are below offer price despite more conservative pricing, though many have not completed a full market cycle and were listed amid global volatility.

Naturally, profitability expectations have tightened.

“Nobody is looking at going into an IPO without a path to profitability,” said Singhal of EY. "Ebitda positivity and capital efficiency are now prerequisites." Ebitda stands for earnings before interest, tax, depreciation and amortisation.

Companies have responded by cutting discretionary costs such as marketing and consulting, fine-tuning unit economics, and in some cases resorting to accounting hacks, Singhal said. Although he highlighted that efficiency gains through AI-led backend automation could unlock further value for debutants.

Jauhari of ValueQuest added that investors want predictability of cash flows before assigning durable multiples. As a result, companies are not only focused on profitability but are also keen to demonstrate a credible path to sustaining those profits through disciplined capital allocation.

A separate Mint analysis showed nearly 20% of fresh issue proceeds in 2025 were earmarked for new projects and plant and machinery, up from 8% in 2024. Another 24% was directed toward asset upgrades, compared with 14% a year earlier, indicating more efficient use of public money.

JM Financial’s Dasgupta, however, noted that loss-making companies can still attract capital if their unit economics and annual recurring revenue indicate a credible path to profitability.

But such exceptions do not dilute the broader shift underway. Experts agreed that DIIs are driving a structural shift in the IPO market by enforcing tighter pricing discipline, backed by abundant liquidity and stricter investment criteria.

“It’s a game of patience and profitability, not FOMO,” said EY’s Singhal. “Companies need not rush and can consider pre-IPO fundraises to build investor confidence.”

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