Median price-to-book valuation for IPOs raising at least ₹1,000 crore falls to 7.4 times in 2026 from 10.2 times last year as domestic institutions demand greater valuation comfort

India's IPO market is entering a more selective phase as domestic mutual funds and other institutional investors increasingly push back against aggressive valuations.

The shift comes after a period in which strong liquidity and investor enthusiasm allowed companies preparing to list on Indian exchanges to command elevated valuations. But weaker secondary-market conditions, persistent foreign selling and greater scrutiny of business fundamentals are now giving domestic investors more influence over the pricing of new issues.

According to data cited from fintech platform Chittorgarh, the median price-to-book ratio for IPOs raising at least ₹1,000 crore has fallen to 7.4 times in 2026 from 10.2 times in 2025. The decline indicates a significant reset in valuation expectations, although price-to-book comparisons can be affected by the large presence of financial companies in IPO cohorts.

Domestic Investors Gain Greater Pricing Power

The changing balance of power is partly linked to the growing role of domestic institutional capital in India's primary market.

Domestic institutions accounted for about 33% of IPO proceeds raised in 2026, compared with 24% in 2021, according to the data cited in the report.

That greater participation gives mutual funds, insurers and other local institutions more influence during the pre-IPO price-discovery process.

For issuers, the choice is increasingly becoming more difficult: accept a valuation that investors consider reasonable or potentially postpone the offering until market conditions improve.

The development marks a change from the stronger seller-driven environment seen during periods of intense IPO demand.

Market Weakness Is Changing Investor Behaviour

The valuation reset is taking place against a more challenging backdrop for Indian equities.

The domestic market has faced pressure from geopolitical uncertainty, global trade tensions and concerns surrounding the impact of artificial intelligence on parts of the technology sector. Persistent foreign selling has also affected overall market sentiment.

Business Today, citing the same Bloomberg report, noted that domestic funds are using this weaker environment to demand lower valuations from companies seeking to access public markets.

The result is greater emphasis on earnings visibility, cash generation, competitive positioning and the valuation investors are being asked to pay.

From FOMO to Margin of Safety

The change in investor behaviour is also reflected in the language being used by fund managers.

During the strongest phase of India's IPO boom, investors were often concerned about missing out on popular new listings. The current environment is placing greater emphasis on valuation discipline and the margin of safety.

For institutional investors, buying an IPO is no longer simply about whether a company is growing rapidly. The question is increasingly whether the growth is already reflected in the offer price.

That distinction can have an important effect on IPO negotiations because a high-growth company may still be considered expensive if the public-market valuation assumes years of future growth.

NSE IPO Illustrates the Valuation Reset

The change has been visible even in marquee transactions.

The National Stock Exchange of India's IPO was downsized by more than 15% before launch as pricing expectations were adjusted.

Reuters reported that NSE's offer size was reduced from 148.91 million shares to 126.4 million shares. The IPO valued the exchange at as much as about ₹4.42 trillion, or roughly $46 billion, under the final price range.

Reuters also reported that the valuation represented a meaningful discount to earlier private-market expectations, reflecting investor caution around derivatives-related revenue, regulatory changes and the broader market environment.

For the broader IPO market, the NSE example is significant because it demonstrates that even a large and established financial-market infrastructure business is not immune to valuation negotiations.

Zepto Shows What Happens When Expectations Diverge

The valuation reset has also affected companies that were preparing for public listings.

Quick-commerce company Zepto paused its IPO plans in July and moved toward a pre-IPO funding round of around ₹1,000 crore, according to reports.

Business Standard reported that the company was seeking capital at a valuation of around $4.5 billion, compared with a $7 billion valuation in an October 2025 funding round.

Moneycontrol subsequently reported that domestic mutual funds had raised concerns around valuation, cash burn and the terms proposed for the IPO.

The episode illustrates how institutional investors can influence the timing of a public offering when their valuation expectations differ materially from those of the issuer.

Fewer Loss-Making Companies Are Coming to Market

The valuation data also contain another notable signal.

Only two loss-making companies were included in the large-IPO cohort in 2026, compared with at least five in both 2025 and 2024, according to the data cited in the report.

That could indicate that investors are becoming more selective about companies that have yet to establish sustainable profitability.

However, profitability alone does not determine whether an IPO is attractively valued. Investors can still assign different valuations to profitable companies depending on their growth rates, margins, capital requirements, competitive advantages and future earnings potential.

Primary and Secondary Markets Are Becoming More Closely Linked

The IPO market does not operate independently of the secondary market.

When listed stocks are trading at compressed valuations, institutional investors have a reference point against which they can assess new issues.

A new company seeking a substantial premium to comparable listed businesses may therefore face stronger resistance from institutional buyers.

Conversely, attractive IPO pricing can create a larger valuation gap between the new issue and comparable listed companies, potentially increasing demand.

This makes market conditions at the time of listing increasingly important for both issuers and investors.

What the Valuation Reset Means for Companies

For companies planning IPOs, the changing environment could mean greater pressure to demonstrate clear financial and operational justification for their valuations.

Management teams and investment banks may need to focus more closely on:

• Revenue and earnings visibility

• Sustainable margins

• Cash-flow generation

• Addressable market size

• Competitive advantages

• Comparable listed-company valuations

• Capital allocation

• Future growth requirements

• Promoter and shareholder selling

• Use of IPO proceeds

Companies with strong fundamentals may still command substantial valuations, but investors appear to be demanding a clearer relationship between price and underlying business performance.

What It Means for IPO Investors

For retail investors, the changing institutional approach provides an important reminder that a heavily subscribed IPO is not automatically synonymous with attractive valuation.

Subscription levels can reflect several factors, including scarcity, market sentiment, institutional demand and expectations about listing performance.

Valuation requires a different assessment.

Investors need to examine the company's earnings, cash flows, debt, return ratios, industry position and comparable listed companies before considering whether the IPO price is justified.

The distinction is particularly important in a market where listing gains may not be as predictable as they were during stronger bullish phases.

Institutional Investors Are Becoming More Selective

The growing influence of domestic institutions is also changing the dynamics of the primary market.

Domestic mutual funds and insurers typically have a longer investment horizon than short-term IPO traders. Their investment decisions can therefore place greater emphasis on sustainable earnings and long-term valuation.

The increased role of domestic capital could also reduce the dependence of India's IPO market on foreign portfolio flows.

At the same time, stronger institutional scrutiny does not mean every IPO will be priced conservatively. Fund managers themselves continue to acknowledge that some valuations remain demanding.

The difference is that investors now appear more willing to walk away when the price does not provide sufficient valuation comfort.

A More Balanced IPO Market

The current reset could ultimately lead to a more price-sensitive primary market.

Companies may have to negotiate more actively with institutional investors, while investment banks may need to balance issuer expectations with the pricing appetite of domestic funds.

For investors, this can create a more important distinction between companies with strong fundamentals and those relying primarily on high-growth narratives.

The fact that domestic institutions now account for a larger share of IPO proceeds also means that their assessment of valuation can have a greater impact on the final structure and timing of large offerings.

IPO Market Outlook

India's IPO pipeline remains active, but the pricing environment has clearly become more demanding.

The fall in median price-to-book valuations for large IPOs from 10.2 times in 2025 to 7.4 times in 2026 points to a meaningful shift in negotiating power toward investors.

The NSE issue-size reduction and the postponement of Zepto's IPO plans provide additional examples of how valuation expectations can influence the structure or timing of offerings.

For issuers, the message is that market access may increasingly depend on offering valuations that leave sufficient room for investors. For investors, the evolving environment places greater importance on distinguishing business quality from IPO pricing.

As India's primary market develops, the growing influence of domestic institutional capital could make valuation discipline an increasingly important part of the IPO process.