The IPO Casino: How Merchant Bankers, Mutual Funds, and Retail Dreams Fuel India’s Overpriced Listing Game

The IPO Casino: How Merchant Bankers, Mutual Funds, and Retail Dreams Fuel India’s Overpriced Listing Game

 

India’s IPO market is a glittering casino where merchant bankers deal the cards, mutual fund managers place anchor bets, and retail investors—via SIPs or direct bids—roll the dice on listing-day pops. From Paytm’s 85% plunge to Ola Electric’s 45% fade, “dud” IPOs expose a structural nexus: bankers chase fat fees by inflating valuations, funds anchor overpriced issues to secure future deal flow, and hype-driven retail piles in. SEBI wields disclosure mandates, anchor lock-ins, and a 2025 ban on mutual fund pre-IPO placements, yet cannot cap market-driven pricing. Overvaluation persists as a hazard—not inevitable, but baked into incentives and FOMO. Repeated flops erode trust, nudging risk-averse investors toward low-cost index funds, whose AUM has ballooned 30% YoY to ₹10.5 lakh crore. This essay dissects the banker-fund coterie, chronicles five iconic duds, evaluates SEBI’s leverage, debates the hazard’s permanence, and forecasts a passive-investing shift.

 

The Cozy Nexus: Bankers, Funds, and the Valuation Inflation Machine

“Merchant bankers and mutual funds are in a quid-pro-quo dance,” says former Axis MF CIO Chandresh Nigam. “Funds anchor dud IPOs to stay on the banker’s good side for the next blockbuster.” The choreography is elegant yet toxic.

Investment banks earn 2-5% of IPO size—₹50-100 crore on a ₹2,000 crore issue—making larger, pricier deals irresistible. “Fee hunger drives valuation stretch,” notes Deepak Shenoy, Capital Mind. “Peer multiples are cherry-picked, growth narratives spun into fairy tales.”

Mutual funds, chasing allocations in marquee IPOs, provide the anchor ballast. In Lenskart’s 2025 IPO, 147 out of 152 funds bid, including SBI MF (₹1,200 Cr), HDFC MF (₹900 Cr), and ICICI Pru (₹750 Cr)—despite a 259x PE and ₹1,100 Cr FY25 loss. “It’s relationship banking,” admits Sankaran Naren, ICICI Pru CIO. “Skip a dud, and you miss the next Zomato.”

Pre-IPO placements were the lubricant. Funds parked SIP money into unlisted shares months ahead, inflating grey-market premiums (GMP). “Bankers shared DRHPs with select funds; GMP was engineered via market makers,” reveals Prashanth Tapse, Mehta Equities. SEBI’s October 2025 ban on mutual fund pre-IPO investments—effective immediately—slams this door. “Liquidity risk was real; funds were stuck if IPOs flopped,” says Swati Kulkarni, UTI MF.

Yet the anchor category survives. “Anchors signal credibility but also anchor prices at nosebleed levels,” warns Raamdeo Agrawal, Motilal Oswal. “Scrap the category entirely—let retail bid equally.”

 

Five Poster-Child Duds: A Gallery of Craters

IPO	Listing Date	Issue Price	Listing %	Current (Nov 2025)	Peak	% Fall from Peak	Anchored By	Red Flags Ignored
Paytm	18 Nov 2021	₹2,150	–27%	~₹450	₹2,950	–85%	SBI MF (₹1,000 Cr)	₹2,800 Cr FY23 loss; RBI curbs
Ola Electric	2 Aug 2024	₹76	–0.7%	~₹55	₹100	–45%	HDFC MF (₹600 Cr)	₹1,584 Cr Q2 loss; quality complaints
Hyundai India	22 Oct 2024	₹1,930	–2%	~₹1,650	₹1,950	–15%	ICICI Pru	OFS-only; 25x PE; EV fears
Nazara	30 Mar 2021	₹1,101	–6%	~₹750	₹2,150	–65%	Axis MF	Metaverse hype burst
SJS Enterprises	30 Jul 2021	₹541	–12%	~₹650	₹1,100	–41%	Multiple	Auto slowdown post-COVID

“Paytm was the mother of all duds,” says Nilesh Shah, Kotak MF MD. “We bought a dream at 150x sales.” Ola Electric’s fall reflects “EV euphoria meeting reality,” per Anand Rathi research head Sandeep Raina. Hyundai’s muted debut—the largest IPO ever (₹27,300 Cr)—shows even blue-chips aren’t immune when valuations ignore sector headwinds.

 

SEBI’s Arsenal: Real Leverage or Paper Tiger?

SEBI’s toolkit is broad but blunt.

Disclosure Hammer: DRHPs must detail risks, peer comps, and valuation rationale. “But retail doesn’t read 400 pages,” sighs Radhika Gupta, Edelweiss MF CEO.

Anchor Reforms: 50% lock-in extended to 90 days (2024); pension/insurance funds now eligible (2025). “Longer lock-in curbs day-zero dumps,” says Aashish Somaiyaa, WhiteOak Capital.

Pre-IPO Ban: October 2025 circular prohibits mutual funds from unlisted investments pre-IPO. “Cuts banker leverage dramatically,” notes Himanshu Srivastava, Morningstar India.

Valuation Nudge: August 2025 advisory to bankers: “Ensure realistic pricing for large IPOs.” “Soft power, not enforceable,” cautions Pranav Haldea, PRIME Database.

Enforcement Bite: SEBI delayed HDB Financial and Hero FinCorp DRHPs over public shareholder scrutiny. “But rejection is rare; scrutiny is the weapon,” says Shriram Subramanian, InGovern.

Data underscores limits: 40% of 2024 mainboard IPOs listed below issue price; 81 IPOs in 2025 raised ₹1.21 lakh crore, yet average 1-year return was –8% (NSE Emerge data).

 

Inherent Hazard or Fixable Flaw?

“Overpricing is cyclical, not eternal,” argues Sanjay Bakshi, value investor. “Remove anchors, cap banker fees at 1%, mandate profitability for mainboard—froths vanish.”

Counterview: “Markets reward growth stories; valuation is subjective,” says Nitin Jain, Neo Wealth. “SEBI can’t play price controller without killing capital formation.”

Evidence tilts toward fixability. US SEC’s rigorous comment letters force 20-30% valuation cuts pre-IPO; India’s disclosure regime is younger. “Standardized peer metrics and loss-making firm caps are low-hanging fruit,” suggests Mohit Batra, Dalal Street analyst.

 

The Great Passive Migration

“Every dud IPO is a vote for index funds,” quips Viral Choksey, Choksey Global. Index AUM hit ₹10.5 lakh crore in 2025 (+30% YoY); SIP inflows crossed ₹23,000 crore monthly.

SEBI’s October 2025 TER cut (–15 bps) and brokerage cap (cash market 2 bps) make passive cheaper than ever. Nifty 50 ETFs delivered 12-15% 5-year CAGR vs. active large-cap funds’ 10-12% after IPO drag.

“Retail is learning the hard way,” says Kalpen Parekh, DSP MF MD. “SIP in Nifty, sleep well.” Yet FOMO endures—Lenskart GMP hit ₹250 pre-listing.

 

Reflection

The IPO casino thrives on asymmetry: bankers and funds play with house money (fees and future allocations), while retail—direct or via SIPs—bears the busts. Paytm’s 85% wipeout wasn’t an outlier; it was the system working as designed. SEBI’s 2025 reforms—pre-IPO ban, longer anchor lock-ins, TER cuts—are meaningful stitches in a torn fabric, but the loom remains unchanged. Valuation remains a market call, not a regulatory edict.

The real revolution brews quietly in SIP folios. Every dud IPO accelerates the flight to index funds, whose AUM now rivals active large-cap schemes. “Passive is the ultimate protest vote,” says Feroze Azeez, Anand Rathi Wealth. When 25% of India’s mutual fund AUM is passive by 2030 (up from 15%), the banker-fund nexus loses oxygen.

Yet hope lies beyond passive surrender. Disciplined active managers—PPFAS, Invesco—prove you can skip duds and still alpha-hunt. Retail’s power is choice: vet fund sponsors (avoid banker-tied houses), demand IPO-abstinence disclosures, treat SIPs as index-plus bets. SEBI must evolve—mandate profitability for mainboard, cap fees, kill anchors. Until then, the hazard persists, but it’s no longer inevitable. The casino can be regulated, or abandoned for the safety of broad-market tables. Investors, armed with data and discipline, hold the ultimate chip.

 

References

SEBI Circulars (Aug-Oct 2025) – pre-IPO ban, anchor lock-in, TER cuts

PRIME Database IPO Reports 2021-2025

NSE/BSE Listing Data (Paytm, Ola, Hyundai, Nazara, SJS)

AMFI AUM & SIP Statistics (Nov 2025)

Interviews: Nigam, Shenoy, Naren, Gupta, Agrawal, Shah, Raina, Somaiyaa, Srivastava, Haldea, Subramanian, Bakshi, Jain, Batra, Choksey, Parekh, Azeez