Chief Economic Advisor V Anantha Nageswaran Monday raised concerns that initial public offerings (IPO) are increasingly being used as exit routes for early-stage investors rather than an instrument for raising long-term capital.Fuelled by abundant liquidity, aggressive retail participation and a rush of new-age companies seeking capital, the Indian primary market has been booming over the last two years.Behind the glitter of listing-day and oversubscription headlines lie a deeper question that worries serious investors: are IPOs becoming systematically overpriced? And, are promoters and early investors using IPOs as an exit route to cash out their holdings while the public enters these stocks at inflated prices?A closer look at recent IPO trends suggests the answer could be tilting increasingly towards a “yes”. That’s at a time when 84 companies have received the green signal from the Securities and Exchange Board of India (Sebi) to raise Rs 1.07 lakh crore and another 118 crore companies have approached it for approval to raise Rs 1.76 lakh crore, according to data from primedatabase.com.An IPO is typically supposed to be a mechanism for companies to raise fresh capital for expansion, innovation and long-term growth. Most Indian IPOs over the last three months were structured as offers for sale, essentially designed less as fundraising vehicles for future investments and more as monetisation opportunities for promoters and pre-IPO investors — private equity funds, early angels, strategic investors and sometimes even founders.For example, Korean firm LG’s entire IPO of Rs 11,000 crore went to the Korean promoter. In the case of the Tata Capital IPO, over Rs 8,600 crore went to the promoter Tata Sons and other investors, and in the Lenskart IPO, over Rs 5,000 crore was an offer for sale by promoters and other early shareholders. The entire Rs 3,000 crore issue of WeWork India was OFS by existing shareholders.Dominating share of OFSThe structure of many issues tells the story. A large portion of the issue size in several IPOs has recently consisted of Offer for Sale (OFS), a transaction in which existing shareholders sell their shares to the public. OFS proceeds do not go to the company. They go directly into the pockets of those selling shares – promoters and other pre-IPO shareholders. This is not problematic or scam by itself as early investors deserve decent exits. But when OFS dominates the issue and valuations look stretched, it raises serious red flags.Story continues below this adAccording to Ponmudi R, CEO, Enrich Money, overpriced IPOs are emerging as a new warning signal in India’s primary market. “The growing rush to chase lofty valuations — often driven by hype, aggressive anchor participation, and overly optimistic growth assumptions — is blurring the line between confidence and complacency. When market prices drift too far from earnings reality, it’s retail investors who bear the brunt, undermining the very trust and participation that sustain the market’s long-term vitality,” Ponmudi said.Companies with limited profitability, modest track records or uncertain future cash flows have been demanding valuations that even established, well-managed listed companies do not command. This “valuation leap” is often justified through glossy pitch decks, future projections and narratives of disruption. In many cases, the companies adopt aggressive accounting approaches to paint a picture of accelerated growth and expanding margins right before going public.The promoters and early shareholders, who acquired shares years earlier at vastly lower valuations, get a golden opportunity. “The biggest worry that I have at this point of time — the investor is taking all the risk. Who is the seller? The seller is private equity. Private equity knows everything about the company. They know whether that stock is overvalued at 40 times or 50 times. The promoter is selling. The promoter knows whether the stock is overvalued or undervalued,” a top fund manager said at the sidelines of the Morningstar investor conference recently.Analysts said the biggest concern is asymmetry of information and incentives. Promoters and private equity funds know far more about the company’s internal weaknesses, risks and realistic growth potential than the public markets ever will. When they choose to sell a large portion of shares in the IPO, especially at high valuations, it raises a fundamental question: If the future’s so bright, why are those closest to the company cashing out aggressively? Investors even begin to wonder if the IPO proceeds were really needed, or if the goal was simply to take advantage of hot market sentiment.Story continues below this adSign of maturing markets?However, some experts believe that promoters and private equity funds using IPOs to exit is actually a sign of a maturing market.According to Pranav Haldea, MD, Prime Database, there have been several instances in the past wherein a big hue and cry was made about expensive valuations at the time of IPO. Several of these have gone to become multibaggers. “Even the much-maligned new age technology companies have, on an average, delivered an approximate return of 50 per cent since their listing. Somehow, we have this unfair expectation of all IPOs to not just list with a pop but to also continue to trade in the positive until perpetuity,” he said.“We need to recognise that initial investors have taken significant risks by investing their money. They will need an exit, return money to their investors, and only then will they be able to raise the next round of funding to invest in the next set of companies,” Haldea said. “This is akin to what you see in the western markets and is a sign of maturing of the Indian capital market ecosystem. We should not grudge them for making money. For every multibagger, it is also important to remember that there would be 10 duds where they would have invested,” Haldea said.Retail investors pour inThat said, retail investors often fall victim to this environment of IPO hype. They tend to view IPOs as guaranteed opportunities for quick gains, but when the euphoria subsides, valuations recalibrate and the stock begins trading on fundamentals. Several high-profile IPOs in recent years have delivered negative or stagnant returns after the first few months, despite blockbuster listings. The public ends up holding expensive shares, while insiders walk away with massive profits.Story continues below this adThis does not mean every IPO is overpriced or unfair. Many high-quality companies have used the public markets responsibly. But the trend of excessive valuations, heavy OFS components and aggressive marketing strategies has become common enough to warrant caution.Ponmudi said India’s growth story remains robust, but valuation discipline must evolve alongside it. Greater transparency around forward P/E multiples, peer benchmarks, and profitability outlooks is essential to ensure informed investing. “The market must prioritize sustainable business models over speculative pricing — because if short-term greed takes precedence, It risks eroding the long-term growth cycle that India’s markets have painstakingly built on credibility and investor trust,” he said.Regulators have tried tightening disclosure norms, especially around related-party transactions, financial projections and utilisation of funds. But pricing remains largely a market-driven mechanism. When liquidity is abundant and retail enthusiasm high, investment bankers and promoters naturally push for the highest possible valuations. This imbalance of power leaves small investors disproportionately vulnerable.The IPO market is at a crossroads. “If companies treat IPOs primarily as exit routes rather than long-term partnerships with public shareholders, trust will erode. If retail investors repeatedly face post-listing disappointments, participation will shrink. And if valuations continue to stretch beyond fundamentals, the market risks a painful correction,” said a fund manager.Story continues below this adFor the IPO ecosystem to remain healthy, companies must price issues more reasonably, investors must evaluate fundamentals rather than narratives, and regulators must continue tightening oversight of disclosures. Until then, one thing is clear: in too many Indian IPOs today, promoters mint money while the public is left holding overpriced shares. The bottom line: the money doesn’t go into capacity expansion or new projects.