India’s capital markets are witnessing a bit of a paradox: the primary markets are suddenly buoyant, even as the secondary markets have been largely flat over the last 12 months. On the surface, it looks like investor confidence is high, but scratch deeper, and the picture gets more complex.
The incongruity lies in the fact that the primary markets usually mirror the trend in the secondary markets. The primary market is one where a company sells new securities directly to investors to raise capital for business growth through an initial public offering (IPO) or other issuances, while the secondary market is where existing, and previously issued securities are traded among investors, providing liquidity and continuous opportunities for buying and selling.
Since the primary market creates new securities and the secondary market is where they are traded, companies usually raise fresh capital when share prices rise, and the IPO pipeline slows when indices fall. But what is happening now breaks that usual pattern.
Divergent trend
The secondary market, represented by benchmark indices such as the Sensex and the Nifty, has been flat for nearly a year, held back by global trade tensions, visa curbs and geopolitical worries. Yet, the primary market, where companies raise funds through IPOs, rights issues, and follow-on offers, has turned unusually active. Over 200 companies are reportedly preparing to hit the markets, many having dusted off earlier-delayed proposals.
The surge has caught even seasoned analysts by surprise. “It’s quite stark,” said a Mumbai-based investment banker. “The secondary market has gone nowhere, yet the IPO queue is getting longer every week.”
The rush is even more intriguing because most new issues are offers for sale (OFS), where proceeds go to promoters, not into business expansion. This means that while promoters are cashing out, retail investors are still buying in. The contrast reflects both the sluggishness of the secondary market and a speculative confidence that has made the IPO window unusually vibrant.
A flat market, still a beeline
In 2024, India’s benchmark indices hit record highs — the Sensex touched 85,978 in September 2024 before settling around 81,000 now, where it remains range-bound. Despite the plateau, IPO activity has revived. Large issues like Tata Capital Ltd (over Rs 15,000 crore) and LG Electronics India Ltd (over Rs 11,000 crore) are currently open, jointly accounting for a cumulative amount of over Rs 27,000 crore. Dozens of mid-size companies are preparing to follow suit.
Merchant bankers admit the enthusiasm is tempered by concerns over “valuation fatigue,” unpredictable regulations and global volatility. But promoters see an opportunity to monetise holdings while liquidity remains abundant and domestic appetite strong. The result is a market that looks counter-cyclical — IPO issuances are booming even as stock prices stagnate. Institutions and retail investors are lapping up shares offered through IPOs while stock markets languish.
What’s propping up this paradox is the unwavering confidence of domestic investors. Despite weak global sentiment, Indian retail participation continues to deepen. Millions of new demat accounts are being opened each quarter. Systematic Investment Plan (SIP) inflows have hit record levels — over Rs 28,000 crore in the past two months alone. A good chunk of this money is going into IPOs. Mutual fund participation has broadened beyond metros into Tier-II and Tier-III cities. Retail investors now treat market corrections as buying opportunities, not red flags.
As of August 2025, Mumbai-based central securities depository NSDL’s demat accounts crossed 4.14 crore, while the NSE investor base exceeded 12 crore. This steady faith in equities signals a structural shift — from short-term speculation to long-term wealth creation. In many ways, India’s retail investors and institutions have become the liquidity engine keeping the market afloat.
Liquidity, the big trigger
So why does the primary market remain so buoyant despite weak stock indices and global uncertainty? The answer lies in liquidity.
India’s financialisation story is still unfolding. A steady inflow of domestic money, via SIPs, pension funds, insurance-linked equity allocations and direct retail buying, has offset the $21 billion in foreign portfolio outflows seen over the last year. Whenever foreign investors sell, domestic institutions step in to buy. The result is a market that may be volatile, but one that remains resilient. This liquidity-driven resilience, however, masks its underlying fragility. Should corporate earnings slow or a global risk-off event occur, valuations could come under sharp pressure.
The RBI appears mindful of this risk. Its measured interventions — through liquidity management tools and regulatory tweaks — aim to cool speculative heat without puncturing confidence.
While promoters are eager to list or sell stakes, they’re hesitant to invest aggressively. Many boards are waiting for clarity on interest rate trajectories, global capital flows, and the government’s fiscal stance ahead of the 2026 Budget. The recent GST rationalisation is expected to spur consumption and revive corporate capex, but most companies remain cautious.
Investment bankers say there’s no shortage of IPO candidates; what’s missing is conviction about the timing. “The pipeline is long and the appetite is there,” said one banker, “but global cues are dictating the pace.” Despite oil price swings, trade disputes, and the spectre of a US slowdown, India Inc sees this as a window of opportunity — one that may not stay open for long.
“The divide between the primary and secondary markets reflects the gap between sentiment and conviction. The secondary market thrives on optimism and liquidity, while the primary market relies on analysis and due diligence. When the two diverge, it’s often a sign that liquidity, not fundamentals, is setting the tone,” said a market analyst.
India’s stock markets are standing at a crossroads — part exuberant, part restrained. The contrast between the mood in a buoyant primary market and a somewhat flat secondary one encapsulates the complexity of this moment. On the one hand, domestic liquidity and retail faith continue to drive participation. On the other, global headwinds and promoter sell-offs signal caution.
RBI’s uncharacteristic signal
Amid the divergence in the buoyant primary market and a stagnant secondary one, the Reserve Bank of India (RBI) has signalled the intention of an unusual bullishness. Traditionally, the RBI’s mandate has revolved around inflation control, monetary stability, and exchange rate management. The capital markets were left to the Securities and Exchange Board of India (SEBI). But this year marks a subtle shift in approach.
The central bank has begun intervening more visibly, not to influence stock prices, but to strengthen the underlying credit and liquidity framework that supports financial markets. Global institutions such as Goldman Sachs have noted that the RBI’s recent policy changes are aimed at improving bank competitiveness, widening credit flow and deepening the capital markets, moves that could indirectly bolster market stability over the medium term.
One of the most significant reforms has been the liberalisation of capital market lending norms. The RBI has raised prudential limits on loans against shares, IPO financing, and lending against listed debt, and allowed banks greater flexibility to fund corporate takeovers, an area long dominated by private credit and shadow banks. “This is a significant move,” said Chanchal Agarwal, CIO of Equirus Family Office. “Banks can now reclaim lending opportunities that had shifted to non-bank financiers.”
Amid intensifying trade frictions with the US and political uncertainty around global currencies, the RBI unveiled a broad reform package aimed at strengthening financial intermediation and internationalising the rupee. Two steps stand out. First, banks have been allowed to finance corporate acquisitions, a practice previously off-limits. This could open a market valued at nearly $40 billion (Rs 3.5 lakh crore). “Credit growth to large manufacturing remains muted at 1.8 per cent, while for medium firms it’s 13.1 per cent. There’s clear potential for acceleration as M&A deals increase,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
Second, Indian banks and their foreign branches can now offer rupee loans to residents in neighbouring countries such as Nepal, Bhutan, and Sri Lanka, signalling a shift from an inward-looking regulator to a regional financial catalyst.
To complement these, the RBI raised the limit for IPO financing from Rs 10 lakh to Rs 25 lakh and for loans against shares from Rs 20 lakh to Rs 1 crore — the first revision since 1998. The cap on lending against listed debt securities has also been removed. New RBI measures are expected to boost both the primary and secondary markets. These changes, noted Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI, will “deepen liquidity, strengthen intermediation, and promote long-term wealth creation.”
What makes this moment historic is the evolution of the RBI’s role. It is no longer only a monetary authority; it has become a guardian of financial stability. By tightening its oversight of NBFCs, fintechs, and payment systems — and now subtly shaping capital market dynamics — the central bank has acknowledged the deep interlinkages between credit, liquidity, and asset prices.
In this delicate phase, the RBI’s quiet but deliberate presence marks a turning point. For once, the central bank is not watching from the sidelines — it is guiding the game to ensure India’s markets stay balanced, liquid, and firmly on course.
The secondary market -- represented by benchmark indices such as the Sensex and the Nifty -- has been flat for nearly a year, held back by global trade tensions, visa curbs and geopolitical worries. (Express File Photo) 
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