IPOs often deliver strong short-term gains, but many underperform in the long run compared to secondary market stocks.
India’s 2025 IPO market saw record fundraising, with FPIs boosting anchor investments by 300%.
Secondary market investments provide steadier, data-driven returns, which better balance risk over time.
The debate between investing in Initial Public Offerings (IPOs) and the secondary market has always been a central question for traders. Both offer opportunities for returns, but the risks and outcomes are very different.
Some investors are drawn to the excitement and potential of IPOs, while others prefer the stability and data-driven approach of secondary market investments. Recent global and Indian market data reveal how both paths have performed in recent times and what traders should consider.
An IPO is the first time a company issues shares to the public. It happens in what is known as the primary market. The price is set through a process that involves underwriters, book building, and investor demand. Investors are essentially buying into a company before it has a long trading history, often based on growth potential rather than proven track records.
The secondary market is different. Here, shares that are already issued trade on stock exchanges. These are shares of companies that have been listed for some time, so investors have access to historical financial data, performance results, and market trends before making decisions. While IPOs rely heavily on expectations and future potential, the secondary market allows for decisions based on available facts.
Studies of IPOs in markets like the United States show that IPOs often deliver strong returns on the very first day of listing. This is usually thanks to what is called underpricing. Between 1980 and 2022, IPOs in the US on average delivered first-day returns of around 20 to 30%. However, once the excitement settles and companies begin trading for more extended periods, the performance tends to fall behind secondary market benchmarks. Data suggests that after adjusting for overall market performance, IPOs often underperform when held for three years or more.
The reason behind this is simple. Investors rush into new listings with enthusiasm, driving up demand on the first day. But over time, the company’s actual earnings and fundamentals start to dictate the share price. Many IPOs with high initial demand lose steam when profits fail to meet inflated expectations.
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The year 2025 has seen renewed strength in IPO markets worldwide. In the first half of the year, around 539 IPOs were launched globally, raising approximately $61.4 billion. This represents a rise in proceeds compared to the previous year, even though the number of deals stayed about the same. Valuations remain high, with average price-to-earnings ratios around 27, showing that companies are entering markets with premium pricing.
In the United States, IPOs in the second quarter of 2025 posted median first-day gains of more than 20%. Larger IPOs, those raising over $50 million, even delivered returns of more than 40% through the end of the quarter. However, many well-known IPOs that opened strongly have since fallen from their peaks. Figma gained nearly 250% on debut but is now trading about 36% lower than its opening price, though still above its original issue price.
India’s IPO market has also been very active. In the financial year 2025, there were 80 mainboard IPOs compared to 76 in the previous year. The total funds raised reached nearly Rs. 1,630 billion, a significant jump from the prior year. Investor demand was strong, with Qualified Institutional Buyers subscribing to IPOs on average 102 times and retail investors subscribing about 35 times.
Small and Medium Enterprise (SME) IPOs have been particularly active. By the end of August 2025, SME IPOs had raised about Rs. 6,819 crore. Fourteen of these SME IPOs turned into multibaggers, meaning their values multiplied several times over after listing. This highlights both the potential rewards and the risks of this segment, where smaller companies can either create massive wealth or face steep declines.
Another notable trend has been the rise of institutional participation. Foreign Portfolio Investors (FPIs) significantly increased their anchor investments in Indian IPOs, with their involvement jumping by around 300% in FY25 compared to the previous year. This meant around Rs. 26,508 crore flowed in as anchor investments. Domestic institutions have also increased their involvement, showing rising confidence in Indian IPOs.
While IPOs attract attention with big listing day gains, the secondary market continues to provide consistent opportunities. In India, benchmark indices such as the Nifty have delivered stable returns in 2025, supported by strong domestic demand and expectations of lower interest rates. Large-cap stocks have shown healthy performance, giving investors steady growth with less volatility compared to freshly listed IPOs.
Secondary markets also allow investors to choose from companies with proven records. By examining earnings history, dividend payments, and industry trends, investors can make informed decisions. Although secondary market investments may not deliver explosive first-day gains like IPOs, they often provide more sustainable returns over time.
The key difference between IPOs and the secondary market lies in the time horizon. IPOs tend to deliver high short-term returns. In 2025, first-day IPO gains averaged between 20% and 30% in many markets. Extensive offerings in the US even went up 40% in just weeks. In India, several SME IPOs became multibaggers shortly after listing.
However, this trend often reverses in the medium to long term. Studies have shown that IPOs held for one to three years frequently underperform compared to established secondary market stocks. Many IPOs lose value once the hype fades, while secondary market investments in established businesses continue to compound steadily.
In India, regulators have taken steps to make IPO participation easier and more flexible. The Securities and Exchange Board of India (SEBI) has relaxed specific rules, such as lowering the minimum public float and extending timelines for companies to meet public shareholding norms. These reforms are expected to boost investor participation and attract more foreign capital.
Globally, interest rate cuts and improved market sentiment have revived IPO activity, but inflation and global uncertainty still pose risks. In such an environment, investors in both IPOs and secondary markets need to be cautious about valuations. IPOs are currently entering markets at high valuations, which raises expectations, while secondary market stocks are subject to corrections if economic conditions worsen.
The success of an IPO or secondary market investment depends on several factors. Valuation at the time of purchase is critical. If an IPO is overpriced, there may be little room for gains after listing. Company fundamentals, such as revenue growth, profit margins, and competitive position, matter just as much in IPOs as they do in the secondary market.
Market sentiment also plays a big role. In times of optimism, IPOs can soar, while during downturns, investors often prefer the safety of established secondary market stocks. Liquidity is another factor. IPO shares may be locked in for confident investors, while secondary market stocks generally offer continuous trading opportunities.
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The question of whether IPOs or the secondary market offers better returns does not have a single answer. IPOs are exciting and often deliver substantial short-term gains, especially when demand is high and the pricing is attractive. For investors with a high risk appetite, IPOs can generate quick profits.
However, over the medium and long term, secondary market investments in companies with strong fundamentals tend to deliver more stable and predictable returns. The performance of IPOs beyond their initial pop is mixed, and many underperform established stocks once the hype fades.
The best strategy may be to strike a balance. Allocating a small portion of funds to carefully chosen IPOs while maintaining a core portfolio in the secondary market could allow investors to benefit from both stability and growth. With IPO activity rising globally and in India in 2025, investors have no shortage of opportunities, but careful selection and a clear understanding of risk are essential.