India’s smaller initial public offerings (IPOs) have delivered stronger listing-day gains than larger issues in 2026, reflecting growing investor interest in small and mid-sized businesses. According to an October report by Kotak Institutional Equities, small IPOs recorded weighted-average listing gains of 17% so far this year, compared with 13% for mid-sized offerings and 4% for large IPOs.
The trend extends beyond the primary market. Smaller listed companies have also outperformed large-cap stocks over the past six months, while mutual funds focused on small- and mid-cap shares have attracted a growing share of equity fund inflows. However, Kotak has cautioned that rising valuations and elevated earnings expectations could create risks if companies fail to deliver the growth investors anticipate.
Key Takeaways
- Small IPOs recorded weighted-average listing gains of 17% in 2026 so far, compared with 13% for mid-sized IPOs and 4% for large issues.
- The Nifty Smallcap 100 gained 16% over six months, while the Nifty Midcap 100 rose 3% and the Nifty 50 declined 5%.
- Around 40% of IPOs in 2026 delivered listing gains exceeding 25%, compared with 22% in 2025.
- India recorded 96 IPOs raising approximately $12 billion in 2026 so far, according to Kotak.
- Offers for sale accounted for about 60% of IPO fundraising, while only 23% of proceeds were earmarked for expansion and new projects.
- Kotak warned that valuations and earnings expectations could make the small- and mid-cap rally difficult to sustain.
Small IPOs Outperform Larger Issues in 2026
Kotak Institutional Equities’ report, titled Two Markets, One Crowd, examined IPO performance by issue size and found that smaller offerings generated the strongest weighted-average listing returns.
The brokerage divided IPOs into three categories: small issues below ₹1,000 crore, mid-sized offerings between ₹1,000 crore and ₹5,000 crore, and large IPOs above ₹5,000 crore.
IPO listing gains by issue size
| IPO category | Issue size | Weighted-average listing gain |
|---|---|---|
| Small IPOs | Below ₹1,000 crore | 17% |
| Mid-sized IPOs | ₹1,000 crore–₹5,000 crore | 13% |
| Large IPOs | Above ₹5,000 crore | 4% |
Source: Kotak Institutional Equities, as reported by Business Standard. Figures represent weighted-average listing gains for 2026 so far, not guaranteed returns.
The gap highlights how strongly investor demand has favoured smaller offerings. On a purely illustrative basis, an investment of ₹1 lakh earning a 17% listing gain would rise to ₹1.17 lakh, while a 4% gain would take the same investment to ₹1.04 lakh.
Actual IPO returns depend on the offer price, listing price, allocation and subsequent market performance. Investors may not receive an allotment, and gains observed on listing day do not guarantee that a stock will continue rising.
Small-Cap Stocks Outperform the Nifty 50
The preference for smaller IPOs reflects a wider trend in India’s equity market. Over the six months examined by Kotak, small-cap stocks substantially outperformed large-cap shares.
| Market index | Six-month performance |
|---|---|
| Nifty Smallcap 100 | +16% |
| Nifty Midcap 100 | +3% |
| Nifty 50 | -5% |
The Nifty Smallcap 100’s 16% gain exceeded the Nifty 50’s performance by 21 percentage points. Mid-cap stocks also performed better than the large-cap benchmark, although their gains were much smaller than those of small-caps.
Kotak linked part of the outperformance to investor interest in sectors such as capital goods, defence, electronics manufacturing services (EMS), and contract development and manufacturing organisations (CDMOs).
These businesses are associated with themes including domestic manufacturing, industrial investment, defence spending and specialised production. Investors have increasingly looked for companies positioned to benefit from these developments.
However, the brokerage cautioned that the rally has been concentrated in selected stocks and sectors rather than spread evenly across the market. A strong index return therefore does not mean every small-cap company has performed well.
More IPOs Are Delivering Strong Listing Gains
The number of IPOs generating substantial listing-day returns has also increased compared with 2025.
Kotak’s analysis found that around 40% of IPOs in 2026 so far delivered listing gains exceeding 25%. The comparable proportion was 22% in 2025 and 47% in 2024.
The figures suggest that the IPO market has experienced changing levels of investor enthusiasm rather than a consistent upward trend.
A listing gain occurs when a stock begins trading above its IPO issue price. Such gains can reflect strong demand, limited available supply at the time of listing, investor expectations and the valuation established during the offering.
But a high listing premium does not necessarily indicate that a company is attractively valued for the long term. If the market price already reflects ambitious growth expectations, the stock may struggle when investors reassess its earnings prospects.
Investors should also distinguish between listing-day returns and performance over subsequent weeks or months. The two measures capture different stages of an IPO’s market performance.
IPO Fundraising Remains Active, but Proceeds Tell a Different Story
India’s IPO market remained active in 2026, although the total amount raised so far was below the full-year fundraising totals of the previous two years.
| Calendar year | Number of IPOs | Amount raised |
|---|---|---|
| 2024 | 91 | Approximately $19 billion |
| 2025 | 103 | Approximately $20 billion |
| 2026 so far | 96 | Approximately $12 billion |
Source: Kotak Institutional Equities, as reported by Business Standard. The 2026 figures are year-to-date and are not directly comparable with completed calendar years.
The data indicate that issuance activity has remained relatively high, but the amount of capital raised has not kept pace with the totals recorded in 2024 and 2025.
The composition of IPO fundraising is another important consideration. According to Kotak, around 60% of IPO fundraising in 2026 came through offers for sale, or OFS.
In an OFS, existing shareholders sell their shares to public investors. The money goes to the selling shareholders rather than directly to the company.
A fresh issue, by contrast, creates new shares and provides capital to the company. That money can be used for expansion, debt repayment, working capital and other stated corporate purposes.
Where IPO proceeds are being directed
| Use of proceeds | Share reported by Kotak |
|---|---|
| Debt repayment | 40% |
| Expansion, new projects, plants and machinery | 23% |
| Capital enhancement and working capital | 9% |
| Offers for sale | Approximately 60% of IPO fundraising |
These figures describe different aspects of fundraising: the first three refer to reported uses of proceeds, while OFS represents a transaction structure. They should not be added together as a single allocation breakdown.
The figures suggest that IPOs are not always primarily financing new business capacity. Debt repayment and other balance-sheet requirements also play a significant role, while a large share of fundraising through OFS represents exits or partial exits by existing shareholders.
That does not automatically make an IPO unattractive. Debt reduction can improve a company’s financial position, and existing investors may have legitimate reasons to sell shares. However, investors should understand precisely how much new capital the company receives and how management intends to use it.
Small- and Mid-Cap Funds Attract More Investor Money
Investor enthusiasm has also become visible in mutual fund flows.
Kotak reported that dedicated mid- and small-cap funds accounted for 32% of total inflows into active equity mutual funds during the first eight months of 2026. Their share was 25% in 2025 and 15% in 2024.
The increase indicates that investors are allocating more money to the market segments that have recently delivered stronger returns.
Such flows can support demand for smaller companies, but they can also amplify market movements. When investors buy aggressively, share prices may rise faster than corporate earnings. If sentiment changes, the same stocks can face selling pressure.
Mutual fund inflows alone do not establish whether a market segment is overvalued. The more important questions are what investors are paying for the underlying businesses, how quickly profits are expected to grow and whether those expectations are realistic.
Investors should also assess their existing portfolio exposure before adding more small-cap investments. Holding several funds does not necessarily provide meaningful diversification if those funds own many of the same companies.
Why Kotak Is Cautious About the Rally
Kotak’s central concern is that parts of the small- and mid-cap market may already reflect ambitious expectations for future earnings.
The brokerage’s analysis of the best-performing 10% of small- and mid-cap stocks within the Nifty 500 found that their outperformance was driven partly by upward revisions to earnings expectations and higher valuation multiples.
An earnings upgrade occurs when analysts increase their estimates of a company’s future profits. A valuation rerating happens when investors become willing to pay more for each rupee of expected earnings.
Both can lift share prices. However, neither guarantees that the underlying business will ultimately deliver the projected results.
For example, a company may attract strong demand because investors expect rapid growth in manufacturing capacity or a new business opportunity. If the company subsequently encounters execution problems, cost pressures or weaker-than-expected demand, its earnings may fall short of forecasts.
Its stock price could then decline even if the business remains profitable.
This risk is particularly relevant when investors focus more on a compelling industry narrative than on cash flow, margins, debt, corporate governance and the price paid for the shares.
Kotak has also warned that strong investment themes do not always translate into sustained returns. The market may reward a company in anticipation of future success, but continued performance ultimately depends on execution.
What IPO Investors Should Watch
The report highlights several factors investors should consider before applying for an IPO or buying shares after listing.
1. Valuation compared with earnings: Examine the price-to-earnings ratio, expected profit growth and comparable listed companies. A fast-growing company can still be an expensive investment if its share price assumes exceptional performance.
2. Use of IPO proceeds: Read the offer document to understand the division between fresh issuance and OFS. Check whether funds will finance expansion, repay debt or support working capital.
3. Financial performance: Review revenue growth, operating margins, profitability, debt levels and cash flow. A strong subscription response is not a substitute for sound financial results.
4. Corporate governance: Assess the company’s promoters, related-party transactions, disclosures, auditor observations and regulatory history where applicable.
5. Post-listing liquidity and volatility: Smaller stocks can experience sharp price movements. Investors should consider trading liquidity and their ability to tolerate losses rather than assuming that a strong debut will continue.
6. Portfolio concentration: Investors already exposed to small-cap mutual funds or individual small-cap stocks should consider whether another investment would increase risk in the same segment.
These checks cannot eliminate investment risk, but they can help investors distinguish between a company’s business prospects and the excitement surrounding its listing.
The Bigger Picture
Kotak’s findings point to a market in which investor attention has increasingly shifted towards smaller businesses. Strong listing gains, the outperformance of small-cap indices and rising mutual fund inflows all indicate that the segment has attracted substantial interest.
The shift may reflect opportunities in selected industries, but it also raises questions about valuations and the sustainability of returns. The performance of small-cap stocks will ultimately depend on whether companies can convert growth expectations into revenue, profits and cash generation.
The IPO fundraising figures add another dimension. A busy primary market does not automatically mean that companies are raising large amounts of fresh capital for expansion. Investors need to examine both the structure of an offering and the intended use of its proceeds.
Looking Ahead
The next phase of India’s IPO market will depend on the balance between investor demand and corporate performance. Smaller offerings may continue to attract attention, especially when businesses operate in sectors with credible growth opportunities. However, investors are likely to become more selective if earnings fail to match the expectations already reflected in share prices.
For retail investors, the main lesson is to avoid treating listing gains as a reliable investment strategy on their own. Evaluating valuations, financial statements, governance and the purpose of fundraising can provide a more useful basis for decisions than headline returns or oversubscription figures. Kotak’s analysis is a reminder that strong market momentum and sustainable long-term returns are not the same thing.
Frequently Asked Questions
1. How much have small IPOs gained in 2026?
According to Kotak Institutional Equities, small IPOs recorded weighted-average listing gains of 17% in 2026 so far, compared with 13% for mid-sized IPOs and 4% for large IPOs.
2. How did small-cap stocks perform against the Nifty 50?
Over the six-month period covered by the report, the Nifty Smallcap 100 gained 16%, while the Nifty Midcap 100 rose 3% and the Nifty 50 declined 5%.
3. Does a high IPO listing gain mean the stock is a good long-term investment?
No. Listing gains measure the difference between the issue price and the listing price. Long-term performance depends on valuation, earnings, business execution, financial health and market conditions.
4. What is an offer for sale in an IPO?
An offer for sale allows existing shareholders to sell their shares to public investors. The proceeds go to the selling shareholders rather than to the company.
5. Why is Kotak cautious about small-cap stocks?
Kotak has warned that strong share-price performance may depend partly on elevated earnings expectations and higher valuations. If companies fail to deliver the anticipated growth, their stocks may face pressure.
6. What should investors check before applying for an IPO?
Investors should review the company’s valuation, financial statements, debt, governance, use of proceeds, competitive position and risk disclosures. They should also consider how the investment fits their existing portfolio and risk tolerance.
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