IPO Funds Are Flowing - So Why Is Private Capex Still Lagging?

For the past year, one concern has kept coming up in macro discussions - government-led capital expenditure has slowed. After three straight years of double-digit capex growth, the momentum has clearly eased.

That naturally raises a follow-up question. If government capex is slowing, why hasn’t the private sector stepped in? After all, Indian companies are sitting on record cash balances, and IPO fund-raising is at an all-time high.

The answer lies not in how much money IPOs are raising but in how that money is actually being used.

The IPO–Capex Disconnect

The last two years have been exceptional for India’s primary markets.

• ₹1.55 trillion raised via IPOs in 2024
• ₹1.76 trillion raised in 2025
• Nearly ₹2.5 trillion expected in 2026

Zoom out further, and the picture is even bigger. Between 2021 and 2025, Indian companies raised over $110 billion through IPOs.

Yet, despite this massive capital inflow, private sector capex has remained muted. The reason is simple - a large part of IPO money never reaches business expansion.

Read the RHP Closely: Where IPO Money Actually Goes

The Red Herring Prospectus (RHP) clearly spells out how IPO proceeds will be used. But this is often where investors stop paying attention.

First, it is important to separate two components of IPO fund-raising:

• Fresh Issue: Money raised goes to the company
• Offer for Sale (OFS): Existing shareholders sell their stake; the company receives nothing

In the last two years, nearly 40% of IPO funds came through the OFS route. That means a large chunk of IPO money simply changed hands - it did not fund new factories, plants, or expansion.

Even within the remaining 60% raised as fresh issue, only a small portion goes into capex. Most of it is allocated to:

• debt repayment or prepayment
• working capital requirements
• general corporate purposes

None of these automatically translate into higher private sector investment.

Common Red Flags in IPO Fund Utilisation

When companies raise equity capital, the assumption is that the money will be deployed to grow the business. But that is not always the case.

Here are some red flags investors should watch closely:

• IPO proceeds used mainly to repay debt. This implicitly assumes equity is cheaper than debt - which is rarely true.
• M&A funding without clarity. Many IPOs cite acquisitions, but do not identify targets.
• Vague “general corporate purposes”. This often becomes a catch-all with little accountability.
• OFS-heavy IPOs. Investors should ask whether early backers are exiting at peak valuations.

These patterns explain why IPO fund-raising hasn’t translated into a capex revival.

Why This Matters for IPO Returns

An IPO creates long-term value only if the funds raised are reinvested at a return higher than the company’s cost of capital.

However, brokerages estimate that only about 15% of IPO funds raised in recent years have gone into actual business expansion.

This helps explain why IPO performance in 2025 has been disappointing. Without meaningful reinvestment into growth, companies struggle to deliver post-listing earnings momentum.

Working capital support and debt servicing can be part of an IPO plan - but they cannot be the primary objective.

Building a Healthier IPO Ecosystem in India

India doesn’t have an IPO problem. It has a capital allocation problem.

If investors start paying closer attention to how IPO funds are deployed, the quality of companies coming to market will improve naturally.

IPOs that genuinely fund:

• capacity expansion
• technology upgrades
• product diversification

are far more likely to deliver long-term value - and also contribute meaningfully to private sector capex.

Until then, record IPO numbers will continue to coexist with weak investment on the ground.

Key Takeaways

• India has seen record IPO fund-raising, but private sector capex remains weak.
• Nearly 40% of IPO funds came via OFS, which does not add capital to businesses.
• Most fresh issue funds are used for debt repayment or working capital, not expansion.
• Only about 15% of IPO funds go into actual business growth.
• Closer scrutiny of fund utilisation can improve IPO quality and long-term returns.

Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice.