Secondary market supply nears Rs 3 lakh crore in FY26, overshadowing IPO fundraising

Secondary market supply nears Rs 3 lakh crore in FY26, overshadowing IPO fundraising

India’s capital markets have seen a surge in secondary share supply in the first eight months of FY26, with promoter exits, OFS auctions (offer-for-sale via exchange window), block deals and PE sell-downs cumulatively touching Rs 2.93 lakh crore, according to data shared with Moneycontrol from Prime Database.

In comparison, total IPO mobilisation between April and November stood at Rs 1.46 lakh crore, of which only about Rs 62,300 crore was fresh capital — barely 42% of the total. The remaining ~Rs 85,000 crore (57.5%) was IPO-OFS (promoter/PE sell-downs inside IPOs), adding to the already heavy supply hitting the market.

Put together, secondary supply (Rs 2.93 lakh crore) has exceeded the actual capital formation (~Rs 62,300 crore) by over 4.7×, suggesting what one expert described as “a market running more on liquidity absorption than capital formation.”

Market veteran Ajay Bagga says the headline IPO numbers mask the real issue. “Within IPOs you must see how much OFS is and how much actually goes to the company. Add the OFS inside IPOs to block deals, and the picture becomes even more grim.”

He warns that promoter behaviour itself is a signal. “Promoters are supposed to be the most well-informed about the real conditions in their company. When promoters sell, traditionally it has been a red flag. In earlier times, such dilution was a trigger for other investors to sell, because it reflected weakening promoter confidence.”

Analysts add that global managements of some MNC subsidiaries continue to express surprise at the valuation multiples their Indian unit's command. They have rushed to sell into this and take money off the table. And domestic investors have provided very easy exits, taking on the risk from promoters and foreign owners.

This, experts believe, will have implications for returns: “Surprisingly, Indian fund managers have been investing into these OFSs as well, which is a pointer to lower future returns in the short term.”

Why the surge? Promoters, PE funds and family offices dominate supply

Promoter block deals, PE exits and family office-driven sell-downs remain the largest contributors to secondary market supply. This is also why large-cap names, while hitting new highs, have not raised significant fresh capital.

Umesh Agrawal, fund manager at 360 ONE Asset says the ecosystem can still handle the supply but warns of absorption limits.

“I don’t see a direct impact on valuations due to OFS. But overall excess supply might matter, especially when FIIs are not yet participating in a big way.”

Domestic flows (MFs, insurers, pension money) are taking the bulk of the load. But this capacity is not infinite, especially as supply pipelines remain heavy.

Sushant Bhansali of Ambit Investment Advisors argues that today’s supply surge reflects deeper institutional participation even before listing. “Domestic institutions now fund businesses long before IPO. Retail enters at a more mature stage, which improves governance well before listing.”

He cautions that comparing current secondary-to-primary ratios with the past may be misleading. “The market has structurally changed. Domestic savings are driving flows, so supply can be higher without destabilising valuations.”

What next? A coming wave of PSU sell-downs

Once the current wave of block deals and OFS activity normalises, the next major supply source is likely to come from PSU banks and state-owned enterprises.

Several PSU banks still have government stakes in the 75 to 85% range, making calibrated sell-downs inevitable as part of ongoing divestment objectives (irrespective of whether a formal deadline exists).

An institutional investor tracking bank ownership noted, “Even modest PSU selling can add sizable supply on its own. The market can absorb it today, but it definitely keeps the supply pipeline heavy.”

Unlike promoter or PE exits, PSU divestments are policy-driven, meaning they introduce structural supply rather than discretionary selling.

The bigger picture -- More equity is being sold than created. More shares are being transferred than infused into corporate balance sheets.

With nearly Rs 3 lakh crore of secondary supply already absorbed this year—and more PSU selling likely — the market’s ability to digest heavy supply without compromising valuations will be closely watched.

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