According to Ashish Gupta, Chief Investment Officer at Axis Mutual Fund, Indian equity markets are likely to see moderate returns in 2026, largely because a surge in IPO supply and promoter stake sales is expected to weigh on valuations and limit broad market upside.
📊 Why IPO Supply Matters for Market Returns
Gupta highlights that stock market performance is influenced not just by buying demand but also by the supply of equity — and supply has grown rapidly in recent years.
🔹 Record IPO and OFS activity: India saw nearly 100 IPOs in 2025 and 91 in 2024, raising around ₹1.7–1.8 lakh crore. Additionally, promoters and private equity sold shares worth close to ₹3 lakh crore, taking total equity supply to roughly ₹5 lakh crore — exceeding net domestic inflows.
🔹 Supply > Demand: Domestic retail demand (mutual funds, SIPs) has remained strong, but the equity supply has risen even faster, creating a tight demand–supply balance that keeps valuations under check and reduces the likelihood of a sharp market rally.
🔹 Headline indices can mask weakness: Large-cap stocks and index heavyweights have helped headline indices show gains, but the broader market — especially mid- and small-caps — has struggled due to high supply inflows and valuation pressures.
📅 2026 IPO Pipeline Still Strong
Gupta notes that the heavy IPO pipeline isn’t slowing down — more than ₹1 lakh crore of IPOs are already filed with SEBI, and additional large issues may follow, which further adds to equity supply in the system.
This continued supply of new shares may keep upward pressure on stock prices subdued, especially if investor demand doesn’t rise proportionately.
📌 What This Means for Investors
Expectations for Market Returns
- Moderate returns likely: Broad markets may struggle to deliver outsized gains in 2026 as fresh share issuances absorb a large portion of investment capital.
Market Breadth & Valuations
- Mid- and small-caps more vulnerable: Sectors with higher IPO activity or elevated valuations may see price pressure, compressing returns.
Focus on Selectivity
Gupta suggests that stock selection will matter more than broad market exposure. In this environment:
✔ Focus on sectors with strong earnings momentum (e.g., financials, autos).
✔ Monitor valuation discipline — avoid overpaying for new listings just because they are “the next big thing.”
✔ Maintain a long-term perspective — moderate returns don’t rule out sectoral or stock-specific outperformance.
📌 Summary
Key takeaway: Heavy IPO supply and promoter stake sales are creating a situation where equity markets may have limited upside in 2026 even as demand remains solid. This dynamic — where supply growth outpaces flows from mutual funds and retail investors — means returns could stay moderate, with selectivity and valuation discipline becoming increasingly important for investors.
