In recent years, India’s capital markets have witnessed a remarkable evolution in the role played by institutional investors. Once celebrated as enthusiastic backers of IPOs, buoying new listings with strong anchor demand and energised anchor books, institutional investors are now being challenged to shift from mere cheerleaders of primary market activity to silent stewards with a meaningful influence on corporate governance and long-term investor outcomes.
The boom in equity markets and a record surge in IPO activity across 2024-25 placed institutional investors – especially domestic mutual funds, insurance companies, and asset managers – at the forefront of capital mobilisation. Domestic institutions now account for more than half of IPO anchor allocations, a shift from earlier reliance on foreign portfolio investors. This has reinforced local market participation but also raised questions about valuation discipline and strategic oversight.
Despite procedural compliance with stewardship codes mandated for mutual funds and alternative investment funds, evidence of deep and effective engagement with investee companies remains limited. Stewardship, in theory, implies active oversight — engaging management on governance, strategy, and accountability rather than simply investing capital and moving on. However, recent episodes of heavy promoter share sales shortly after high-profile IPOs have exposed persistent fault lines where institutional responses have been largely formulaic and lacking substantive governance outcomes.
The primary market’s current character underscores this tension. While headline numbers may suggest buoyancy, underlying trends like increasing promoter exits and a rising share of offer-for-sale components in IPOs hint at a market skewed toward liquidity rather than long-term value creation. This dynamic echoes broader market concerns that institutional investor support can inadvertently signal endorsement without commensurate scrutiny of business quality or post-listing behaviour.
For India’s markets to mature further, institutional investors may need to embrace a more proactive stewardship role — not just participating financially in IPOs but leveraging their influence to strengthen governance, sustain valuation discipline, and ensure that the interests of long-term savers are protected. Such a transition from silent capital providers to engaged stewards would align with global best practices and affirm institutional investor contributions beyond short-term market cheerleading.
