India’s stock market is experiencing an unprecedented IPO boom, but beneath the celebration lies a troubling reality: public money is increasingly funding private exits rather than building companies. Worse still, enforcement agencies have uncovered elaborate schemes where IPOs serve as vehicles for money laundering and black money conversion.
The 63% Problem
In 2025, a staggering 63% of funds raised through IPOs went directly into the pockets of promoters and private equity investors through Offer for Sale (OFS) mechanisms, rather than into company treasuries for growth. According to YES Securities, this dramatic shift means the majority of recent IPOs have become “exit events” rather than instruments for raising capital to build businesses. When IPO money doesn’t reach the company, it can’t create jobs, expand operations, or drive economic growth.
Record Numbers, But Who Benefits?
India witnessed 93 IPOs in 2025, raising ₹1.6 lakh crore, significantly higher than the 86 IPOs in 2024 and 53 in 2023. However, with over 200 companies queuing to raise nearly ₹2.8 lakh crore, the reality is clear: existing shareholders are selling at peak prices while retail investors take on the risk. Tellingly, average IPO demand dropped from 51 times in 2024 to 36 times in 2025, suggesting smart money is getting cautious even as ordinary investors continue pouring in their savings.
The Mega Exits: How Companies Became ATMs
Hyundai Motor India: The ₹27,870 Crore Exit
Hyundai Motor India’s October 2024 IPO stands as the most brazen example: a ₹27,870 crore issue that was 100% OFS. Not a single rupee went to the company. The entire amount flowed to Hyundai Motor Company of South Korea. The Indian subsidiary effectively became a payday for its Korean parent, with retail investors funding the exit while taking on all future business risks.
Vishal Mega Mart: Private Equity’s Perfect Exit
Vishal Mega Mart’s December 2024 IPO raised ₹8,000 crore entirely through OFS. Private equity firms and promoters cashed out completely. The retail chain received zero capital for opening new stores, upgrading technology, or competing better. The IPO was purely about getting early investors their money back, not building the business.
Swiggy: Bleeding Money, But Investors Exit Rich
Swiggy’s ₹11,327 crore IPO in November 2024 included ₹6,828 crore in OFS, representing 60% of proceeds. While the company continues losing ₹2,350 crore annually, investors like Accel India, Tencent, Elevation Capital, and Coatue cashed out billions. The company received only ₹4,499 crore despite burning cash and facing intense competition from Zomato. Early investors exited at peak valuations while retail investors inherited an unprofitable business.
FirstCry: SoftBank’s Billion-Dollar Payday
FirstCry’s ₹4,193 crore IPO in August 2024 featured ₹2,527 crore in OFS, representing 60% of proceeds. SoftBank, Mahindra & Mahindra, Premji Invest, and TPG offloaded shares they had bought years ago at far lower prices. The e-commerce platform received only ₹1,666 crore while early investors walked away with massive profits on their original investments.
Black Money Angle: IPOs as Washing Machines And the ₹40 Crore Money Laundering Racket
In December 2024, the Enforcement Directorate busted a ₹40 crore money laundering operation centered on a 2022 technology firm’s IPO. Funds supposedly raised for data centers and education technology were diverted through fake transactions and circular trading. Investigators found over 400 cheque books, 200+ SIM cards, and more than 150 shell companies created solely to layer and route illegal money.
6,500 Fake Accounts to Corner IPO Shares
SEBI investigations exposed how manipulators operated thousands of fake demat accounts to corner IPO shares meant for retail investors. In one case involving Yes Bank’s IPO, investigators found one person controlling 6,500 demat accounts and another with 1,315 accounts. A woman named Roopalben Panchal received shares through 6,315 fake accounts, totaling nearly 10 lakh shares. These shares were then sold for huge profits, leaving genuine retail investors with nothing.
Brooks Laboratories: The Classic Round-Tripping Scam
SEBI fined 22 entities ₹17.55 crore for siphoning ₹8 crore from Brooks Laboratories’ IPO proceeds through fictitious transactions. Promoters created fake loans, moved money in circles through shell companies, and used IPO proceeds to cover their personal market losses. The company raised public money that never went toward business growth, instead funding promoter lifestyles and covering their gambling losses in the stock market.
Government Admits the Problem
India’s official White Paper on Black Money explicitly states: “IPOs are vulnerable to manipulations that generate black money for promoters through shell companies and offshore investors who artificially inflate share prices, only to dump them later at the cost of ordinary investors.”
The Real Risks for Ordinary Investors; Promoters Know Something You Don’t
When company founders and early investors who deeply understand the business sell heavily at IPO prices, it’s a massive red flag. They bought shares years ago at ₹10 or ₹50 per share. If the future is so bright, why sell at ₹500? The uncomfortable truth: they know the growth story is overblown, competition is tougher than disclosed, or profit margins will shrink. They’re exiting at the top while retail investors buy at the peak.
Buying at Bubble Prices
Indian stocks trade at some of the world’s highest valuations. When insiders rush to sell through OFS-heavy IPOs, they’re cashing out at bubble prices. Paytm’s story proves this: the ₹18,300 crore IPO in November 2021 crashed 27% on day one and eventually fell 70% from its IPO price. Thousands of retail investors lost their life savings while early investors had already exited.
Companies That Can’t Grow
When 60 to 100% of IPO money goes to selling shareholders, the company receives nothing for expansion. No money for new factories, hiring talent, marketing, or innovation. The business stagnates while competitors who kept IPO money for growth race ahead. Your investment is in a company that was hollowed out at birth.
Fraudsters Stealing Your Money
The Brooks Laboratories, shell company networks, and technology firm cases show a pattern: promoters raise public money, claim it’s for business growth, then siphon it through fake transactions. By the time SEBI discovers the fraud years later, your money is gone, routed through dozens of shell companies to offshore accounts.
Manipulation Makes You Lose Twice
Operators inflate Grey Market Premium before IPO to create hype. You apply thinking the stock will jump 50% on listing. Instead, it crashes because the GMP was fake manipulation. Then, after listing, the same operators use shell companies to pump the price temporarily, dump their shares on you, and the stock collapses. You lose at IPO and lose again in the market.
Why Isn’t the Government Stopping This? SEBI Chases Small Fish, Misses Big Sharks
While SEBI took action against 886 entities between April 2024 and June 2025, these were mostly for small trading violations, not for the structural abuse of IPOs. There are no restrictions on how much OFS a company can have. Hyundai’s 100% OFS IPO was perfectly legal despite providing zero capital to the company.
Penalties Are a Joke
When SEBI catches fraud, penalties are tiny. In 2022, SEBI fined 32 entities just ₹2.3 crore for diverting IPO funds worth far more. The Brooks Laboratories case took years and resulted in a ₹53 crore fine for stealing ₹8 crore, but by then promoters had laundered billions. Stealing from IPOs is highly profitable even with penalties.
No Rules Against Excessive Exits
Current regulations allow promoters to reduce their stake to just 20% post-IPO, meaning they can sell 80% of their holdings. There’s no cap on OFS percentage in the total issue size. A company can do a 100% OFS IPO and it’s completely legal. SEBI has made no meaningful reforms despite the 63% OFS statistic.
Fraudsters Stay Ahead
Criminals innovate faster than regulators. Shell company networks, offshore round-tripping, thousands of fake demat accounts, and sophisticated layering schemes mean SEBI discovers fraud only after retail investors have lost everything. The system is reactive, not preventive.
What Should You Do?
Check every IPO document for the OFS percentage. If it’s over 50%, ask yourself why insiders are running for the exit. Look at promoter holding after the IPO: if it drops to 20%, treat it as a danger sign. Research whether the company actually needs growth capital or if it’s just a payday for early investors.
Most importantly, remember: when those who know the business best are selling aggressively, you should be extremely cautious about buying.
