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As India heads into Budget 2026, much of the macro narrative is rightly focussed on growth, investment, and capital formation. The public markets are an important avenue for raising capital, and we have seen a significant uptick in the number of primary issuances over the past few years.
This has been balanced by range-bound performance and significant volatility in the market indices, given the prevailing global political and economic uncertainty and relatively higher returns offered by other global markets.
The past five years have delivered remarkable breadth—and importantly, this breadth has not only been quantitative but qualitative, with a growing number of well-governed, high-performing companies choosing public markets as a viable capital-raising route.
Retail participation has expanded meaningfully; demat accounts have grown from roughly 4.5 million in 2019 to over 192.4 million by the end of FY25. Systematic mutual fund participation has also continued to deepen, with monthly SIP inflows crossing INR 20,000 crore consistently through FY25, up from an average of around INR 8,000 crore in FY20. SME listings have gained traction with more than 200 companies listing on SME exchanges in FY24 alone. Liquidity in derivatives markets has surged, making India the world’s largest derivatives market by volume. This is no small transformation.
According to current trends, the primary markets should see continued momentum with significant issuances planned for the coming year. This momentum will help continue the positive trend of adding greater breadth in the market with a diverse set of companies going public.
However, the increase in breadth needs to be accompanied with more stability and predictability in inflows of long-duration, institutional, research-driven capital that prices risk over time, signals governance and supports scale adding the required depth to the markets. Patient capital rather than tactical liquidity enables businesses to invest, expand and compound value over time. Depth, in turn, drives core capital formation, predictable price discovery and the kind of value creation that endures beyond cyclical windows.
India has liquidity, but liquidity has not consistently translated into meaningful capital formation. The IPO pipeline remains strong, yet listings continue to be influenced by two dominant triggers: private equity exits and founder monetisation, raising an important question: where is the money actually going?
Recent IPO data points to a widening gap between listings and fresh capital formation. A closer look at the use of IPO proceeds highlights that a large share of capital is not being deployed for capacity expansion or growth. Nearly 28–30% of IPO proceeds in the past three years have gone towards debt repayment, with general corporate purposes adding another nearly 12–15%. In comparison, capex and expansion-related allocations have typically ranged between 8–13%.
When combined with sizable secondary components, where proceeds accrue to founders and private equity holders rather than the issuing company, the picture becomes clearer: IPOs are increasingly serving as liquidity events as opposed to engines of fresh capital formation. While this provides an important avenue for exits, there are limited inflows towards India’s long-term capital expenditure cycle or productive investment capacity.
This is not a criticism of exits—deep markets require exit pathways—but it suggests that India’s next phase of market development must focus as much on deployment and absorption as on listing volumes.
The divergence reflects market incentives. If the system rewards valuation over scale, secondary monetisation over primary capital raising, and tactical exits over long-term holders, liquidity will naturally concentrate in instruments that favour speed—derivatives, small-ticket trades, and high-churn strategies. Intraday volumes now account for a large share of cash-market activity, with over 70% of equity cash trades estimated to be intraday in FY25, reinforcing this tactical orientation. Equities are increasingly liquid for trading but not always designed for accumulation or long-duration ownership.
Budget 2026 presents an opportunity to signal that listings are not merely a function of timing and valuations, but of uplifting governance, disclosures, investor confidence, and post-listing performance. Markets thrive when companies go public to raise growth capital, not just to facilitate exits. Institutional depth remains the single biggest differentiator between markets that scale sustainably and those that don’t. Pension funds, insurance pools, sovereign wealth funds, and long-hold capital shape provide the patient capital necessary for depth.
India has made progress, but long-duration domestic institutional capital remains under-allocated to equities. Pension money and insurance flows have room to contribute meaningfully to depth, particularly for large and mid-cap issuers. The budget could play an enabling role here, not through concessions, but through frameworks that broaden participation, reduce friction and reward duration.
Another element that matters, and one that finance leaders feel acutely, is the shift from being private to being public. Listing is no longer just a capital raising event; it is a multi-year transition in reporting, governance, communication and strategy. Here, India has made visible progress: boards are stronger, disclosure standards have improved, and investor expectations are better understood. Yet, readiness varies widely across sectors. In some cases, companies are ready financially but not operationally; in others they are ready for valuation but not for scrutiny.
For leaders at the helm of finance functions, the implications are becoming increasingly clear. Markets today reward preparedness over timing, with governance, maturity of disclosures and organisational readiness often mattering more for longer term sustainable value creation. Narratives and numbers must align as investor communication evolves into a strategic capability rather than a compliance activity. Scale continues to be valued, but the sustainability of growth and returns is what gets priced, particularly in sectors where business models are still proving themselves. The constitution of the cap table also matters; the quality of the shareholder register increasingly influences volatility, post-listing performance and the ability to raise follow-on capital.
Budgets do not build markets, but they do signal intent. If Budget 2026 signals that India values duration, governance and institutional depth, it would align well with the country’s stated ambitions for capital formation and competitiveness.
By reinforcing policy stability, signalling continuity, and supporting disclosure reforms, the budget can strengthen predictability. Predictability reduces discount rates, and discount rates shape valuations. Allowing a gradual glide path to enhanced governance and disclosures tempered with the size of offerings and the track record of issuers could be considered.
These are not fiscal giveaways; they are ecosystem design improvements. Markets respond more to predictability than to subsidies.
India’s capital markets have come a long way. The diversity of companies coming to market and the increasing participation of domestic retail and institutional investors provides a strong foundation for the next phase. That next phase, however, will require both incremental breadth and meaningful depth—breadth to bring more companies and sectors into public markets and depth to ensure that capital is patient, research driven and aligned with long term value creation. Budget 2026 has the opportunity to contribute to this trajectory, not through headline incentives, but through predictable signals that reward maturity and duration.
This article first appeared in the Fortune India on 30 January 2026.
