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Two to Tango: Tata Capital and LG IPOs to Siphon Liquidity, Starving Secondary Markets

 BY RISHI

India’s capital markets are bracing for one of the most momentous weeks in recent memory, as two mega IPOs—Tata Capital and LG Electronics India—are poised to absorb staggering amounts of institutional liquidity. Analysts warn that the combined draw from these issues may leave the secondary markets gasping for breathing room. This article explores how and why this “two to tango” moment matters, and what it means for investors and the broader equity ecosystem.

1. The Scale of the IPOs: A Liquidity Tsunami

The two IPOs are not just big—they are record-breaking in size. The Tata Capital IPO is pegged at ₹15,511 crore, while LG’s listing (via Offer for Sale, OFS) stands at ₹11,607 crore. 

Collectively, nearly 90% of the total capital raised in that week will stem from these two issues alone. This concentration of demand in a couple of offerings magnifies the pressure on institutional cash flows.

To put this in perspective: domestic institutions (mutual funds, insurers, pension funds, banks) have been deploying on average ~₹33,000 crore per week into equities this year.  The institutional portion of just these two IPOs (assuming 50% QIB allocation) is estimated at ~₹13,559 crore—far beyond what many mutual funds alone can muster. 

Thus, the sheer magnitude threatens to “soak up” most of the buying power currently available—leaving less capital for existing listed stocks.

2. How the Mechanism Works: From Primary to Secondary Markets

To understand the impact, we must trace how money flows. Institutional pools—mutual funds, life insurers, pension schemes—allocate fresh inflows and reinvested dividends partly into equities. When mega IPOs emerge, these institutions shift a significant slice of that deployment into primary shares, reducing the funds available for buying secondary market stocks.

In effect, capital is rerouted: instead of backing more listing firms, the same liquidity token is being concentrated into fewer names. This is especially harmful in midcaps and smallcaps, where liquidity is more fragile and institutional support matters. Market participants point out that secondary markets could exhibit “sluggishness,” especially in lower-liquidity names. 

Moreover, big IPOs often attract retail attention too, further diverting flow from secondary markets as investors chase the “new issue buzz.”

3. The Role of QIB Allocation and Institutional Appetite

A core reason this drain is so stark is the institutional quota (Qualified Institutional Buyer / QIB) in IPOs. In large issues, up to 50% is reserved for QIBs.  When institutions compete heavily for that slice, they bid aggressively—and allocate more of their cash reserves to primary subscription rather than trading existing shares.

Given that many mutual funds already run exposure limits or sector caps, large allocations to new issues can force them to cut back on buying in secondary markets—or even sell from existing holdings to free up bandwidth. That “opportunity cost” is what curbs secondary market momentum.

4. Secondary Market Impact: From Sentiment to Price Pressure

What happens when secondary markets lose institutional backing? Slower momentum, hesitation in chasing themes, occasional liquidity crunches in less traded names, and a dampening of broad-based rallies. Analysts caution that the rally may stall in the near term. 

Particularly vulnerable are midcaps and smallcaps, which depend more on fresh buying rather than deep order books. Without steady support, these names can see volatile swings, weak volumes, or lackluster performance.

Also, with capital being concentrated in new listings, rotation into existing sectors may slow down, making sectoral rallies—for example, in IT, banking, cyclicals—less sustainable.

5. Why These IPOs in Particular?

It’s not just the size—these two offerings have strategic importance:

• Tata Capital (NBFC play): This is the largest-ever public issue by a non-banking financial company in India. Its valuation, lending footprint, and parentage (Tata Group) give it institutional appeal. 
• LG Electronics India (Consumer / Appliance play): India’s first major IPO in consumer electronics via OFS, with the entire proceeds going to promoters (i.e. the Korea parent) rather than the Indian arm.  Its brand value, manufacturing investments, and growth narrative make it a coveted listing. 

Because these represent contrasting sectors (finance + consumer electronics), investor interest is broad-based. Their success will signal how much appetite remains across market segments. 

6. Risks, Warnings & Caveats

While the concerns are valid, there are mitigating factors and cautions:

• Rotation and liquidity refresh: Investor inflows are ongoing, and money doesn’t stay parked forever. Once the IPO subscription period ends, capital can rotate back into secondary markets.
• Selective support: Blue-chips or high-quality names may still attract interest, even in a tight liquidity environment, as investors prefer safer bets.
• Valuation discipline: Some analysts caution that Tata Capital’s issue is “fully priced” and that upside may be limited. 
• Global headwinds & macro sensitivity: Volatility in global markets, interest rate pressures, or foreign outflows could dampen even the strongest IPO interest.
• Retail vs Institutional dynamics: In some IPOs, the retail appetite may be lower or undersubscribed, nudging pricing and listing gains downwards.

7. What Should Investors Do?

Given this environment, investors should proceed judiciously:

• Don’t overcommit to IPOs: While high-profile listings are alluring, they carry listing risks and limited downside buffer.
• Maintain allocation discipline: Avoid shifting a large portion of one’s portfolio solely into new issues at the cost of neglecting existing holdings.
• Watch liquidity flows: Track whether funds are flowing back into secondary markets after IPOs end; that could offer reentry opportunities.
• Stay selective and diversified: In tighter liquidity phases, concentration in high-conviction names, sectors, or high-liquidity stocks is safer.
• Monitor subscription trends: A weak subscription by anchors or institutional investors can signal tepid demand ahead of listing.

8. Long-Term Implications for India’s Equity Ecosystem

This “two to tango” episode may leave lasting effects beyond a few weeks:

1. Changing IPO dynamics: Companies may re-evaluate the timing, structure (OFS vs fresh issue), and pricing of their public offerings, keeping in mind the liquidity pressure their listing could impose.
2. Investor behavior shifts: Institutional investors may become more cautious in allocating too aggressively to IPOs, and instead adopt a more balanced “market + issue” approach.
3. Sectoral financing patterns: Stratified sectors (finance, consumer, tech) may see more measured fundraising to avoid downstream stress.
4. Liquidity stress test: This period may act as stress test—how resilient is India’s equity market in absorbing large capital demands without derailing secondary markets?
5. Valuation calibration: If the issues list well, it could set new pricing benchmarks; if they underperform, caution will seep into future issuances.

Conclusion

The tandem arrival of Tata Capital and LG Electronics India IPOs marks a watershed moment for India’s capital markets. Their gargantuan size threatens to divert institutional liquidity away from secondary markets, potentially dampening momentum, especially in midcaps and smallcaps. While rotation and fresh inflows may mitigate the sting, for the near term, secondary markets may feel some pinch.

For investors, the path lies in restraint, selectivity, and liquidity awareness. For the markets, this moment offers both a stress test and a learning curve: one that will inform how future IPO seasons unfold in India’s evolving equity story.