Iran War Uncertainties Loom Over Near-Term ECM Activity: Avendus Capital Insights

Indian Equity Capital Markets Poised for Volatile Period

The Indian equity capital markets (ECMs) were on track for another strong year following a record 2025, but the Iran war has sent markets into a tailspin. Despite the ongoing conflict, the underlying investor appetite remains intact, according to Gaurav Sood, managing director and head of equity capital markets at Avendus Capital.

Historically, ECM activity has been strongest in periods of lower volatility. In 2024 and 2025, Indian ECM saw record years, with 103 issuances raising approximately Rs 1.76 lakh crore in 2025. The quarter one of 2025 was muted, but the year went on to see a record amount of issuances. Similar patterns have been observed in the past, such as during the Russia-Ukraine conflict and major political shifts in the US.

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With the VIX at its highest level since 2024 and crude prices elevated, the near-term environment is more sensitive to valuation and pricing, which means ECM activity may remain subdued over the next couple of months. However, 16 issuances this quarter have raised around Rs 23,000 crore, marginally higher than the same period last year, indicating that capital markets remain active despite the volatility.

Markets are expected to gradually price in the current geopolitical risks, and activity should bounce back once volatility settles. In the interim, investors are gravitating towards relatively safer, yield-oriented listed products, making REITs and InvITs a more meaningful part of investor portfolios.

Domestic inflows are driving IPO activity, with smaller companies continuing to launch IPOs despite volatility. Smaller IPOs are often enough to anchor the book with domestic mutual funds and other local institutions, while larger IPOs require participation of both DIIs and FIIs to achieve scale and support valuations.

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Preferential issues are emerging as a viable option in situations where there is a committed sponsor, promoter group entity, or strategic investors, particularly where the issuer is looking for long-term, patient capital through a relatively faster and more confidential process. Till February this year, preferential issuances stood at around Rs 36,000 crore, with deals above Rs 500 crore contributing roughly Rs 30,000 crore.

SEBI's reclassification of REITs as equity instruments has been a welcome move, broadening the eligible investor base and supporting higher mutual fund participation in both primary issuances and secondary market trading. This has led to an increase in trading activity, with average daily trading value across REITs rising by about 48 percent to roughly Rs 130 crore during January to March 2026.

InvIT IPOs are expected to raise over Rs 25,000 crore in 2026, led by Raajmarg's Rs 6,000 crore issue, Cube Highways' Rs 5,000 crore filing, and Citius Transnet's proposed issue of around Rs 1,340 crore. The eventual number could be materially higher if more private InvITs convert into public InvITs.

Indian companies are expected to increasingly opt for buybacks to support stock prices amid volatility, but not as a broad market trend. Selectively, some boards may evaluate buybacks as a sign of confidence and disciplined capital allocation. Since 2020, there have been 45 buyback deals with a total offer size of around Rs 1.5 lakh crore, of which nearly Rs 1.1 lakh crore has come from IT companies.