IPO Investing: Should You Apply for Every IPO?

IPOs have become incredibly popular in India. Every few weeks, a new company announces its IPO, and social media buzzes with excitement. Many investors apply to every single IPO hoping to make quick listing gains. But is that a smart strategy? Let us explore what IPO investing really means and whether you should apply for every one that comes along.

What Is an IPO?

IPO stands for Initial Public Offering. It is the process through which a private company offers its shares to the public for the first time. Before an IPO, a company is privately owned — by its founders, early investors, and venture capitalists. After the IPO, anyone can buy and sell its shares on the stock exchange.

For example, when Zomato had its IPO in 2021, it went from being a privately held startup to a publicly listed company on the NSE and BSE. Anyone with a Demat account could buy Zomato shares after that.

Why Do Companies Launch IPOs?

Companies go public for several reasons:

• To raise capital: The money from the IPO can be used for expansion, debt repayment, or new projects.
• To provide an exit for early investors: Venture capitalists and angel investors get a chance to sell their shares.
• To increase visibility: Being a listed company adds credibility and public trust.

How Does the IPO Process Work in India?

1. The company files a DRHP (Draft Red Herring Prospectus) with SEBI, which contains details about the business, finances, and risks.
2. SEBI reviews the document and may ask for changes or clarifications.
3. A price band is set — for example, Rs 500-530 per share.
4. The IPO opens for subscription for 3-5 working days. Investors can apply through their broker or UPI (using ASBA).
5. Allotment happens — if the IPO is oversubscribed, shares are allotted through a lottery system for retail investors.
6. Listing day — the shares start trading on the stock exchange, usually 6-7 days after the IPO closes.

The Attraction of Listing Gains

Many retail investors apply for IPOs hoping for listing gains — the profit made when a stock lists at a price higher than the IPO price. For instance, if you buy shares at Rs 500 in the IPO and the stock lists at Rs 700, you make Rs 200 per share on day one.

Some recent IPOs in India have delivered spectacular listing gains, which fuels the excitement. However, not all IPOs list at a premium. Some list flat, and some even list below the IPO price, resulting in immediate losses.

Should You Apply for Every IPO?

The short answer is no. Here is why blindly applying to every IPO is risky:

• Not all companies are good businesses: Some companies go public primarily so that early investors can cash out, not because the business has strong growth prospects.
• Overvaluation is common: Many IPOs are priced aggressively, leaving little room for gains for retail investors.
• Hype does not equal quality: Just because an IPO is oversubscribed 50 times does not mean the company is worth investing in long-term.
• Listing gains are not guaranteed: Data shows that a significant percentage of IPOs in India have listed at a discount or given negative returns within the first year.

How to Evaluate an IPO Before Applying

If you want to invest in IPOs, here is what you should check:

• Company fundamentals: Look at revenue growth, profitability, and debt levels in the DRHP.
• Industry prospects: Is the company in a growing industry? Does it have a competitive advantage?
• Valuation: Compare the IPO price with the company’s earnings (PE ratio) and with listed peers.
• Promoter track record: Who is running the company? Do they have a history of building successful businesses?
• Use of IPO proceeds: Is the company raising money for growth, or is it mostly an OFS (Offer for Sale) where existing investors are selling?

IPO Investing Tips for Beginners

• Do not invest money you cannot afford to lose. IPO investing carries risk.
• Read the DRHP or at least a summary analysis before applying.
• Do not follow the crowd blindly. Popular does not always mean profitable.
• If you get allotment and the stock lists at a good premium, decide whether you want to book profits or hold long-term based on the company’s fundamentals.
• Keep IPO investing as a small portion of your overall portfolio, not your primary strategy.

The Bottom Line

IPOs can be exciting and occasionally very profitable. But treating them as a guaranteed money-making machine is a mistake. The smartest approach is to be selective — apply only for IPOs of companies with strong fundamentals, reasonable valuations, and genuine growth potential. Quality over quantity should be your IPO investing mantra.