Equity IPOs: Gateway to Ownership and Risk - A Comprehensive Guide for Indian Investors
- Editor
- Sep 19
- 4 min read
by KarNivesh | 19 September, 2025
An Initial Public Offering (IPO) is when a private company sells its shares to the public for the first time. It is like a company opening its doors for investors to buy a piece of ownership. For investors, IPOs can be exciting opportunities because they allow entry into new and growing companies. However, they also carry risks. In India, IPOs have become very popular, with 2024 alone seeing fundraising of more than ₹1.6 lakh crore through mainboard IPOs.
The IPO Process: From Private to Public
For a company, going public requires maturity and financial stability. Many companies reach this stage when they are valued at around ₹830 crore or more, but strong fundamentals can also qualify a business.
Steps include:
Due diligence and audits
Appointment of lead managers, underwriters, and registrars
Approval from SEBI through a document called the Red Herring Prospectus (RHP)
Most IPOs in India use the book building method instead of fixed pricing. The company sets a price band, investors place bids, and the final price is decided based on demand. This ensures fairer, market-driven pricing.
Who Can Invest? IPO Categories
IPOs are divided into three groups:
Qualified Institutional Buyers (QIBs) – get 50% allocation. These include banks, mutual funds, and foreign investors.
Non-Institutional Investors (NIIs) – 15% allocation. These are high net worth individuals investing above ₹2 lakh.
Retail Investors (RIIs) – 35% allocation. Individual investors with up to ₹2 lakh per application.
This structure ensures both professionals and everyday investors can participate.
How IPO Prices Are Decided
Investment bankers use several methods:
Relative Valuation – comparing with similar listed companies using ratios like P/E and EV/EBITDA.
Discounted Cash Flow (DCF) – calculating future cash flows and bringing them to present value.
Economic Valuation – checking debt, assets, and overall financial health.
Book Building – demand-based final pricing.
The Benefits of IPO Investment
Early Investment Opportunities – Get in before a company becomes widely recognized.
Capital Appreciation – Some IPOs deliver strong returns (e.g., Bajaj Housing Finance gave 114% gains on listing).
Liquidity – IPO shares are tradable on exchanges.
Transparency – SEBI rules require companies to disclose detailed financials.
Diversification – Add new sectors to your portfolio.
The Risks of IPOs
Overvaluation – Some companies are priced too high due to hype. For example, Paytm’s IPO (worth ₹15,521 crore) lost over 70% of its value after listing.
High Volatility – Prices can fluctuate wildly after listing.
Limited History – New companies may lack long-term track records.
Market Timing Risks – Even good companies may perform poorly if markets are weak.
Allotment Uncertainty – Oversubscribed IPOs often use a lottery system.
Success and Failure Stories
Zomato (2021) – Raised ₹9,375 crore, oversubscribed 38 times, and proved successful despite doubts.
LIC (2022) – India’s largest IPO raised ₹21,000 crore, supported by its strong brand.
Paytm (2021) – Despite hype, its shares fell sharply due to overvaluation and unclear profitability.
Reliance Power (2008) – Oversubscribed 73 times, but later collapsed due to regulatory and project delays.
Tips for Successful IPO Investment
Research the company – Study financials, revenue growth, and management.
Check industry prospects – A strong market supports long-term success.
Review fund use – Ensure IPO money will be used wisely.
Compare valuations – Look at peers’ P/E ratios and growth.
Diversify – Don’t put all your money in one IPO.
Set goals – Decide if you’re investing for short-term gains or long-term growth.
Recent Trends in India’s IPO Market
India’s IPO market remained strong in 2024 despite global uncertainty.
Best performers – Vibhor Steel Tubes (181% gains) and Mamata Machinery (147% gains).
Worst performers – MVK Agro Food Product (-34%) and Kalana Ispat (-32%).
Of 15 startup IPOs, 8 are now trading below issue price.
India raised ₹17,015 crore in 2024, making it the second-largest IPO market globally after the U.S.
SEBI’s New Rules for Investor Protection
Faster Listing – Now T+3 days instead of T+6.
Anchor Investor Lock-in – 50% locked for 30 days, rest for 90 days.
Better Disclosures – Mandatory site visit reports and employee fund details.
Improved SME IPO Rules – More minimum allottees required for fairness.
Making the Right Choice
Conservative Investors – Choose established companies with clear profits and proven business models.
Growth-Oriented Investors – Look at innovative companies in fast-growing sectors.
Avoid Red Flags – Companies with high debt, unclear strategies, or too much promoter dependence.
How to Apply for an IPO
Open a Demat account.
Complete KYC.
Read the Red Herring Prospectus carefully.
Apply early for better allotment chances.
Check allotment status after issue closure.
The Future of IPOs in India
The IPO market is expected to grow further with:
Green and ESG-based companies
Fintech and technology-driven businesses
More SME IPOs
Easy online application platforms
For investors, IPOs remain a promising but risky avenue. The key is research, patience, and realistic expectations. Don’t follow hype blindly—invest wisely and align decisions with your financial goals.
Conclusion
IPOs can be a gateway to wealth creation but also come with high risks. Success depends on your ability to research, assess valuations, and stay disciplined. India’s IPO market is vibrant, offering opportunities across sectors, but not every IPO is worth investing in.
If you stay informed and invest carefully, IPOs can become a valuable part of your portfolio. Remember: in IPO investing, knowledge is your best asset.
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