IPOs are booming. But should you invest?
India’s IPO market has been on a strong run, with investors putting large sums into new stock-market listings. But while some investors have made money from listing gains, an IPO is far from a guaranteed profit.
In FY2025-26, 108 companies raised about Rs 1.76 lakh crore through IPOs, according to a KPMG report. The average listing-day gain was 8 per cent, indicating that investors were becoming more selective even as IPO activity remained strong.
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The pipeline remains large, with more companies preparing to tap the primary market. Among the marquee offerings are Jio Platforms and the National Stock Exchange (NSE), both expected to attract significant investor attention. Recent estimates put Jio Platforms’ IPO at around Rs 37,000-40,000 crore and NSE’s at around Rs 30,000 crore.
Know the business
The first step for an IPO investor is simple: know what you are buying.
Investors need to understand what the company does, which sector it operates in, who its competitors are, whether the industry is growing or shrinking and whether the company has an edge over its rivals.
The temptation, however, is often to follow the noise — a tip from a friend, a relative who “knows someone”, social media chatter or a WhatsApp message promising the next big investment opportunity. None of these should replace independent research.
“There is no free lunch here. Put in the work and the payoff is real.”
Check the price
The next question is valuation. Even a strong company in a booming sector can become a bad investment if investors pay too much for it.
The price paid for an IPO can determine how much return an investor eventually makes. A premium valuation can be justified when a company is growing quickly, has strong margins, healthy cash flow and a business that can scale.
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But if the premium is being driven mainly by hype, a fashionable theme or promises without sufficient fundamentals, investors may be better off walking away.
Skipping an overpriced IPO does not necessarily mean missing the opportunity. Investors can consider buying the stock after it lists if its market price later becomes more reasonable.
Read the numbers
Revenue figures alone do not tell the complete story. Investors should also examine profit margins, the growth of revenue and profits over several years, and the company’s cash flow.
Much of this information is publicly available. Even investors who are not finance experts can use these numbers to understand the broader financial health of a company before deciding whether to invest.
The objective is not simply to find a company making money today, but to understand how its business has performed and where it could be headed.
Follow the money
One of the most important questions is what the company plans to do with the money raised through the IPO.
In one scenario, the company uses the proceeds to expand operations, invest in new technology or otherwise strengthen and grow the business. That is generally the kind of use investors want to see.
The other possibility is an Offer for Sale, or OFS, where existing shareholders sell their shares. In such a case, the money goes to those selling shareholders rather than directly to the company.
KPMG’s FY2025-26 analysis shows that 59% of IPO funds raised during the year were attributable to OFS, highlighting the importance of understanding where the proceeds are actually going.
Read the RHP
Investors looking for a shortcut through all these checks can turn to the Red Herring Prospectus, or RHP.
It is a detailed document companies release ahead of an IPO, containing information about the business, its risks, financials, use of proceeds and other details relevant to investors. The document is filed as part of the regulatory process overseen by the Securities and Exchange Board of India (SEBI).
Also read: Reliance’s Jio Platforms files for India’s biggest-ever IPO, seeks to raise Rs 37,700 cr
An RHP can run into hundreds of pages, which can make it appear intimidating. But investors do not necessarily have to read every page.
The sections covering the business, industry, financial performance, risks, valuation-related information and use of IPO proceeds can provide much of the information needed to assess the issue.
Know your goal
The final question is why you are investing.
Are you looking for a quick listing-day gain, or are you buying the company with a long-term investment horizon? The answer can change the way you evaluate an IPO.
For a long-term investor, the right decision could even be to skip one IPO and put the money into a completely different investment.
An IPO application is not a ticket to easy money. It is an investment decision — and one that deserves a few minutes of serious thought before you click “apply”.
(The content above is for information only, and does not constitute investment advice.)
