In The Rush To Get Rich, Are IPOs Becoming India’s New Financial Gamble?
File — A view of the renovated atrium, the iconic NSE Bull, and the refreshed façade of the National Stock Exchange (NSE) Bull, at the National Stock Exchange headquarters, in Mumbai (ANI)
By Saurabh Shukla
New Delhi: Every few months, a new company hits the headlines, promising to be the next big thing on Dalal Street via an Initial Public Offering (IPO). The buzz builds, investors line up, and social media fills with talk of easy profits. From first-time investors to seasoned traders, everyone wants a piece of the action. But once the excitement fades and the stock lists the truth often looks very different.
Behind the glamour of ringing bells and oversubscribed issues lies a world of risk and uncertainty, too. Some IPOs turn out to be stepping stones to fortune, while others quietly drain investor savings. Why do people still chase them? Is it confidence, curiosity or simply fear of missing out? To find out what really goes on behind the IPO frenzy, we spoke to market veterans and fund managers who’ve seen both booms and busts. Their insight reveals a story that is far less about quick profits and much more about understanding where you are putting your money.
Why do companies go for an IPO?
An IPO is when a private company offers its shares to the public for the first time to raise money. This process turns a private company into a public one, allowing regular investors to buy ownership in the business. Companies use IPOs to raise funds for expansion, repay debts or give early investors a way to cash out. Once the IPO is completed, the company’s shares are listed on a stock exchange where they can be freely traded. There are mainly two types of IPOs, Fixed Price Issues and Book Building Issues.
In a fixed price issue, the company and its underwriters decide a set price for the shares before the IPO opens. In a book building issue, instead of a fixed price, a price band is offered, and investors place bids within that range. Based on demand, the final price is decided. The IPO process usually involves hiring investment bankers, preparing and filing documents like the Draft Red Herring Prospectus (DRHP) with SEBI, conducting roadshows to attract investors and finally opening the issue for public bidding.
Investing in an IPO can be rewarding, but it comes with risks as well. A good IPO can offer strong listing gains and long-term returns if the company performs well. However, not all IPOs guarantee profit; sometimes prices fall after listing due to weak fundamentals or market conditions. It is important for investors to study the company’s financials, business model and objectives before investing rather than following market hype.
According to Pranav Haldea, Managing Director at PRIME Database Group, every company has two main ways to raise funds for its growth: debt and equity. “Debt means borrowing money to expand operations and then repaying it with interest. Equity, on the other hand, means offering a share of ownership in the company in exchange for capital. To raise such funds, companies can either go to angel funds/venture capital/private equity or come out with IPOs,” he said.
In today’s context, only a few thousand of India’s millions of companies are listed on the stock exchange. Companies launch IPOs either to fuel growth by raising fresh capital or to allow existing shareholders to sell part of their stake. Companies are required by SEBI to appoint merchant bankers. “These merchant bankers guide them through every stage, including filing the Draft Red Herring Prospectus (DRHP), which contains all details about the company, its business operations, financials and board members. These filings often run into more than a thousand pages and are submitted to SEBI for review. Once SEBI completes its analysis and gives approval, the company must bring its IPO within a year,” added Pranav.
He also said that before the IPO is launched, companies, along with their bankers, undertake roadshows with potential investors, presenting their growth story and capital needs to the investment community and also to get a sense of pricing. “The day before the issue opens is reserved for anchor investors, who are large institutional investors who are allotted around 60 per cent of the portion reserved for QIBs, which is 50 per cent of the total issue. So, the portion reserved for anchors is 30 per cent of the issue size. Having anchor investors on board helps build confidence among retail investors, showing that reputed institutions trust the company and the pricing,” said Pranav.
These anchor investors usually include FPIs, mutual funds and insurance companies. Their participation often reassures smaller investors about the credibility of the issue. Institutional investors either invest during the anchor book stage or later during the IPO in the main book. “Anchor investors are guaranteed allotments, while investing later in the main book may not guarantee allotment. Once the IPO closes, the next step is listing. Shares are allotted based on the level of subscription,” he explained.
Risk Behind IPOs
Talking about the risk involved in investing in IPOs, Pranav Haldea said that IPO investing is hugely risky. For retail investors, the safest way to invest in the market is through mutual funds. Those who wish to take on a slightly higher risk can invest directly in the stock market. However, “investing in IPOs carries the highest level of risk, because there is no track record to evaluate. Investors have no past data about the company’s performance, profitability or management track record. It’s also uncertain how the company will perform once it gets listed on the stock exchange. So investors need to be extremely careful before investing,” he said.
According to Amit Ramchandani, CEO and Head of Investment Banking, Motilal Oswal Financial Services, India’s capital markets are showing strong signs of maturity and resilience.
In the first half of FY26, companies raised about Rs 69,500 Cr through 65 IPOs, Rs 45,200 Cr via 18 Qualified Institutional Placements (QIPs) and Rs 13,700 Cr through 25 Rights Issues.
“This broad-based fundraising across sectors reflects growing domestic liquidity, disciplined pricing and investor confidence. Even amid global uncertainty and periods of foreign portfolio investor (FPI) outflows, India’s markets continue to demonstrate depth and self-sustainability, a clear indicator of their evolving strength and stability,” said Ramchandani.
Think Before You Chase IPO FOMO
CEO of Value Research Dhirendra Kumar shared his insights with ETV Bharat, saying that ordinary investors often experience a fear of missing out (FOMO) when it comes to investing in the stock market, especially through IPOs. However, looking at the track record of IPOs, such investments have often been risky. “Pricing can be unpredictable, and over the past 10 major IPOs, investors reportedly faced losses in nine of them over the mid to long term.
Some people believe they can make quick profits by selling their shares immediately after allotment, but this is more like playing the lottery than making a sound investment. The stock market provides opportunities to invest daily. Missing one IPO does not mean missing your chance to grow your wealth,” said Kumar.
According to Dhirendra Kumar, it is true that retail investors are sometimes influenced by mutual funds participating in certain IPOs. However, “the capacity to take risk is vastly different between mutual funds and individual investors. Retail investors should not follow the crowd blindly, treating IPOs like lottery tickets where money is sunk in hopes of quick gains. The key is to invest based on the merit of the company, not the expectation that its share price will rise immediately. Only then can your investments be truly fruitful,” he added.
How MF choose IPO investment
Veteran financial expert and founder of Vijai Mantri Financial Services, Vijai Mantri, shared with ETV Bharat that mutual fund schemes have their own distinct investment objectives and decisions to invest in IPOs are made according to those goals. He explained that while IPOs can sometimes deliver good returns, they also involve high levels of risk — so only investors who are comfortable with such risks should consider them.
Mantri clarified that mutual fund houses make these investment choices independently and are not influenced by any external pressure. He further pointed out that the stock market always carries risk, and profits are never guaranteed in any kind of investment. At the same time, he advised that ordinary investors should avoid putting their money into IPOs, as they often end up facing losses in the long run.
According to him, it’s generally wiser to stay cautious and refrain from investing in IPOs for sustained financial stability.
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