IPO Investing in India: Complete Guide for Retail Investors

The Paytm IPO Story: A Cautionary Tale

November 2021. India’s largest IPO ever. Paytm (One97 Communications) listed at ₹2,150 per share after raising ₹18,300 crores.

The hype was unreal. Everyone wanted a piece of it. Parents, colleagues, even your neighbourhood chai wala discussed Paytm IPO.

Opening day: The stock crashed 27%, closing at ₹1,560.

By 2024, it traded around ₹400 – an 80% loss for day-one investors.

The lesson? IPO investing isn’t about hype. It’s about understanding value, timing, and having realistic expectations.

This guide will teach you to analyze IPOs like a pro and avoid the next Paytm disaster.

What is an IPO?

IPO = Initial Public Offering

It’s a company’s first sale of shares to the public. Before an IPO, a company is “private” – owned by founders, employees, and private investors. After the IPO, anyone can buy shares on the stock exchange.

Why Do Companies Go Public?

Types of IPOs in India

1. Fresh Issue: Company issues NEW shares. Money goes to the company.
2. Offer for Sale (OFS): Existing shareholders sell their shares. Money goes to them, not the company.
3. Combination: Both fresh issue and OFS.

Red Flag: If an IPO is mostly OFS with minimal fresh issue, early investors are just cashing out. The company isn’t really raising growth capital.

The IPO Process: From Filing to Listing

Timeline Overview

DRHP Filed → SEBI Review → RHP Filed → IPO Opens → Basis of Allotment → Refunds → Listing
   Day 1        ~30-60 days    Day X        3-5 days       ~7 days        ~7 days    Day T+6

Key Documents

DRHP (Draft Red Herring Prospectus): Initial filing with SEBI. Contains everything about the company.

RHP (Red Herring Prospectus): Final document after SEBI approval. Price band announced.

Important Sections in RHP

How to Apply for an IPO: Step-by-Step

Method 1: ASBA (Application Supported by Blocked Amount)

Most common method. Your money stays in your bank account but is “blocked” until allotment.

Steps:

1. Log in to your broker (Zerodha, Groww, etc.)
2. Go to IPO section
3. Select the IPO
4. Choose category (Retail/HNI/QIB)
5. Enter number of lots
6. Select cut-off price (recommended) or specific price
7. Verify with UPI (mandatory since 2022)

Method 2: UPI Mandate

Since November 2022, all retail applications must use UPI.

Steps:

1. Apply through broker or bank
2. Receive mandate request on UPI app (GPay, PhonePe, etc.)
3. Approve the mandate within the deadline
4. Amount blocked in your account

Critical: If you don’t approve UPI mandate, your application is INVALID. Many investors lose allotment because they miss this step!

Method 3: Bank Net Banking

Apply through your bank’s net banking portal. Slower but works for those uncomfortable with apps.

Understanding IPO Categories

1. Retail Individual Investor (RII)

• Investment up to ₹2 lakhs
• 35% of shares reserved for retail
• One application per PAN

2. Non-Institutional Investors (NII/HNI)

• Investment above ₹2 lakhs
• 15% reserved
• Sub-categories: Small NII (₹2-10 lakhs), Big NII (₹10 lakhs+)

3. Qualified Institutional Buyers (QIB)

• Mutual funds, FIIs, banks, etc.
• 50% reserved
• Cannot withdraw bids

4. Employee Category

• Company employees get discount (usually 5%)
• Separate quota

5. Anchor Investors

• Pre-IPO institutional investors
• Lock-in period applies

The Allotment Process: Your Chances of Getting Shares

Retail Allotment Formula

If applications < shares available: Everyone gets full allotment.

If applications > shares available: Lottery system.

Calculation Example (Fictional IPO):

Total IPO Size: 1,00,00,000 shares
Retail Quota (35%): 35,00,000 shares
Lot Size: 100 shares
Total Lots for Retail: 35,000 lots

If 70,000 retail applications received:
Each applicant has 50% chance (35,000/70,000) of getting 1 lot.

If 3,50,000 applications received:
Only 10% will get allotment.

Tips to Improve Allotment Chances

1. Apply from multiple PANs: Use family members’ accounts legally
2. Apply for minimum lot only: Doesn’t improve chances in lottery
3. Use multiple bank accounts: Different ASBA banks sometimes help
4. Apply early: Avoid last-minute technical glitches

Grey Market Premium (GMP): Should You Trust It?

What is GMP?

Before listing, IPO shares trade informally in the “grey market.” The premium indicates expected listing gains.

Example:

• IPO Price: ₹500
• GMP: ₹150
• Expected Listing Price: ₹650
• Expected Gain: 30%

Where to Check GMP?

• IPOWatch.com
• InvestorGain.com
• IPO Central

Should You Trust GMP?

Reality Check: GMP is often accurate for hot IPOs but can be wildly wrong for controversial ones. Use it as ONE input, not the only input.

How to Analyze an IPO

Step 1: Understand the Business

• What does the company do?
• Is it profitable or cash-burning?
• What’s the competitive advantage?

Step 2: Check Financial Health

Key Metrics:

Step 3: Valuation Analysis

Compare with listed peers.

Example: Comparing Zomato IPO (2021)

Since Zomato was the first, there was no direct comparison. That’s a risk!

Step 4: Check Promoter Selling

If promoters are selling heavily in OFS, ask why. Do they not believe in growth?

Step 5: Review Expert Opinions

• SEBI-registered analysts
• Reputed research firms
• Financial news (Moneycontrol, Economic Times)

Real IPO Analysis: Case Studies

Case Study 1: Tata Technologies IPO (2023)

The Good:

• Profitable (unlike most tech IPOs)
• Tata brand backing
• Strong order book
• Manufacturing tech focus (India’s strength)

The Concern:

• Premium valuation vs peers
• Revenue concentration in few clients

Outcome: Listed at 140% premium. Sustained gains.

Lesson: Quality + reasonable valuation + strong brand = good IPO.

Case Study 2: LIC IPO (2022)

The Hype:

• India’s largest IPO (₹21,000 crores)
• Embedded value methodology used
• Retail discount offered

The Problem:

• Market correction during listing
• Valuation debates
• Heavy FII selling

Outcome: Listed at 8% discount. Fell 40% in first year.

Lesson: Even iconic brands can disappoint. Timing matters.

IPO Exit Strategies

Strategy 1: List and Exit (Listing Day Sell)

Sell immediately on listing if:

• Good listing gains (20%+)
• You’re a short-term trader
• Company fundamentals are weak

Strategy 2: Hold for Medium Term

Keep for 6-12 months if:

• Strong fundamentals
• Listed below intrinsic value
• Growth story intact

Strategy 3: Long-Term Investment

Hold for years if:

• You believe in the business
• Company has strong competitive moats
• Comparable to your other long-term holdings

Tax Implications

Short-Term Capital Gains (STCG)

• Sold within 1 year of allotment
• Tax: 15% on gains

Long-Term Capital Gains (LTCG)

• Sold after 1 year
• Tax: 10% on gains above ₹1 lakh

Listing Day Sale

• Considered short-term
• 15% tax on listing gains

Upcoming IPO Checklist

Before applying for any IPO, tick these boxes:

✅ Read the RHP (at least risk factors and financials) ✅ Understand the business model ✅ Compare valuation with listed peers ✅ Check GMP trend (not just one day) ✅ Verify your UPI mandate approval ✅ Understand lock-in if applying in anchor/employee category ✅ Have exit strategy ready

Common IPO Mistakes

1. Applying Based on Hype

Nykaa, Paytm, LIC – all hyped, all disappointed initially.

2. Ignoring Red Flags in RHP

Risk factors section is often skimmed. Don’t!

3. Missing UPI Mandate

Your application is worthless without approved mandate.

4. Applying for Maximum Lots in Retail

In lottery system, applying for 1 lot vs 13 lots doesn’t change your chances.

5. Not Having Funds Ready

ASBA blocks your money. Ensure sufficient balance.

Where to Track IPOs

Risk Disclaimer

IPO investments carry significant risks including listing below issue price, high volatility in initial trading days, and potential long-term underperformance. Past IPO performance doesn’t guarantee future results. This guide is for educational purposes only. Always conduct your own research and consult a SEBI-registered advisor before investing.

Summary

IPO investing can be rewarding but requires homework:

1. Read the RHP carefully
2. Compare valuations with peers
3. Don’t get swayed by hype or GMP alone
4. Have a clear exit strategy
5. Remember: Not getting allotment isn’t always bad

The best IPO is one where the company is worth more than the issue price – and you understand why.

Social Media Posts

LinkedIn: “IPO investing lesson from India’s biggest IPOs: Hype ≠ Returns. LIC, Paytm, Zomato – all mega hyped, but only discipline investors (not FOMO investors) made money. Before the next IPO, ask: ‘Would I buy this stock at this price if it was already listed?’ 🤔 #IPO #Investing”

Twitter/X: “IPO Investing Checklist: ☐ Read Risk Factors in RHP ☐ Compare valuation with peers ☐ Check promoter selling % ☐ Approve UPI mandate (!!!) ☐ Have exit strategy

Skip even ONE, and you’re gambling, not investing. 📊 #IPOAlert #StockMarket”

Instagram: “🔴 IPO Reality Check:

The hype: ‘This IPO will double on listing!’ The reality: Only 40% IPOs give positive listing gains.

What to do:

1. Read the prospectus
2. Ignore the noise
3. Invest in business, not buzz

Save this before the next IPO season! 💡 #IPOInvesting #StockMarketIndia”