Moneycontrol Pro Panorama | IPO insights

Beneath this surface of optimism lies a troubling reality about the Indian IPO market.

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India's primary markets are experiencing an extraordinary boom, marking a stark contrast to the lacklustre returns seen in the secondary market this year. In the first half of 2025, the number of Draft Red Herring Prospectuses (DRHPs) filed has more than doubled: 118 companies have submitted their proposals thus far, up from just 52 during the same period last year. The potential for capital is staggering, with expectations soaring to Rs 1.6 lakh crore, a significant jump from Rs 1 lakh crore in 2024.

Beneath this surface of optimism lies a troubling reality about the Indian IPO market. Retail investors, in particular, have developed a distinctive method of subscribing to IPOs. Instead of thoroughly examining prospectuses or analyst reports, they often rely on the subscription rates for these issues. The prevailing belief among these investors is that if an IPO is oversubscribed, it indicates a robust company and promises significant returns once listed.

This approach reveals a mindset focused on capitalising on the perceived supply-demand imbalance. Many hope that a strong initial listing will prompt follow-up buying, driving stock prices even higher. While this strategy has led to notable listing gains in some cases, there is a different narrative for those who invest right after listing.

A recent report from CNBC-TV18 scrutinised the performance of highly oversubscribed IPOs over the past five years, specifically those that were subscribed to more than 100 times. The findings are revealing: The initial investor frenzy following a listing does not consistently lead to sustained wealth creation. Alarmingly, nearly half of India's top 10 most-subscribed IPOs are now trading below their initial listing prices.

Take, for instance, Vibhor Steel Tubes. This company was oversubscribed by an astounding 320 times in 2024, debuting at roughly 2.5 times its offer price of Rs 151, opening at Rs 425. Yet, the stock has since fallen and now trades around Rs 152, barely above its original offer price. A similar story unfolds for companies such as Latent View, Indo Farm, and Manba Finance, which drew intense bidding but have since drastically decreased in value.

Conversely, some IPOs have managed to thrive, post-listing. Mazagaon Dock, for example, saw an oversubscription of 155 times and is trading well above its IPO price of Rs 145 at Rs 2,726. Other noteworthy examples include Tega Industries, Paras Defence, and KRN Heat Exchanger, where those who bought at the listing price have reaped significant rewards.

The findings from a study conducted by SEBI highlight a concerning trend: Nearly two-thirds of non-institutional investors sell their allotted IPO shares within a week of listing. This suggests that many retail investors are uninterested in a company's fundamentals or long-term potential.

The take-home message from the CNBC-TV18 study is clear: While a high likelihood of gaining from listing prices can be enticing, buying on the day of an IPO is not always a sound investment strategy. A deeper understanding of a company's fundamentals and valuations is essential for achieving sustained success in the stock market.

Retail investors need to move beyond mere subscription rates and consider the broader implications of their investing decisions. Only then can they hope to navigate the complexities of the IPO landscape effectively and secure genuine long-term growth.

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