Every time a popular company announces its IPO (Initial Public Offering), social media fills up with excitement — and beginners often apply purely based on hype, without understanding what they're actually buying into. Here's a practical guide to IPO investing in India.
How the IPO Application Process Works
- 1The company files a DRHP (Draft Red Herring Prospectus) with SEBI, disclosing financials and risk factors
- 2A price band is announced for the IPO (e.g., ₹100-105 per share)
- 3You apply through your broker's app or net banking using ASBA (funds are blocked, not debited, until allotment)
- 4Shares are allotted via a lottery system if the IPO is oversubscribed
- 5The stock lists on the exchange — you can sell or hold based on your own strategy
What You Must Check Before Applying to Any IPO
- Read the DRHP — at least the financial summary, risk factors, and 'objects of the issue' sections
- Check if IPO proceeds are for growth (expanding business) or for promoters/investors to exit (less favorable for you)
- Compare valuation (P/E ratio) with similar already-listed companies in the same industry
- Look at revenue and profit trends over the last 3 years — is the business genuinely growing?
- Check the Grey Market Premium (GMP) as a sentiment indicator, but never as your sole decision factor
Common Mistakes Beginners Make with IPOs
| Mistake | Why It's Risky |
|---|---|
| Applying purely based on hype/GMP | GMP is unofficial and can be misleading |
| Ignoring the DRHP entirely | You may be unaware of major business risks |
| Using borrowed money to apply for larger allotment chances | Amplifies losses if the stock lists lower than expected |
| Holding weak-fundamental IPOs long-term out of habit | Not every listed company deserves a long-term hold |
Not every IPO is meant to be a long-term hold. Some are best suited for short-term listing gains (if fundamentals are weak but sentiment is strong), while others are genuinely strong businesses worth holding for years. Decide your strategy before applying, not after listing.
Should Beginners Invest in IPOs at All?
IPOs can be a good learning experience, but they require the same fundamental analysis skills as evaluating any other stock — arguably more, since there's no price history to study. If you're still learning fundamental analysis, it's often safer to build that skill on already-listed companies first before applying to IPOs.
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