Initial Public Offerings (IPOs) are a golden opportunity for retail investors to catch the early growth of companies entering public markets. Yet, IPO investing isn’t a guaranteed success story. From blockbuster performers like IRCTC to disappointments like Paytm, the landscape is filled with lessons. These IPO investing rules guide newbies make informed decisions using a valuation-backed approach, while also covering how to increase allotment chances and post-listing strategies. Let’s dig deeper in IPO investing guidelines for beginners.
🕊️ The 10 Commandments of IPO Investing
1. Don’t Get Carried Away by IPO Hype
Rule: Avoid IPOs that are driven purely by media buzz, celebrity endorsements, or aggressive marketing campaigns without a foundation of strong fundamentals. This is the golden rule in IPO investing guidelines for beginners.
Why: Hype attracts attention but often masks weak financials, lack of profitability, or unsustainable business models. Marketing can create a fear of missing out (FOMO), but remember that excitement doesn’t translate to returns.
Example: Paytm’s IPO in 2021 was one of the most hyped in India’s history. Despite media frenzy, the company had no profits, unclear revenue path, and a complex business model. Investors who subscribed based on brand image alone suffered major losses.
Tip: Investigate independently. If you hear more from influencers than analysts, be cautious.
2. How to Check IPO is Good or Bad: Always Check the IPO Valuation Against Peers
Rule: Compare the IPO’s valuation multiples with those of listed peers. Analyze metrics such as Price-to-Earnings (P/E), Price-to-Book (P/B), EV/EBITDA, and Market Cap-to-Revenue ratios.
Why: IPOs are often priced aggressively by promoters and bankers. Understanding valuation helps you judge whether you’re overpaying.
Example: Tata Technologies IPO was priced attractively with a P/E ratio around 30x, compared to listed IT services peers like LTTS, KPIT, and Tata Elxsi, which traded at higher multiples. This justified investor confidence, and the stock saw strong listing gains and continued post-listing interest due to its favorable valuation and brand backing.
Tip: Build a relative valuation table with competitors to make an informed judgment.
3. Read the DRHP — Not Just Social Media Opinions
Rule: The DRHP (Draft Red Herring Prospectus) is your primary source of truth. Skipping it is like investing blindfolded.
Why: The DRHP reveals crucial insights: revenue growth, cost structure, debt, promoter holding, and legal risks. Social media tips often lack this depth.
Focus Areas in DRHP:
- Revenue and PAT trends (3-5 years)
- Segment-wise performance
- Use of proceeds (growth capex vs. debt repayment vs. OFS)
- Promoter background and related-party transactions
- Risk factors and ongoing litigations
Shortcut: Use IPO reviews, SWOT analysis, GMP trends from IPOCentral.in, they compiled DRHP in very informative way.
4. Focus on Companies with Profit Potential
Rule: Avoid companies with recurring losses unless there is a clear and credible roadmap to profitability.
Why: Many tech IPOs claim future dominance but lack operational discipline. Without cash flow clarity, growth projections are speculative.
Example: Bajaj Housing Finance made a remarkable debut in September 2024, with shares doubling on the first day of trading after raising INR 6,560 crore in its IPO. Despite concerns over rising bad loans, Bajaj Housing Finance managed to expand its customer base and maintain optimism about future growth
Tip: Look for companies improving EBITDA margins and showing consistent YoY revenue growth.
5. Check if Promoters Are Staying Committed
Rule: Evaluate the stake promoters are retaining post-IPO and how much is being offloaded.
Why: High promoter selling (via OFS) signals they may be exiting at peak valuation. A genuine growth story sees promoters holding on.
Example: TBO Tek IPO had over 60% of the issue as an Offer for Sale. Promoters and early investors used the IPO more as a partial exit than to fund expansion, raising questions about long-term commitment.
Tip: Post-IPO promoter holding below 50% often warrants a deeper look.
6. Use Smart Ways to Boost Your Allotment Chances
Rule: Apply in a smart and compliant way to increase your chances of allotment in oversubscribed IPOs.
Why: In heavily subscribed IPOs, allotment is lottery-based. Smart application can improve odds.
Strategies:
- Apply through multiple PANs within the family (legally permissible)
- Avoid applying for more than 1 lot per account
- Apply early in the window (Day 1 or 2)
- Ensure UPI mandate approval within the same day
Tip: Avoid last-day rush which may cause UPI errors or bank congestion.
7. Learn When to Enter After the IPO Lists
Rule: If you miss the allotment, evaluate buying post-listing based on price behavior and fundamentals.
Why: Many IPOs correct after listing due to profit booking or anchor lock-in expiry.
Example: Ather Energy IPO listed at INR 328, slightly above its issue price of INR 321. However, the stock experienced a decline, reaching a low of INR 287.30 on 7 May 2025. On 2 June 2025, as the one-month anchor investor lock-in expired, approximately 2.1 crore shares became eligible for trading, leading to a further 2% drop in share price.
Tip: Use technical support zones and fundamental value zones to plan post-listing entry.
8. Don’t Put All Your Money in One IPO
Rule: Treat IPOs like venture investments – high potential but high risk. Don’t concentrate your capital.
Why: Not every IPO will perform. Diversification ensures you catch a few winners without blowing up your capital.
Strategy: Spread your allocation across 3-5 IPOs with strong fundamentals rather than going big on one speculative bet.
9. Use Grey Market Premium (GMP) Just as a Sentiment Indicator
Rule: Monitor GMP as a sentiment gauge, not a valuation tool.
Why: GMP reflects short-term demand but is speculative and unregulated.
Tip: A high GMP without solid fundamentals is dangerous. Use it only as a secondary confirmation.
Example: Schloss Bangalore, operating under the renowned “The Leela” brand, experienced a weak stock market debut on 2 June 2025. Despite a strong investor response during its IPO, with a subscription rate of 4.5 times and a positive GMP, the shares listed nearly 7% below their IPO price. This underwhelming market entry suggests that a high GMP doesn’t always guarantee strong listing performance.
10. Watch Anchor Investor Lock-In Periods Closely
Rule: Keep a close eye on the anchor investor lock-in periods, which typically end 30 to 90 days after the IPO listing.
Why: Anchor investors are large institutions that invest just before the IPO opens to the public. While their early commitment adds credibility, they are often allowed to sell their shares after the lock-in ends. This can trigger sudden selling pressure, leading to short-term price dips, even if the company’s fundamentals remain intact.
Tip: Track anchor lock-in expiry dates via the RHP or financial portals. If the stock’s fundamentals are sound, buying during these dips can offer better risk-reward than chasing IPO-day euphoria.
🌟 IPO Investing Rules Wisdom: Be Patient. Multibaggers Aren’t Made in 3 Days
Top 5 Multibagger IPOs listed last Year
| IPO Name | IPO Price (INR) | Listing Returns (%) | Current Returns (%) |
|---|---|---|---|
| Jyoti CNC | 331 | 31.18 | 292.36 |
| KRN Heat Exchanger | 220 | 117.63 | 243.64 |
| Bharti Hexacom | 570 | 42.68 | 230.18 |
| Interarch Building Products | 900 | 32.86 | 145.44 |
| Premier Energies | 450 | 86.64 | 140.00 |
🗓️ Timeline Chart: How an IPO Unfolds
- DRHP Filing
- SEBI Review & Approval
- RHP & Price Band Announcement
- Anchor Investor Placement
- Retail & HNI Subscription Window (3 days)
- Allotment Finalization
- Refund/Block Release
- Listing Day
🎥 Short Explainer: Types of IPOs
IPO (Initial Public Offering)
An IPO is when a company offers its shares to the public for the first time to raise capital and get listed on the stock exchange.
- Fresh Issue: New shares are created and offered. The money raised goes directly to the company to fund growth, repay debt, or meet other corporate needs.
✅ Fresh Issue = money to the company - Book Building: The share price is discovered through investor bidding within a price band. The final price is based on overall demand.
- OFS (Offer for Sale): In an OFS, existing shareholders (such as promoters, PE funds, or early investors) sell their shares.
✅ OFS = money to promoters/investors, not the company
This does not result in capital infusion into the business. - FPO (Follow-on Public Offer): A listed company issues more shares to the public after its IPO to raise additional capital.
🧠 Mini Glossary for IPO Beginners
- GMP (Grey Market Premium): Unofficial market price before listing
- Anchor Investors: Institutional investors who subscribe before retail opens
- OFS (Offer for Sale): Existing shareholders selling shares (no new capital)
- DRHP (Draft Red Herring Prospectus): Preliminary IPO document filed with SEBI
- RHP (Red Herring Prospectus): Final IPO document including price band
- Lot Size: Minimum number of shares retail investors can apply for
✅ IPO Checklist Before You Apply
| Question | Answer |
|---|---|
| Is the company profitable or near it? | Yes/No |
| Are valuations reasonable vs peers? | Yes/No |
| Is the promoter reducing stake heavily? | Yes/No |
| What’s the use of IPO funds? | Expansion/Debt/Exit? |
| What does GMP say vs actual fair value? | Fair/Overvalued |
| Sunrise sector or saturated? | New/Ageing |
| What’s your exit plan? | Listing gain / Long-term |
Final Thought: Invest, Don’t Gamble
Not every IPO is a jackpot. Apply discipline, ignore hype, and think like a business owner. If you follow these 10 IPO investing rules, you’ll avoid 90% of IPO mistakes. Would you rather be early on the next IRCTC or late on the next Paytm?