The Indian IPO market has reached a critical inflection point. While the aggregate IPO volumes continue to soar—crossing ₹2.18 lakh crore in 2025—the average listing gains have collapsed to a mere 8-9% from 30% just a year ago. This dramatic reversal exposes a troubling pattern: India’s IPO market has transformed from an engine for business growth into a sophisticated wealth extraction mechanism for promoters and early investors, leaving retail investors increasingly vulnerable to overvalued offerings. Understanding how to navigate this landscape requires moving beyond hype and grey market premiums to embrace a disciplined, data-driven framework for IPO analysis.
The Bubble in Numbers: Declining Returns and Rising Valuations
The Stark Reality: From 30% Gains to Single Digits
India’s IPO market presents a paradox that defies conventional wisdom about efficiency in capital markets. In 2021, IPOs delivered an average listing gain of 30%, making the market a magnet for retail investors seeking quick returns. Fast forward to 2025, and this average has plummeted to 8.4-9.1%—a devastating 70% decline in just four years. This isn’t a cyclical dip; it reflects structural changes in how IPOs are being priced and who stands to benefit.
Indian IPO Market: Average First-Day Listing Gains Declining Sharply in 2025
The data reveals an even more alarming trend: only 15% of IPOs in 2025 delivered gains exceeding 25%, compared to 41% in 2024. Meanwhile, an astounding 66% of mainboard IPOs in 2025 closed with listing day losses or muted gains. Yet despite these underwhelming returns, IPO applications remain at fever pitch. This cognitive dissonance—continued retail participation despite poor returns—suggests that the market has become a lottery system, not an investment ecosystem.
The Disconnect Between Activity and Returns
The irony is particularly striking when examining absolute volumes. In 2025 alone, 81 mainboard companies have mobilized over ₹1.2 lakh crore—the second-highest annual mop-up in five years. The total IPO volumes for 2025 have reached nearly ₹1.54 lakh crore, surpassing 2024’s ₹1.53 lakh crore. This means India’s IPO market is experiencing record activity, yet investors are earning historical lows on listing day. The culprit? Aggressive pricing by issuers and merchant bankers who have systematically left little room for listing gains, directly conflicting with the premise that retail investors are driving this market for short-term profits.
The Anatomy of IPO Overvaluation: The Lenskart Case Study
A Textbook Example of Stretched Valuations
Lenskart’s ₹7,278 crore IPO has become emblematic of the valuation disconnect plaguing India’s primary market. The eyewear retailer, which operates 500+ stores and commands strong brand recognition following its Shark Tank appearance, was priced at a post-issue P/E ratio of approximately 285x. To put this in perspective, this means an investor paying the IPO price would need the company’s profits to remain stagnant for 285 years to break even on a pure earnings basis—an absurdly long payback period by any investment standard.
The valuations become even more unjustifiable when compared to global peers. EssilorLuxottica, the parent company of Ray-Ban and Oakley (the world’s largest eyewear conglomerates), trades at a post-tax P/E ratio of 59.45x. Lenskart, a regional player in an emerging market, commands a valuation nearly 5 times higher. Even granting Lenskart an optimistic premium for its growth prospects and market expansion potential, a 285x P/E ratio implies near-perfect execution for the next two decades—an assumption that no management team, however capable, can reasonably guarantee.
The Payback Period Problem
The video script introduces a powerful concept: the payback period, which is calculated by dividing a company’s valuation by its annual profit (profit after tax). For profitable companies like Lenskart, this metric becomes immediately relevant. In business practice, a payback period of 3-5 years is considered acceptable; 10-15 years is already considered stretched. Lenskart’s 285-year payback period is, frankly, nonsensical. Even under highly optimistic scenarios where the company’s profits grow at 50% annually for five consecutive years (which would make it five times larger), the P/E multiple would still stand at 70x—well above global eyewear company multiples.
Loss-Making Companies and the Sales Multiple Trap
When P/E Ratios Become Irrelevant: The Rise of Sales Multiples
Not all IPOs come with profitable balance sheets. Companies like Ola Electric, Zomato (during its IPO), and numerous technology startups went public while reporting losses or minimal profits. For these firms, traditional P/E multiples become misleading; they may be negative, zero, or meaningless. Instead, investors must shift their analytical framework to Price-to-Sales (P/S) ratios and EBITDA multiples, which measure the company’s ability to convert revenue into eventual profitability.
The four-step checklist for evaluating loss-making startup IPOs should include:
1. Market Leadership Position: Is the company a clear number one or number two in its space? A recent quick-commerce company successfully went public despite losses because it maintained market leadership. Tier-three players attempting IPOs face investor skepticism.
2. Unit Economics and Gross Margins: What is the company’s gross margin after accounting for direct costs? A healthy gross margin (40-60% for software, 20-40% for commerce) indicates that the business model itself works; only the go-to-market strategy is burning cash. If gross margins are collapsing, the business model itself is broken.
3. Clear Profitability Pathway: Does management have a credible, articulated plan to reach profitability within 2-3 years? Vague statements about “figuring out profitability later” are immediate red flags. Compare against proven peers: Zomato’s path to profitability became visible only after Swiggy demonstrated it could be achieved in quick commerce, which then justified higher multiples for newer entrants like Swiggy Instamart.
4. Comparable Company Multiples: What multiples are comparable companies trading at in the same market and globally? If the IPO’s P/S multiple significantly exceeds peers, investors should demand a credible growth story to justify the premium.
The Hidden Actors: How Merchant Bankers Inflate Valuations
Following the Incentives
A critical structural problem in India’s IPO system, rarely discussed openly, involves the compensation structure of merchant bankers. These investment banking firms are paid based on the total capital raised, not the quality of the investment or the quality of the valuation. This creates a perverse incentive: higher valuations directly translate to higher fees for bankers, regardless of whether those valuations are justified by fundamentals.
Consequently, when a founder believes their company should command a ₹5,000 crore valuation, merchant bankers often push for ₹10,000 crore. The founder faces pressure from existing investors (who want to exit at the highest possible valuation) and from the bankers themselves (who benefit from the higher fees). In this environment, only the most disciplined, principled founders resist the valuation inflation. Most don’t.
A SEBI official recently highlighted this concern, noting instances where “promoter-shareholders probably get valuation at an inflated price to get a better swap allocation, which is detrimental to minority shareholders”. This is a direct transfer of wealth from new IPO investors to existing shareholders.
Real-World IPO Traps: Lessons from Recent Listings
Case Study 1: Ola Electric – Product Quality as a Red Flag
Ola Electric provides a cautionary tale about how brand recognition, market leadership, and positive grey market premiums can mask fundamental business problems. Before its IPO, the company enjoyed:
- 50% market share in India’s electric two-wheeler segment
- Strong brand recognition and aggressive marketing
- 20% IPO listing gains, indicating strong investor demand
Yet within months of going public, customers reported widespread service failures. By September 2024, over 100,000 unresolved complaints were filed with the Central Consumer Protection Authority. Service centres had backlogs of 3,500-4,000 vehicles awaiting repairs in major cities like Thane, with some waiting 6+ months. Customers documented scooters catching fire, software glitches causing the vehicle to malfunction, and inadequate spare parts availability.
By February 2025, Ola Electric’s market share had crashed to just 8,390 monthly registrations—a 65% decline from 24,376 units in January 2024—while competitors like Bajaj Auto (27.8% market share) and TVS Motor (24.5%) captured market share. The stock fell from its IPO peak of ₹157 to ₹56, a 64% loss.
The lesson: A strong brand name, high oversubscription, and positive listing gains mean nothing if the underlying product is fundamentally flawed. Retail investors who invested based on hype rather than due diligence suffered massive losses.
Case Study 2: Tata Technologies – When Valuations Are Justified
In stark contrast, Tata Technologies’ November 2023 IPO demonstrated how reasonable valuations can lead to sustainable gains. The company, a pure-play engineering R&D focused on the automotive sector:
- Sought a P/E multiple of 32.5x during IPO (reasonable for an engineering services firm)
- Listed at a 140% premium (₹1,200 vs. ₹500 IPO price)
- Closed the day at ₹1,314, up 162.60%
Critically, Tata Technologies’ success wasn’t driven by artificial manipulation. The low IPO P/E multiple relative to the market’s willingness to pay on listing day created a genuine gap where value was left for investors. Compare this to Lenskart, where the 285x P/E during IPO leaves investors with no margin of safety whatsoever.
Case Study 3: Bajaj Housing Finance – Brand Backing and Valuation Discipline
Bajaj Housing Finance, which listed in September 2024, delivered a 135% listing gain and showed resilience in subsequent trading. The company benefited from:
- Strong parent company backing (Bajaj Finance), reducing risk perception
- Reasonable P/E ratio (~18-20x, in line with housing finance peers)
- Clear growth trajectory (32% AUM growth YoY)
- Profitable operations (₹1,731 crore PAT in FY24)
The 135% listing gain reflected genuine investor appetite, not artificial inflation. Contrast this with mediocre IPOs that deliver 0-5% listing gains despite hype—those are overpriced.
The Five Red Flags: IPO Traps Every Investor Should Avoid
Red Flag #1: 100x Oversubscription Without Fundamentals
A common mistake is equating oversubscription with quality. A 100x oversubscribed IPO doesn’t indicate a great company; it indicates lottery-like participation where retail investors are applying with little due diligence. Market manipulation, sudden social media viral campaigns, or FOMO-driven applications can all inflate subscription numbers independent of company quality. The allotment is purely random, making the subscription level irrelevant to investment quality.
Red Flag #2: “I Know This Brand” Syndrome
Household brand names create cognitive biases that override analytical thinking. Investors see a brand they recognize, assume market leadership implies investment quality, and deploy capital without scrutiny. Ola Electric destroyed this fallacy. A strong brand in the customer market does not automatically translate to a strong investment. Zomato is now profitable, but during its IPO, being a “household name” masked the fact that it was burning cash at alarming rates. Valuation matters far more than brand recognition.
Red Flag #3: Blind FOMO-Based Application
The pattern has become predictable: IPO A lists with strong gains → Retail investors FOMO into IPO B, assuming it will repeat the pattern → IPO B disappoints with negative or flat listing → Investors lose money. This cycle repeats every 1-2 months in India’s market. Investors who miss an IPO with 20% gains shouldn’t chase the next IPO. They should wait, analyze, and apply selectively.
Red Flag #4: “I’ll Hold for the Long Term” After Listing Gains
A disproportionate number of retail investors apply for IPOs seeking short-term listing gains, then convince themselves to “hold for the long term” after getting allotments. This is dangerous because:
- IPO investors have seen the company at its absolute peak valuation
- They have the weakest information edge (everyone has the same IPO prospectus)
- They are often allocated shares at random, not by merit
If you get 20-30% listing gains, the advisable strategy is to sell 50% of your holdings and book profits. Warren Buffett doesn’t make 30% annually, yet retail investors think holding an overpriced IPO for long-term growth will somehow outperform his returns. It won’t.
Red Flag #5: Telegram Tips and Influencer Guidance
Numerous Telegram channels, YouTube influencers, and social media handles now operate as de facto financial advisors, steering retail audiences toward specific IPOs. These recommendations rarely include rigorous analysis and often come from individuals with commercial incentives (affiliate links, sponsored content, paid subscriptions). The framework presented in the video and this blog—comparing P/E ratios to peers, checking gross margins for loss-making companies, assessing management’s profitability timeline—is far more reliable than any influencer tip.
A Practical Five-Minute Framework for IPO Analysis
The video introduces a powerful, actionable framework for analyzing any IPO in approximately five minutes. This framework is designed for retail investors who don’t have access to expensive equity research or sophisticated valuation models.
Step 1: Identify the Company’s Profitability Status
Time: 1 minute
Is the company already profitable (positive PAT)? Or is it still in the growth/investment phase (negative PAT)?
Step 2: For Profitable Companies, Calculate the P/E Payback Period
Time: 1 minute
P/E Payback Period = Post-Issue P/E Ratio ÷ Expected Annual Growth Rate
If a company has a P/E of 50x and is expected to grow earnings at 15% annually, the implied payback period is approximately 50 ÷ 15 = 3.3 years. Is this reasonable? Compare against global peers in the same industry.
Step 3: For Loss-Making Companies, Check Three Metrics
Time: 2 minutes
- Gross Margin: Is it healthy and expanding? Or collapsing? A healthy gross margin indicates the business model works.
- Market Position: Is the company a clear #1 or #2? Being a tier-three player and loss-making is a dangerous combination.
- Profitability Timeline: Does management credibly claim profitability within 2-3 years? Or is the pathway vague?
Step 4: Compare Peer Multiples
Time: 1 minute
What P/E or P/S ratios do comparable companies trade at? Is the IPO’s valuation at a significant premium? If yes, demand justification. A premium is acceptable only if the company demonstrates superior growth, margins, or market position.
This framework, while simple, has proven effective at identifying overvalued and undervalued IPOs. Lenskart fails steps 2 and 4 on both counts. Tata Technologies passes all four steps. Ola Electric fails step 3 (product quality was deteriorating, yet profitability timeline was vague).
The Regulatory Response: SEBI’s Dilemma
Should SEBI Intervene in IPO Valuations?
As valuations have become increasingly stretched, a debate has emerged about whether SEBI (Securities and Exchange Board of India) should impose caps on IPO valuations or introduce additional oversight mechanisms. SEBI’s official stance, articulated by Chairman Tuhin Kanta Pandey in November 2025, is clear: “We don’t determine what the valuation is. This is (in) the eyes of the beholder, the investor”.
However, a SEBI whole-time member simultaneously acknowledged concerns about “inflated valuations in IPOs and certain corporate arrangements,” warning that “promoter-shareholders probably get valuation at an inflated price to get a better swap allocation, which is detrimental to minority shareholders”. This suggests regulatory tension: SEBI believes in market-driven pricing but recognizes that market failures—information asymmetries, retail investor FOMO, merchant banker incentives—are creating systematic overpricing that harms the very investors the market is supposed to serve.
Experts are divided on the solution. Some argue SEBI should mandate stricter disclosures, peer comparisons, and clearer valuation methodologies without dictating prices directly. Others contend that introducing price caps would discourage innovation and reduce primary market activity. The most likely outcome is incremental regulatory tightening: enhanced post-listing tracking of IPO proceeds, mandatory peer-company comparisons, and clearer risk disclosures.
Why the Market Hasn’t Self-Corrected (Yet)
Structural Incentives Favor Overpricing
Despite overwhelming evidence that IPO valuations have become disconnected from fundamentals, the market hasn’t self-corrected because the incentives are misaligned:
For Founders & Promoters: Higher IPO valuations mean more capital raised, more founder dilution avoided, and an opportunity to exit early investors at peak valuations. Why would founders resist higher valuations?
For Merchant Bankers: Higher valuations = higher fees. A banker earning 1% commission on a ₹10,000 crore IPO makes ₹100 crore; on a ₹5,000 crore IPO, only ₹50 crore. The incentive to inflate valuations is enormous.
For Existing Investors (VCs, PE firms): An Offer for Sale (OFS) component in the IPO allows existing shareholders to exit. Higher valuations mean better exit prices. Existing investors have every incentive to push valuations higher.
For Retail Investors: Paradoxically, retail investors—the most harmed by overvaluation—have weak incentives to resist. Individual retail investors can’t influence IPO pricing; they can only apply or not apply. And given the lottery-like allotment process, even applying to an obviously overvalued IPO feels rational at an individual level (lottery ticket logic) even if it’s collectively irrational.
Only when consecutive IPOs list at significant discounts to their issue price, triggering widespread retail losses and reduced future participation, will the market begin to self-correct. This appears to be happening in 2025, with 66% of IPOs closing with flat or negative listing gains.
The Path Forward: Building an IPO Investment Framework
From Gambling to Intelligent Investing
The transition from treating IPOs as a “national lottery” to approaching them as investment opportunities requires a fundamental mindset shift. The framework shared in the video—while simple—incorporates the essential elements that professional equity researchers use:
- Valuation rigor: Compare multiples to peers, not to grey market premiums or social media hype
- Business quality checks: Ensure the company is actually solving a problem, not just burning venture capital
- Management credibility: Assess whether the team has successfully scaled businesses before or is first-time entrepreneurs with unproven track records
- Margin of safety: Only invest when valuations leave room for error and provide a cushion against disappointing execution
For loss-making companies, add:
- Unit economics scrutiny: Gross margins, customer acquisition costs, and lifetime value economics must all point to profitability potential
- Peer benchmarking: Does a profitable peer exist in the same market or a comparable market (globally)? If not, the business model might be fundamentally unprofitable
Building Your Personal IPO Checklist
Every retail investor should develop a personal IPO checklist before applying to any offer:
- Is the P/E ratio lower than comparable global and domestic peers?
- For loss-making companies, are gross margins healthy and expanding?
- Is the company a clear market leader, or is it a tier-two/tier-three player?
- Does management have a credible pathway to profitability within 2-3 years?
- Does the product/service have genuine customer traction, or is it just riding hype?
- Have I invested time to read and understand the prospectus, or am I applying based on FOMO?
- Do I have a realistic expectation of listing gains, or am I hoping for 100x returns?
- If I get allocation, what is my exit plan? (Sell 50% at listing gains, hold 50%, or sell entirely?)
Investors who rigorously apply this checklist will filter out 70-80% of IPOs. That’s appropriate. Most IPOs are overpriced, and the best returns come from being selective, not from participating in every offering.
Conclusion: Separating Signal from Noise
India’s IPO market stands at a crossroads. The aggregate volumes suggest a thriving primary market; the declining listing gains and post-listing underperformance suggest a market drowning in overvaluation. For retail investors, the path forward is clear: resist the siren song of listing gains, apply discipline to valuation analysis, and remember that boring businesses trading at reasonable multiples will ultimately outperform exciting companies trading at astronomical valuations.
The collapse from 30% average listing gains in 2024 to 8-9% in 2025 isn’t a market correction; it’s evidence that correction is overdue. Every investor should ask themselves: Am I investing in this company because its fundamentals are sound and I’m getting it at a reasonable price? Or am I investing because everyone else is applying and I’m hoping to get lucky in the lottery?
The framework shared in the video isn’t revolutionary; it’s basic financial analysis that any investor should apply before deploying capital. Yet in a market where hype, FOMO, and merchant banker incentives dominate, disciplined thinking is revolutionary. By adopting this five-minute framework and maintaining discipline, retail investors can transform IPO investing from a lottery into a genuine source of wealth creation.
Watch Full case study on- https://youtu.be/4QbaFRMaP0k?si=UGuknBmaLrkZohF3
