The Great IPO Gamble: Why Retail Investors Often Lose Money in India’s IPO Boom

Part 1 of a three-part series exploring how India’s IPO frenzy is turning into a high-risk game for small investors amid inflated valuations and market euphoria.

New Delhi, November 12, 2025 — by Koustav Das

Every time a high-profile company announces an Initial Public Offering (IPO), India’s financial chatter lights up. Telegram groups buzz, YouTube analysts predict “multi-bagger” returns, and retail investors rush to apply — convinced they’re buying into the next big success story.

But behind the glitter of market debuts lies a sobering truth: most retail investors end up losing money.

Recent IPO trends show that while some stocks deliver early gains, many list below expectations — or worse, slide in the months after. For every blockbuster debut, there’s a cautionary tale of hype, overpricing, and misplaced optimism.

Market experts say the IPO rush in India has become increasingly speculative, particularly for small investors who enter without understanding valuation metrics or post-listing risks.

Why IPOs Are Getting Riskier for Retail Investors

According to Tarun Singh, Founder and MD of Highbrow Securities, IPOs today often prioritize valuation over value.

“IPOs aren’t designed with retail investors as the main beneficiaries,” Singh explains. “We’re seeing a clear pattern of aggressive pricing — especially in startup and tech IPOs — and it’s the small investors who end up paying the price.”

He points to examples like Paytm, which raised massive sums at peak valuations only to see its stock crash after listing.

“Promoters and bankers use market buoyancy to extract the highest possible valuation. But when sentiment cools, these stocks struggle to recover.”

The result? A widening gap between hype and performance — and retail investors caught in the middle.

The Valuation Trap: ‘Peak Pricing’ and Its Fallout

Companies and their bankers often treat IPOs as opportunities to cash in on market optimism. When indices are high and liquidity is strong, promoters push for valuations that don’t reflect long-term fundamentals.

“The strategy of pursuing peak valuation is fundamentally flawed,” Singh says. “A company’s IPO should begin its market journey, not end it. But many treat it like an exit opportunity.”

Once listed, overvalued stocks face natural corrections. When prices fall, institutional investors can absorb the hit or average down. Retail investors, however, usually exit at a loss, driven by fear and short-term pain.

‘IPOs Are for Deep Pockets’

Large institutional investors — mutual funds, private equity firms, sovereign funds — can afford to hold positions for years, even through downturns.

Retail investors can’t.

“Retail investors invest their savings with hopes of quick gains,” Singh says. “When overvaluation hits, they bear the brunt. It’s not a level playing field.”

This is one reason why regulators have debated lowering the retail quota in IPOs, which currently stands at 35% — among the highest globally.

“Globally, retail allocations are smaller because IPOs inherently favor those with deep financial reserves,” Singh adds.

The Psychology of Overpricing

So why do companies continue to overprice IPOs, even when markets know the risks?

Singh attributes it to psychology and short-termism.

“Companies hate leaving money on the table,” he says. “They believe raising capital at any valuation will justify itself later. But when investors face early losses, it erodes long-term trust in the markets.”

He calls for tighter oversight from SEBI to ensure pricing discipline and protect retail participants from inflated valuations.

“Those chasing unsustainable valuations need regulatory guardrails,” he says. “Even minimal intervention can send a powerful corrective signal.”

Hype vs. Fundamentals: The Retail Dilemma

Trivesh, COO at Tradejini, agrees that small investors often chase brand power, not balance sheets.

“Most retail investors focus on buzz rather than numbers,” he says. “They’re swayed by familiar brands or influencer hype without checking financials.”

He warns that this behavior turns IPO investing into speculation.

“Retail investors must understand the company’s growth consistency and profitability — not just the excitement around it.”

A simple but effective check, he says, is to compare the company’s Price-to-Earnings (P/E) ratio with peers.

“If the P/E is far higher than similar listed firms without a strong reason, skip the IPO,” Trivesh advises.

The GMP Mirage: When Grey Market Premiums Mislead

The Grey Market Premium (GMP) — the unofficial price investors pay before listing — often fuels excitement.

High GMPs can make an IPO look irresistible. But experts say they’re poor predictors of long-term success.

“GMPs are just sentiment indicators,” Trivesh explains. “They’re not regulated and can change overnight. Heavy subscriptions and soaring GMPs often create FOMO, but they mean nothing if fundamentals don’t back it up.”

Indeed, many IPOs with sky-high GMPs — from Lenskart to several fintech startups — have listed flat or below issue price, proving that hype doesn’t guarantee returns.

How to Read the Fine Print (Literally)

Before investing, experts urge retail investors to read the Draft Red Herring Prospectus (DRHP) — the official document filed before listing.

It reveals how the company plans to use the IPO proceeds — a critical clue about intent.

“If the money is mostly going to promoter exits or debt repayment, that’s a red flag,” Trivesh cautions. “Look for IPOs where funds are directed toward business expansion, R&D, or market growth.”

He also recommends checking:

• Revenue growth consistency over 3 years

• Profit margins and debt levels

• Promoter holding after listing (higher is better)

• Institutional investor participation (signals confidence)

Lessons from the IPO Hype Cycle

India’s IPO market has seen both triumphs and failures. For every Zomato or Nykaa that sustains investor faith, there’s a Paytm or CarTrade reminding everyone that the primary market isn’t a casino.

“IPOs are not shortcuts to wealth,” Singh says. “They’re the starting point of a long investment journey.”

He emphasizes that realism and discipline are key:

“Invest only what you can afford to lose. If you treat IPOs like guaranteed jackpots, the market will humble you.”

Key Takeaways for Retail Investors

✅ Don’t chase hype. Big brand names and celebrity endorsements don’t guarantee profits.
✅ Check valuations. Compare P/E and P/B ratios with listed peers.
✅ Read the DRHP. Know where your money is going.
✅ Be patient. IPO investing works best with a 2–3 year horizon, not 2–3 days.
✅ Avoid FOMO. If you miss one IPO, another opportunity will come.

The Bottom Line

India’s IPO boom reflects a dynamic economy and growing retail participation — both healthy signs. But the IPO frenzy of 2025 also carries warnings.

With sky-high valuations, aggressive pricing, and sentiment-driven investing, the line between opportunity and risk is thinner than ever.

For small investors, the message is simple yet vital:

Don’t gamble on hype — invest in value.

Because in the long run, it’s not the IPO you chase that builds wealth, but the discipline you keep after the listing day lights fade.