IPO Investing: Are You Applying for the Right Reasons?

Every few years, markets go through an IPO boom.
Excitement builds, headlines multiply, and investors rush to apply for every new issue that hits the market.

The current cycle is no different.

I recently read an interesting analysis in The Economic Times that puts things into perspective.

Over the last two years, 199 IPOs have come to the market.

Yet the outcomes are telling:

▪️Only 64 are still above their issue price.
▪️ Just about 35 have delivered meaningful, sustained returns.
▪️ The IPO index itself is down ~8%, suggesting that the initial hype faded after listing.

These numbers reveal an uncomfortable truth.

Most IPOs do not create lasting wealth.

Yet many investors approach IPOs in ways that almost guarantee disappointment.

▪️There are people who apply for every IPO, assuming more applications increase the odds of catching a winner.
▪️There are others who apply purely for listing gains, hoping to make a quick profit on day one.

But it’s important to remember a simple market reality:

IPO investing is fundamentally a seller’s market, not a buyer’s market.

Companies typically come to the market when conditions are favourable; when valuations are high, liquidity is strong, and investor appetite is abundant.

In many cases, early investors and private equity funds are using the IPO as an opportunity to partially exit.

That doesn’t mean IPOs are bad investments.
Some of the finest businesses have entered public markets through IPOs.

But the distribution of outcomes is very skewed.

A Useful Rule of Thumb is This:

▪️⁠ ⁠~80% of IPOs are mediocre
▪️ ~15% turn out to be good investments
▪️ ~5% become exceptional long-term wealth creators.

The real challenge for investors is identifying those rare few.

Instead of Applying Blindly, It May be Worth Asking a Few Simple Questions:

▪️ Why is the company going public? Is the money being used for genuine growth or largely for investor exits?
▪️Is the business already proven? Look for strong revenue growth, improving profitability and a defensible competitive position.
▪️Is the valuation reasonable? Even a great company can be a poor investment if priced too aggressively.
▪️Is the business understandable and scalable?

The right reason to invest in an IPO is not excitement, oversubscription numbers, or listing-day hype.

The Right Reason is Simple:

You want to become a long-term shareholder in a high-quality business at a reasonable valuation.
If that condition is not met, sometimes the wiser choice is to simply watch from the sidelines.
Markets will always offer opportunities. But discipline, especially during periods of euphoria, is what separates speculation from investing.

Next time an IPO opens for subscription, ask yourself:
Am I investing in a business, or chasing a listing-day trade?

About the Author
Amar K Ambani is Executive Director at YES SECURITIES