Are IPO listings still worth the risk for small investors?

Millions of retail investors typically flock to IPOs in the hope of earning quick profits by ‘flipping’ these shares after listing, but seasoned participants urge restraint, often shaped by hard-earned experience.

“You have to not only learn from your mistakes, but also from the mistakes of others," said Gopal Sharma, a 50-year-old French-speaking tourist guide in Delhi, who has been investing in IPOs since 2008. “In my experience, one should not invest in seven out of 10 IPOs," said Sharma.

He believes that lately IPOs are being priced at very high levels to provide an exit to angel and venture capital investors in the company, leaving little scope for individuals to make money on the IPO. “In most cases …small investors are made a fool of," he said.

Sharma learnt this the hard way in 2021, when he got an allotment in the IPO of One97 Communications, which runs the digital-payments platform Paytm. At the time, it was the largest IPO in India’s stock market history, and Paytm was a leader in the digital payments industry, causing many like Sharma to believe it was bound to be a winner. The IPO was oversubscribed by retail investors by 1.66 times, and issued at ₹ 2,150. Sharma said he was allotted six shares.

However, shares fell 27% on the day of listing and kept falling in the next few months. “Still in Paytm shares, I am at a loss," said Sharma. He is holding on to them, hoping for a recovery.

The Paytm experience is a cautionary tale that even IPOs of big companies can lose value.

In the generation before that, investors had received a shock in the 2008 IPO of Reliance Power, then owned by Anil Ambani. The IPO was over-subscribed by 70 times overall, and the retail investors’ portion was oversubscribed 13.6 times. On listing day, its shares fell 17%.

Given the unpredictable nature of IPO listings, financial advisers say that individual investors are best off holding stocks via mutual funds or via the secondary market for direct investing for the long run. Those who are thinking of playing the IPO listing game should be wary of certain risks.

Declining returns on IPO listings

Average returns from all IPO listings in 2025 fell by 68% compared to the same period last year, according to Prime Database.

Assuming an investor had purchased one lot in each and every mainboard IPO issued in 2025 and had sold them all at the closing price on the day of listing, his average listing gain for the year would have been 9.55%. In comparison, the Nifty 50 index gained 10.5% in 2025.

Sekar Maruda Gounder, 44, a data architect based in Chennai, who has been investing in IPOs for 10 years, largely steered clear of IPOs in 2025. “Nowadays profit is low, that’s the reason why I’m not doing it," said Gounder.

Instead, he now mainly invests in established companies that are already listed, whose share prices are down, or that announce a stock split or a bonus. “IPO is not the only option to make money in the stock market," said Gounder. “If anyone wants to invest in the stock market, it’s better they buy some good stocks from Nifty 50 when the share value is low."

Lower chances, smaller allotments

As more and more people apply in the individual or retail category, it’s becoming harder to get an allotment.

This is why Sharma, the tourist guide, said he didn’t apply for any IPOs in 2025. “What you want, you don’t get," he said. Also, he didn’t want his money to be blocked for a few days during the IPO process. “I’ve taken a break," he said.

In case an IPO is over-subscribed in the retail category, as per rules, a lottery is conducted, and the maximum number of retail investors are allotted only one lot of shares. So if the lot costs ₹15,000, even in the unlikely event that the stock doubles, the gain would be ₹15,000. “It's not really going to rock your world," said Pranav Haldea, managing director of Prime Database.

The risk of not booking losses quickly

In addition to the risk that your IPO may fall on listing day, a bigger risk is that it continues to fall afterwards.

Studies show that investors hate to take a loss, so they hold on to loss-making stocks hoping for a recovery, and that can exacerbate the loss. In a Sebi study of investor behavior in 144 IPOs between 2021 and 2023, the Securities and Exchange Board of India found that only 23% of shares by value were sold when returns were negative. In other words, investors held on to their losing bets.

In the case of Paytm, for instance, the stock closed 27% down on listing day at ₹ 1,564 per share.

“If at that time, I had sold, then I would not have lost as much as today," said Deepak Kumar, Muzaffarpur-based assistant finance manager at a logistics company. Paytm was Kumar’s first IPO, and he was sure its price would go to ₹3,000 to ₹4,000. Instead, within four months, Paytm’s shares had fallen by nearly 75%.

By February 2024, when Paytm shares had fallen to around ₹ 340, Kumar said his manager advised him to buy more shares to lower his average purchase price. Had he done so, he would have made money as Paytm shares have since risen to around ₹1,330 lately. But knowing what to do is easy when looking back, not at the time when one is sitting on huge losses. At that time, Kumar didn’t buy because he thought things could get worse.“What if the company goes bust?" he said.

The risk of not booking gains quickly

Even IPOs that do well on the day of listing have given some investors heartache.

Consider the case of LG Electronics India, a consumer appliances-maker, which went public in October at an IPO price of ₹1,140 per share. On listing day, its shares gained value, closing at ₹ 1,682.80.

Sai Ram, a 31-year-old information technology professional in Hyderabad, who was allotted one lot in the LG IPO, held on to the shares because he felt they would gain further value. However, within a few days, the shares started falling, closing at around ₹1,371 recently.

This was unexpected. “For LG, we got all fundamentals right, everything right, but for some reason it's correcting every day," said Ram.

He now uses this as a learning experience to revise his IPO investment strategy and places a sell order before the shares open for listing, hoping to make a profit. For his long-term savings, he invests regularly in mutual funds via a systematic investment plan, he said.

Fear of missing out

Earlier this week, Bharat Coking Coal was this year’s first IPO, listing at a nearly 96% premium. However, it gave up some of its listing gains, but social media chat boards are abuzz with people wondering if they should buy the shares now.

“Don’t have FOMO," said Krishna Rath, a Sebi-registered investment adviser in Bhubaneshwar. He said investors should be extra careful this year, as he believes the bull run in stocks in India and globally has passed, and stock valuations are very high. “Maybe 20% of the IPOs will make money" this year, said Rath.

He said individual investors shouldn’t play the listing-day game. Those who want to invest in IPOs should carefully research the company and be selective about which stocks they buy. “If you really want to make a 5x, 10x return, hold it for a long period," said Rath.