30-Day Stock Market Series
Day 20 of 30
IPO Investing: How to Evaluate and Apply for IPOs in India
India has one of the world's most active IPO markets. Day 20 teaches you how to evaluate an IPO beyond the hype — and when to skip the queue entirely.
What Happens in an IPO
An Initial Public Offering is when a private company sells shares to the public for the first time to raise capital or allow early investors/promoters to exit. The company works with investment banks (Book Running Lead Managers) to set the price band and manage the process.
Types of IPO Issues
Fresh Issue
New shares created. Money goes to the company for expansion, debt repayment. Dilutes existing shareholders but indicates growth intent.Offer for Sale (OFS)
Existing shareholders (promoters/PE) selling their shares. Money goes to them, NOT the company. Be cautious — insiders may be exiting at a peak.The IPO Evaluation Checklist
- Business Quality: What does the company do? Is there a clear moat?
- Financial Health: Revenue growth, margins, debt levels — look at 3 years of DRHP financials
- Valuation: Compare P/E, P/S with listed peers. Is the IPO price aggressive?
- Promoter Reputation: Track record, pledged shares, governance history
- OFS Percentage: High OFS % = promoters cashing out = red flag
- Grey Market Premium (GMP): Unofficial indicator of listing expectation — highly speculative
# IPO valuation comparison script
ipo_data = {
'Company': 'XYZ Ltd',
'IPO_Price': 450,
'EPS_TTM': 14.5,
'Peer_Avg_PE': 28,
'Fresh_Issue_Pct': 40,
'OFS_Pct': 60 # HIGH - caution!
}
ipo_pe = ipo_data['IPO_Price'] / ipo_data['EPS_TTM']
premium = (ipo_pe - ipo_data['Peer_Avg_PE']) / ipo_data['Peer_Avg_PE'] * 100
print(f"IPO P/E: {ipo_pe:.1f}x | Premium vs Peers: {premium:.1f}%")
How to Apply: Retail vs HNI
- Retail (RII): Apply for up to ₹2 lakhs. 35% reservation. Best chance of allotment when oversubscribed
- HNI/NII: Apply for ₹2L–₹10L. 15% reservation. Allotment by lottery above 10× subscription
- QIB: Institutions. 50% reservation. Bidding builds price discovery
Today's Rule
Never apply for an IPO based on subscription numbers alone. A 300× subscription means 299 people won't get allotment — and listing pop doesn't guarantee long-term returns. Do the fundamental work first.