India’s IPO Reforms: From Transparency to Temptation
The Indian Initial Public Offering (IPO) market has undergone multiple path-breaking reforms over the last five years — deepening participation, expanding the investor base, and drastically shortening IPO cycles.
The current IPO boom is a direct outcome of these reforms.
By tightening timelines and ensuring that only the amount required for allotted shares leaves an investor’s account, SEBI has transformed the IPO experience.
The old pain of waiting for refunds, tracking missing funds, or chasing registrars is now gone.
Under the Applications Supported by Blocked Amount (ASBA) mechanism, investors’ money stays in their bank accounts even as they bid for IPO allotments — a revolutionary change in investor protection and process efficiency.
Luck Over Logic
However, these reforms also created a new behavioural challenge.
Investors increasingly began to see IPOs as a short-term “lottery” for idle funds — money that could sit risk-free for a few days while chasing a listing gain.
The equity risk inherent in IPO investing was often overlooked in favour of quick punts.
Meanwhile, the large institutional reservations shifted a chunk of the risk from retail investors to mutual funds.
When institutions showed strong buy-in, IPOs seemed almost guaranteed to succeed.
For institutional investors, anchor allotments became an efficient deployment route, leading to a cult-like IPO participation trend.
“Today, many retail investors enter IPOs not for ownership or conviction—but because they see them as the fastest path to short-term profits.”
The Pricing Problem
As retail and institutional interest surged, investment bankers became bolder, pushing promoters to raise valuations aggressively.
Blind demand further emboldened issuers to overprice IPOs, eroding listing gains.
The result: in several recent issues, the traditional listing-day pop has vanished, and many habitual IPO investors are now facing losses instead of profits.
The Lenskart IPO illustrated this vividly.
While its valuations were stretched, the social media outrage that followed was less about fundamentals and more about investor frustration.
Lenskart’s aggressive pricing left little on the table for investors, relying instead on market comfort post-listing — a move that hit a raw nerve among retail participants.
Yet, despite the criticism, the issue sailed through successfully, proving that market sentiment remains resilient.
Lessons for the Future
There are valuable lessons to be drawn from this phase of exuberance.
Companies approaching the market must leave headroom for post-listing growth.
IPOs should not fully discount future earnings or price in perfection.Investor confidence requires clear communication and valuation transparency.
Companies hiding behind bare-minimum regulatory disclosures risk eroding trust.Investment bankers must act responsibly, advising firms based on fair valuation — not inflated expectations for larger mandates.
With most IPOs selling only 10% equity, firms must eventually dilute further to meet the 25% minimum public shareholding rule.
A reasonable pricing stance will ensure shareholder support in future follow-on offerings.
Toward a More Mature IPO Ecosystem
A mature, empathetic, and fair IPO ecosystem is precisely what these reforms sought to build.
It is time all stakeholders — issuers, bankers, and investors — rise to the occasion and fulfil that expectation.
“It is a moral obligation they owe to the investing public and to the regulatory intent that brought these changes for the long-term growth of India’s equity culture.”
— Shyam Sekhar, Chief Ideator and Founder, iThought
For deeper insights into India’s evolving IPO ecosystem, explore analyses by Ranjit Jha (CEO) — a thought leader in equity markets, investor behaviour, and financial reforms.
To understand how to evaluate IPO opportunities and make rational, research-backed investment choices, connect with Rurash Financials — experts in primary-market advisory, portfolio strategy, and wealth management.