Can IPOs Give Losses?
Yes, IPO investments can and do result in losses. Not all IPOs list above their issue price, and even those that list at a premium can decline significantly in the weeks and months after listing. Several high-profile Indian IPOs have delivered substantial losses to investors who applied without adequate research. Understanding the risk of loss is essential before committing any capital to an IPO application.
Famous Loss-Making IPOs in India
- Paytm (2021): Listed at approximately 27% below its Rs 2,150 issue price and declined further for months, representing one of India's most significant IPO listing losses.
- LIC IPO (2022): Listed below its issue price of Rs 949 and took over a year to recover.
- Several technology and new-age business IPOs from 2021-2022 that listed at premiums but corrected sharply over the following 12-18 months.
Reasons Why IPOs Result in Losses
- Overvaluation at IPO pricing: The most common reason; when a company is priced too expensively, there is no room for share price appreciation.
- Weak fundamentals: Loss-making companies without a clear path to profitability often underperform post-listing.
- Market conditions: A bear market or broad economic concerns can drag down even fairly priced IPOs.
- Promoter selling after lock-in: When promoter or anchor investor lock-ins expire, their selling can depress prices.
- Sector headwinds: Regulatory changes or sector downturns can hit IPO stocks hard post-listing.
When Are Listing Day Losses Most Likely?
| Signal | Implication |
|---|---|
| Negative GMP close to listing | Grey market expects below-issue-price listing |
| Low QIB subscription (below 2x) | Institutions not interested; poor quality signal |
| IPO during broad market decline | Weak overall sentiment increases listing loss risk |
| Very high PE ratio vs. peers | Overvalued; limited upside, higher downside |
How to Reduce the Risk of IPO Losses
- Analyse valuation versus listed peers before applying.
- Check whether QIB subscription is strong; it signals institutional confidence.
- Avoid IPOs where promoters are selling large percentages through OFS with no fresh issue component.
- Monitor GMP trends in the two to three days before listing.
- Have a clear plan: if shares list below your cost, decide in advance whether to hold or exit.
Key Takeaway
IPOs are market-linked investments and can absolutely result in losses, sometimes significant ones. Applying to every IPO without research is a strategy that will lead to losses over time. Selective, research-based IPO investing significantly improves your risk-to-reward profile. Use the Lemonn app to evaluate IPO fundamentals, valuation, and subscription data before committing your money.
