Common IPO Mistakes to Avoid
The Indian IPO market has democratised investing in remarkable ways. But it has also given millions of retail investors new ways to make expensive mistakes. Many of these mistakes are not born of ignorance — they are born of perfectly understandable human behaviours: FOMO, overconfidence, herding, and the desire for quick gains.
This chapter catalogues the most costly IPO mistakes and how to avoid each one.
Mistake 1: Applying Without Reading the DRHP
This is the most common and potentially most expensive mistake. Investors see a popular IPO on social media, note the high GMP, hear that "everyone is applying," and submit an application without reading a single page of the offer document.
The DRHP exists specifically to give you the information to make an informed decision. You do not need to read all 400 pages — but reading the key sections (Objects of Issue, Risk Factors, Financial Statements, Promoter background) takes 30–60 minutes and can save you from serious losses.
The fix: Commit to reading at minimum the 8 key DRHP sections covered in Chapter 5 before any IPO application.
Mistake 2: Using GMP as the Primary Decision Factor
Grey market premium is a sentiment indicator. It reflects what a handful of grey market dealers in a few cities think the listing price will be. It is not a fundamental analysis.
Investors who apply exclusively based on high GMP — without checking valuations, financials, or promoter quality — are essentially betting on sentiment. Sometimes they win. Often they do not, and when they do not, the losses can be significant.
The fix: Treat GMP as one input among five (fundamentals, valuation, subscription, market conditions, GMP). Do not apply for any IPO that you would not apply for if GMP were zero.
Mistake 3: Ignoring Valuation
This is the sophisticated version of Mistake 2. Investors who do read the DRHP often still fail to critically evaluate the valuation. They accept the company's "Basis of Issue Price" section at face value — which is written to justify the price, not to give you a balanced view.
"The company is growing fast" is not a valuation argument. A company growing 40% a year can still be a terrible investment if you pay 100x earnings for it.
The fix: Always calculate the company's market cap at the issue price. Compare P/E or EV/EBITDA to listed peers. Check if the premium is justified by a specific, articulable competitive advantage — not just sector excitement.
Mistake 4: Applying for Maximum Lots in an Oversubscribed IPO
In retail category, the lottery gives every applicant an equal chance at one lot. Applying for 13 lots (the maximum for retail) does not give you 13x the allotment probability of applying for 1 lot.
Applying for 13 lots means ₹1.95 lakh (approximately) is blocked in your account for 6 days instead of ₹15,000. That capital has an opportunity cost. In a 100x oversubscribed IPO, the marginal increase in allotment probability from applying for more lots is negligible.
The fix: For retail investors in heavily oversubscribed IPOs (50x+), apply for 1 lot from each eligible family member. This is far more capital-efficient than applying for maximum lots.
Mistake 5: Last-Minute Applications on Closing Day
Applying on Day 3 of an IPO — particularly in the final hours — is risky. UPI networks are under maximum load as millions of applicants submit simultaneously. Mandate approval delays are common. If you submit at 4:50 PM and the mandate request arrives after 5 PM close, your application is rejected.
The fix: Apply on Day 1 or Day 2. Your allotment probability is identical. Your risk of technical rejection is dramatically lower.
Mistake 6: Confusing Subscription With Quality
A 300x subscribed IPO is not 300 times better than a 1x subscribed IPO. Subscription reflects demand — which is driven by GMP, media coverage, and FOMO — not fundamental quality.
Some of India's best long-term performers had underwhelming subscription. Some of its worst performers were massively oversubscribed.
The fix: Use QIB subscription as the most reliable subscription signal. Treat retail subscription numbers as sentiment, not quality indicators.
Mistake 7: Not Checking Promoter Quality
Promoter background is disclosed in every DRHP. Yet most retail investors never check it. Promoters with histories of corporate fraud, SEBI penalties, or failed previous ventures are red flags that an hour of reading would reveal.
The fix: Google the promoters. Check the DRHP's "Promoters and Promoter Group" section. Run the names through MCA (Ministry of Corporate Affairs) if there is any doubt. Check if any promoter shares are pledged — a significant pledge is always worth investigating.
Mistake 8: Holding a Weak IPO Hoping for Recovery
If you receive allotment of a fundamentally weak IPO — high OFS, vague use of proceeds, poor financials, overvalued — and it lists at a loss, the natural human impulse is to hold and wait for recovery.
Sometimes this works. Often it does not. Weak businesses that listed overvalued rarely recover to issue price within any reasonable time horizon. Meanwhile, your capital is earning nothing.
The fix: Decide before listing whether the business merits a long-term hold or was purely a listing gain play. If it was a listing gain play and the listing is disappointing, cut the position at your pre-defined stop loss rather than converting it into an involuntary long-term hold.
Mistake 9: Applying With Money You Cannot Afford to Block
IPO application money is blocked for up to 6 days (though now T+3 reduces this significantly). If you are applying with money needed for rent, EMIs, or emergencies, even a temporary block can cause financial stress.
The fix: IPO capital should come from your investable surplus — funds you can genuinely afford to have unavailable for a week.
Mistake 10: Ignoring The OFS Composition
A high OFS component — especially when promoters are selling — is a significant red flag that most retail investors dismiss too quickly. When the people who built the business and know it best are choosing to exit, it deserves serious investigation.
Not all OFS is bad: PE funds have lifecycle constraints and must exit at some point. Promoter OFS to partially monetise after decades of work is normal. But promoters reducing from 70% to 30% holding in a single IPO, with no fresh issue, is a different signal entirely.
The fix: Check the OFS percentage, who is selling, how much they are reducing their stake, and whether their post-IPO holding still aligns their interests with yours.