Are IPOs Always Profitable Debunking the Myths of Investing in New Listings

April 19, 2025

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Investing in an IPO can seem like a fast track to high returns. However, just because an IPO stock has received a lot of attention in the media does not guarantee that it will be a good investment.

According to some experts, an IPO may be better suited for investors with longer-term goals who are ready to hold their shares rather than those looking to flip them for a quick profit. What's truly crucial is that long-term investors thoroughly understand the advantages and disadvantages around investing in IPOs before purchasing the company.

Read ahead to learn more about the IPOs, their myths debunked for you and also get to know about the performance of the recent IPOs in 2025.

IPO Myths Debunked: Separating Fact from Fiction for Investors

Let's debunk some of the myths and also separate fact from fiction:

Myth 1: Investing in an IPO Makes You an Early Investor

Buying shares in a company at an Initial Public Offering (IPO) does not really make you an early investor in the business, as many investors believe. The early-stage returns are almost always taken by its promoters and venture capitalists who invested during private rounds of financing.

For example, TCS went public decades after their incorporation, giving retail investors limited access to early growth-stage returns.

Myth 2: IPOs Are Exclusively for Large Corporations

There is a common perception that only large corporations are capable of accessing and utilising IPO wealth. Nevertheless, small and medium enterprises (SMEs) in India are beginning to use public markets for funding and also for their overall development. Through IPOs, SMEs have access to capital, market visibility and new possibilities for acquisitions. When done correctly, even small businesses guide themselves during the process and thrive in the public markets.

For example, Several SME IPOs listed on the NSE Emerge platform have helped smaller businesses access funding and achieve scale.

Myth 3: Companies Going Public Are Financially Strong

Companies that launch an IPO are generally cash-rich and financially sound. That is rarely the case, as many companies go public seeking cash for growth, loan repayment, or to cover other operational needs.

Looking at recent trends of IPOs in India, most of them are not seeking IPO funding to show cash reserves. Many of them are seeking to pay down debt. That is why it is necessary to analyse the company's financial health prior to investing.

Myth 4: IPO Share Prices Always List Above Issue Price

One belief many people wrongly hold is that when a stock goes public, it will always trade at a premium to the offer price after the stock is first listed. This is simply wrong, as demonstrated by the data from the stock market in India. Most recently, in 2024, some Indian IPOs listed below their issue price, particularly during periods of uncertainty in the markets.

For example, Carraro India, a division of the Carraro Group, is a technologically oriented supplier of axles, gearbox systems, and gears for India's agricultural tractor and construction vehicle sectors. Carraro India's stock is currently selling at ₹355.10, down 49.5 per cent from its IPO price of ₹704. The IPO began on December 20, 2024, and ended on December 24, 2024.

Myth 5: IPOs Guarantee Quick Profit

The assumption that IPOs offer quick riches is frequently incorrect for investors. While some IPOs in 2024 generated substantial profits, others produced mixed results, demonstrating that gains are not guaranteed.

For example, Jyoti CNC Automation, has returned 244% since its initial public offering last year, whilst Allied Blenders and Distillers have only gained 10%. This gap shows the nature of unpredictability of IPO performance, which is influenced by market sentiment and company fundamentals.

IPO Highlights: Performance Snapshot for 2025

1. Laxmi Dental IPO: Dental firm Laxmi Dental IPO had a stellar debut in January 2025. During that time its listing price was valued at least ₹583.70 during its listing day. After sometime its value decreased to ₹358.50 in intraday trade. Then it further fell below by 18% and its issue price was ₹428.

2. Hyundai Motor India IPO: Hyundai Motor India, the country’s second largest carmaker, launched its IPO in 2025, marking one of the largest auto IPOs in India. Known for models like Creta and Verna, Hyundai’s strong brand and EV plans boosted investor interest. The IPO attracted huge demand from both retail and institutional investors. The IPO price range for Hyundai Motor India Ltd was ₹1,865 to ₹1,960 per share. The IPO listing price was ₹1,934 on the National Stock Exchange (NSE). The current share price of Hyundai Motor India Limited as of April 18, 2025, is approximately ₹1,663.50.

3. Waaree Energies IPO: Leading solar PV module manufacturer, Waaree Energies made its public debut in 2025. The Waaree Energies IPO price band was ₹1,427 to ₹1,503 per share. The IPO was a fresh issue and an offer for sale, with a total issue size of ₹4,321.44 crore. Riding the renewable energy boom in India, Waaree’s IPO was oversubscribed multiple times. It’s strong order book and government push towards solar energy helped maintain positive momentum post-listing. As of April 18, 2025, Waaree Energies share price was ₹2,323.00 on the NSE.

Disclaimer: The company names and IPO examples mentioned are for illustrative purposes only and should not be considered as investment advice or recommendations. Investors should conduct their own research and consult with financial experts before making any investment decisions.

Final Thoughts

Investing in IPOs may seem like a good opportunity; it is important for Indian investors to have reasonable expectations and adequate research. There are several myths associated with IPOs– guaranteed profits, the financial soundness of companies, listing price exceeding the issue price etc., that can be misleading for investors and cause losses.

The performance of the IPO depends on how well it is performing within the market, core values of the company (fundamentals), and/or investor sentiment. By eliminating these IPO myths, and understanding the company's financials and business model and aligning IPO investments with your long-term financial goals investors can make appropriate investment decisions that coincide with their particular financial goals long-term.

-Marifur Rahaman

-Dayco India

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Are IPOs Always Profitable Debunking the Myths of Investing in New Listings

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