IPO Investing in India Without the Hype: DRHP, ASBA and the Data

Direct Equity — Arc 3, Article Four

The Transaction

What an IPO actually is, and who is on the other side

An initial public offering is the first sale of a company’s shares to the public, after which they trade on an exchange like any other share — the machinery described in the article on how the market works. The part that gets skipped is that an IPO is two quite different transactions sharing one name.

A fresh issue creates new shares and the money goes to the company, to build a factory, repay debt, or fund growth. You are financing a business. An offer for sale transfers existing shares from current owners — founders, early investors, private equity funds — to you. Not one rupee reaches the company. You are buying somebody’s exit. Most IPOs are a mix, and the ratio is disclosed plainly in the offer document under “objects of the issue”.

How common is the second kind? SEBI studied 144 mainboard IPOs listed between April 2021 and December 2023, which together raised about ₹2.13 lakh crore, and found that roughly 65% of the total issue size was offer for sale — existing shareholders selling, rather than companies raising. That is not scandalous; early investors are entitled to exit, and a company that needs no new capital is often a good sign. But it does reframe what is happening. In a large share of IPOs, the transaction is a well-informed seller with lawyers, bankers and years inside the business choosing the moment to sell to a stranger who read a summary.

Which brings us to the structural point that governs everything else in this article. In the secondary market, buyer and seller are both outsiders reacting to public information. In an IPO, the seller picks the timing, sets the price band with their bankers, decides what the marketing looks like, and knows the business intimately. That does not make every IPO a bad deal — good companies list, and some list at sensible prices. It does mean the burden of proof sits with the offer, not with you, and that “why is this being sold to me now, at this price?” is the first question rather than an afterthought.

The Mechanics

How to apply for an IPO in India: ASBA, UPI and allotment

The process is genuinely simple once, and confusing forever if you never learn it properly. You need a demat and trading account (covered here), a bank account in the same name, and a PAN.

ASBA is the foundation. Application Supported by Blocked Amount means your money is never paid out when you apply — it is blocked in your own bank account. If shares are allotted, the amount is debited then. If not, the block simply lifts. Your money stays with you and keeps earning whatever your account pays throughout. Every public issue application in India works this way, whether you apply through a broker’s app, through net banking, or on paper at a bank branch. SEBI explains the mechanism on its own investor education page.

UPI is the retail payment route on top of ASBA. Apply through a broker, receive a mandate request in your UPI app, approve it, and the amount is blocked. The UPI route is available for applications up to ₹5 lakh per transaction; above that you must use net-banking ASBA or a physical form. The mandate must be approved before the issue closes, and leaving it until the final hours is a common and entirely avoidable way to lose an application.

Which category you fall into is decided by the size of your application, not by who you are.

Category	Application size	Payment route	How allotment works when oversubscribed
Retail individual	Up to ₹2,00,000	UPI or net-banking ASBA	Lottery. Every applicant has the same chance of receiving one lot, whether they applied for one lot or ten
Small non-institutional	₹2,00,000 to ₹10,00,000	UPI up to ₹5 lakh, otherwise ASBA	Draw from a pool reserved for this sub-category
Big non-institutional	Above ₹10,00,000	Net-banking ASBA	Draw from the larger non-institutional pool
Qualified institutional	Institutions only	Not applicable to individuals	Discretionary or proportionate, with anchor investors allotted before the issue opens

Four practical rules that trip people up. One application per PAN — a second application under the same PAN, even through a different broker, gets both rejected. The bank account, demat account and PAN must belong to the same person; third-party applications are not permitted. Bidding at the cut-off price means you accept whatever final price the company sets within the band, which avoids the specific disappointment of bidding below the final price and being rejected for it. And the timetable is short: issues typically stay open three days, with listing following within a few working days of closure under the current shortened cycle.

The allotment rule in that table deserves emphasis, because a great deal of effort is wasted ignoring it. In an oversubscribed retail category, applying for ten lots does not give you ten times the chance of the first lot. Every retail application enters the same draw for one lot. The only legitimate way a household increases its number of chances is separate applications from separate people, each with their own PAN, demat account and bank account — and each of those is a real account belonging to a real person, not a technicality.

The Document

Reading a DRHP without reading six hundred pages

The Draft Red Herring Prospectus is the offer document a company files with SEBI before an IPO, and it is the most information you will ever be handed about a business you cannot yet buy. It is free, public, available on SEBI’s website and the exchanges’, and almost nobody opens it. It is long because it is comprehensive, not because it is hiding — and you do not have to read all of it. Read these sections, in this order.

Objects of the issue. How much is fresh capital and how much is offer for sale, and exactly what the fresh money will do. Repaying debt is legitimate; funding growth is legitimate. Large amounts labelled “general corporate purposes” are worth noticing, because that is the line item with the least accountability attached to it.

Risk factors. These are written by the company’s own lawyers to protect the company, which makes them unusually honest — they are ordered roughly by seriousness, and the first ten tell you what the people who know the business fear most. Customer concentration, regulatory dependence, litigation against the promoter, unprofitability, reliance on a single plant or supplier. Read them as a list of what has to go right.

The restated financial statements. Three years of accounts, restated to a consistent basis, using the skills from the financial statements article. One specific thing to check: how the final year compares with the two before it. A business whose revenue and margins leap in precisely the year before it goes to market deserves an explanation, and sometimes there is a good one. Look at cash from operations alongside profit, as always.

Basis for the issue price. Here the company argues for its own valuation and compares itself with listed peers that it selected. Both halves are informative — the reasoning, and which companies were chosen as comparable. Run your own comparison using the ratios that matter and see whether you would have picked the same peers.

The cost of acquisition of shares by promoters and selling shareholders. This disclosure is the quiet star of any DRHP. It tells you what the people selling to you paid for their shares. A wide gap between their average cost and your offer price is not by itself an objection — early investors take early risks and deserve the reward. But it tells you plainly how much has to go right for you to earn a return from here, when a good part of the value creation has already happened and is being realised by someone else at your expense.

Related party transactions, litigation, and shareholding. Money moving between the company and entities the promoters control, outstanding cases against the company and its directors, and who holds what before and after the issue. Then check whether any proceeds are repaying loans to promoters or related parties, and what the lock-in arrangements are — including for anchor investors, whose shares are released in stages after listing, which means additional supply can appear in the weeks that follow. The current terms are in the document; do not rely on remembered ones.

The Grey Market

Why grey market premium is not information

Before an IPO lists, a number circulates: the grey market premium, quoted as so many rupees above the issue price. Websites publish it, messaging groups discuss it, and a great many application decisions are made on it alone. It deserves a clear-eyed description.

GMP is a price quoted in an unofficial, unregulated market run by a small number of dealers, in trades that are settled on trust because they have no legal standing. There is no exchange, no clearing corporation, no audit trail, and no recourse if the other side walks away. The volumes behind the quote are tiny relative to the issue, and the quote is easy to move — which matters, because the people best placed to influence it are precisely the people who benefit from an impression of strong demand. You cannot see who is trading, at what size, or why.

Even taken at face value, notice what GMP is about. It is a guess about the price on one day — listing day — made by people speculating on other people’s enthusiasm. It contains no view on what the company earns, what it is worth, or what it will be worth in five years. Using it to decide whether to own a business is like choosing a house by the length of the queue at the viewing.

The honest summary: a high premium tells you sentiment is hot, which is genuinely information about the likely first day and simultaneously a warning about the price you are paying. It is never information about value. If your entire reason for applying is a number you saw quoted by an anonymous dealer, you are not investing in an IPO — you are taking a position in a rumour, using real money, with no way to verify anything.

The Evidence

What people actually do after listing

SEBI’s study of those 144 mainboard IPOs is the most useful thing published on Indian IPO behaviour, because it uses actual allotment and trading records rather than surveys. Two findings matter.

First: almost nobody is investing. About 54% of allotted shares by value, excluding anchor investors, were sold within a week of listing. Individual investors sold about half within a week and roughly 70% within a year. Whatever the language used in the application, the behaviour is a short-term trade — enter the draw, take the pop, move on.

Second: the selling was driven by the price, not the business. When an IPO gained more than 20%, individual investors sold 67.6% of their shares by value within a week. When it listed at a loss, they sold only 23.3%. That is the same pattern from the mistakes article — cash the winners, keep the losers and hope — showing up in the primary market with regulatory data behind it. It also has an uncomfortable implication: the portfolio that survives this process is disproportionately made of the IPOs that went badly.

In fairness to IPOs, the same study found that 108 of the 144 issues delivered positive listing returns, and 26 gained more than half on debut. That is a genuinely favourable record and it is why the enthusiasm exists. Hold it next to the obvious caveat: those years were a strong market for new listings, listing-day return is not the same as the return from owning the business, and a period that flatters a strategy is exactly when people size into it most heavily.

SME Issues

SME IPOs: same word, different animal

Alongside the mainboard, India has SME platforms — BSE SME and NSE Emerge — for smaller companies, broadly those with post-issue paid-up capital between ₹1 crore and ₹25 crore. They exist for a good reason: small businesses need capital too, and some genuinely fine companies have grown up through this route. They also carry risks that are different in kind, not merely in degree, and a beginner should understand them before treating an SME issue as just a smaller IPO.

Lighter disclosure, permanently. Compliance requirements on the SME platform are relaxed compared with the mainboard, and reporting is less frequent. You will be following the company with less information than you would get from a listed company of any size on the main exchange — for as long as you own it.

The lot size decides your position, which is backwards. SME lots are large, and the minimum application runs to a couple of lakh rupees or more because applicants must bid for at least two lots. For someone with a ₹2,00,000 satellite, a single SME application is the entire satellite in one small, thinly traded company. In position sizing terms, the exchange’s lot size has replaced your sizing rule. That alone rules the segment out for most small portfolios, regardless of the merits of any particular company.

Liquidity is thin in both directions. Small floats and few buyers mean the price you see may not be the price you get when you want out, and a modest sell order can move the market against you. The same thinness makes these counters easier to manipulate, which is the subject of the article on scams and tips.

The rules were tightened in 2025 for a reason. After a period of uneven post-listing outcomes, SEBI amended the issue regulations in March 2025 to raise the bar: an SME issuer must now show operating profit of at least ₹1 crore in two of the three financial years before filing, the offer-for-sale portion is capped at 20% of the issue size with limits on how much any individual shareholder can offload, money raised cannot be used to repay loans from promoters or related parties, general corporate purposes are capped, larger issues need a monitoring agency, and the draft document must be available for public comment for three weeks. Those are useful improvements. They are also a description of what the segment looked like before them, which is worth remembering when reading older SME success stories. Verify the current requirements before applying, since this framework is still evolving.

The Psychology

Why IPOs feel like a lottery, and what that does to judgement

Nothing else in investing is packaged quite like this. There is a deadline, which creates urgency. There is scarcity, because oversubscription means most applicants get nothing. There is a draw, so allotment itself feels like winning something before any money has been made. There is a definite event — listing day — that delivers a verdict quickly, unlike the years of patience the rest of this pillar asks for. And there is coverage everywhere, because an IPO is a marketing campaign with a regulatory filing attached.

Every one of those features works against careful thinking. Urgency shortens research. Scarcity makes allotment feel like an achievement rather than a purchase. A single-day verdict trains you to judge a business by its first few hours of trading. And the word “gains” in “listing gains” quietly reframes a speculative trade as free money that has already been earned.

The reframe that helps is simply naming it. Applying for an IPO in the hope of selling on day one is a short-term trade with an uncertain payoff, and there is nothing wrong with that as long as you call it what it is: it belongs in a small, sized speculation budget, it is not part of your long-term portfolio, and its results should be tracked separately so you know how the strategy is really doing. Applying because you want to own the business for a decade is investing, and it demands the DRHP, the valuation and the position size. The failure mode is doing the first while telling yourself you are doing the second — which is how an intended one-week trade becomes a five-year holding that nobody ever decided to make.

The Discipline

A process for a company with no listed history

If you decide to participate, a defensible routine looks like this.

Read the offer document sections listed earlier before the issue opens, not during the last afternoon. Value the business the way you would value any other, using your own peer comparison rather than the company’s. Decide, in writing, whether you would buy at the top of the price band — and if the answer is no, that is the decision, regardless of what the grey market or the subscription figures say later. Size the position below your normal maximum, because a company with no record as a listed business is exactly the “wider unknowns, smaller cheque” case from the sizing article. Never fund an application with borrowed money. And treat allotment as the beginning of the work: read the first two or three quarterly results as a listed company and check them against the story the prospectus told.

One structural comfort that removes most of the urgency: you can always buy it later. The company will still be listed next month and next year, by which point you will have quarterly results, a trading history, a real market price rather than a negotiated one, and the anchor lock-ins will have passed. Missing an IPO costs you nothing except a listing gain you were never entitled to. Buying a business you did not understand, at a price set by its seller, in a size decided by a lot, costs considerably more.

Key Takeaways

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Frequently Asked Questions

Your questions answered

Are IPOs a reliable way to make quick money?

The honest answer has two halves. In SEBI’s sample, 108 of 144 mainboard IPOs listed above their issue price and 26 rose more than half on debut, so the enthusiasm is not baseless — that period rewarded applicants generously. The other half: those were strong years for new issues, listing-day performance says nothing about what the business will return over a decade, and a strategy’s best stretch is precisely when people commit the most to it. Treat listing gains as an uncertain short-term payoff, size the activity accordingly, and track its results separately from your portfolio so you find out whether it is working for you rather than assuming it.

How can I improve my chances of getting an allotment?

Mostly you cannot, and that is by design. When the retail category is oversubscribed, allotment is a draw in which every application has the same chance of one lot — bidding for ten lots does not multiply your odds of the first one. What genuinely helps is small and procedural: bid at the cut-off price so a final price above your bid does not disqualify you, approve the UPI mandate well before the deadline, and make sure PAN, bank and demat details match exactly. Separate applications from other adults in the household are legitimate only where each is a real person applying with their own PAN, bank account and demat account. Multiple applications on one PAN get both rejected.

Everyone quotes GMP. Should I really ignore it?

Ignore it as a reason to apply. Read it, if you like, as a thermometer for sentiment — but note that a hot reading is simultaneously an argument that you are paying up. There is no regulator, no exchange, no settlement and no accountability behind the number, the trades behind it are small, and the parties who most want it to look strong are the ones best placed to make it look strong. If you cannot articulate a reason to own the company that survives deleting the grey market number from your screen, you do not have a reason to apply.

Should a small investor apply for SME IPOs?

For most small portfolios the arithmetic answers this before the company does. Minimum applications running to a couple of lakh rupees mean a single SME position could be your entire satellite in one small, lightly regulated, thinly traded business — the lot size setting your position size rather than your rules. Add permanently lighter disclosure and the difficulty of exiting, and the segment suits investors with larger portfolios, higher tolerance for total loss on a single name, and the ability to research a small business properly. The 2025 tightening improved the quality bar, but it does not change the position sizing problem.

I like the company but the IPO price looks expensive. What should I do?

Then you have already made the decision, and it is a perfectly good one. A business you admire at a price you would not pay is a company to put on a watchlist, not a cheque to write. After listing you can watch two or three quarters of results as a public company, see how management handles its first disclosures, wait for the lock-in periods to pass, and buy at a market price rather than a negotiated one — sometimes higher, often lower. The only thing you forgo is a listing gain, which was never a return you were owed. Skipping issues you find expensive is not missing out; it is the process working.

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