Shekar · a moment, addressed

Should I apply for this IPO?

Four checks before the IPO window closes

Section 0 · Real moments5 min readFirst-time investorPublished
A thoughtful Indian shopkeeper examining a handful of grain in a neat store, representing careful inspection before buying.
Should you apply for this IPO?

Like inspecting grain quality before stocking your shop, an IPO needs a proper check before you invest your hard-earned money.

At 9 PM, an IPO screenshot lands in your WhatsApp group. The window closes tomorrow morning. Three people have written, 'Applied.' Someone circles the Grey Market Premium and says, 'Don't miss free money.' You open the app. The subscription button is right there. Your thumb stops for two seconds — and that pause is worth listening to.

Rahul
Bro, this IPO listing premium is 80%! Apply fast, window closes in 2 hours. Free money!

That pause is the right instinct. An IPO is a company's first sale of shares to the public. The company — or its existing owners — sets a price and asks new investors to pay it. You are one of those new investors. There is no long market history to help you judge whether that price is fair.

First: who gets the money? When a company issues fresh shares, the cash goes into the business to fund growth. When existing shareholders sell their stake through an offer-for-sale, the cash goes to them — not the company. Always check which portion is larger before you apply.

Second: is the business profitable? A company with no earnings has no valuation floor. If sentiment turns after listing, the price can fall to any level. Divide the issue price by the company's earnings per share. That is the P/E ratio — the years of profit you are paying upfront.

Third: how does that P/E compare to similar companies already listed in the same sector? If the IPO's P/E is far above its peers, you are paying a premium for promises. Fourth — and hardest: can you wait years? The listing pop is luck. The business builds wealth over years, not days.

Analogy

The kirana shop's asking price

A kirana shop makes ₹1 lakh profit a year. The owner wants ₹20 lakh to sell it to you. That is a P/E of 20 — you are paying 20 years of today's profit upfront. If he wants ₹50 lakh for the same shop, that P/E of 50 only makes sense if you believe profits will grow very fast for a very long time. Every IPO asks exactly this question: is this price fair for what this business actually earns today?

P/E Ratio.Formula
P/E = Share Price / Earnings Per Share. High P/E means you are paying more for every rupee of current profit.

Enter an IPO price and EPS. The tool converts them into P/E and compares that number with two listed peers in the same sector.

Is this IPO priced fairly?

IPO implied P/E0x
This IPO25x
Listed peer A20x
Listed peer B15x

25xx earnings versus peers at 20xx and 15xx. A higher P/E needs stronger future growth.

Why this matters

You will see many IPOs over your investing life. Most will come with high GMP numbers and urgent timelines. These four checks take five minutes. Who gets the money? Is it profitable? What P/E am I paying? Can I wait? Ask them every time, and you will stop applying for IPOs on excitement alone. Over decades, that habit can protect more wealth than one lucky decision.

Where people go wrong

  1. Treating high oversubscription as proof of qualityOversubscription measures demand at the offered price on that particular day. It tells you nothing about whether the price is fair or the business is good.
  2. Using GMP as the primary buy signalGrey Market Premium reflects today's speculative mood among a small group of traders. It has no direct connection to the company's earnings or long-term value.
  3. Assuming a listing-day gain is guaranteedPaytm listed 9% below its issue price. LIC listed 8.6% below. Subscription demand and listing price are two completely separate things.
  4. Not checking the offer-for-sale portionIf most of the IPO is an offer-for-sale, existing investors are cashing out. Your money goes to them, not into the business you are backing.
If you only remember three things

  1. GMP and oversubscription show demand — not quality.

  2. Check fresh issue versus OFS. Where is your money going?

  3. Compare P/E with peers, then ask if you can wait years.

When crores of people have applied, not applying feels irrational. But a price set by excitement is still just a price — and every price has to be justified by earnings, eventually.
Shekar

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