You have not yet added any article to your bookmarks!
Join 10k+ people to get notified about new posts, news and tips.
Do not worry we don't spam!
Post by : Anis Farhan
Since 2020, the global and Indian primary markets have witnessed a significant number of newly listed companies trading below their issue prices—an outcome that has puzzled investors and analysts alike. Data shows that nearly half of the IPOs that debuted over the past few years now trade below their original offering levels. This has triggered questions around pricing, valuation, market conditions, investor behaviour, and the future of the IPO ecosystem.
IPO underperformance—defined as the phenomenon where newly listed shares consistently trade below the issue price—is not confined to a handful of companies; it has become a systemic challenge across markets. In India, nearly 47 out of 97 IPOs (roughly 48 per cent) that debuted this year are currently trading lower than their issue price, sending shockwaves through the market.
An IPO (Initial Public Offering) represents the first time a company offers its shares to the public. It is traditionally seen as a milestone for companies—transitioning from private ownership to public ownership, raising fresh capital, enhancing liquidity, and providing an exit route for early investors.
Typically, successful IPOs enjoy strong subscription levels, premium listings (higher opening price than the issue price), and sustained post-listing performance. However, market dynamics over the past few years have skewed these expectations, particularly in emerging markets like India.
One of the most widely cited reasons for post-listing declines is aggressive pricing at the time of IPO issuance. Many companies enter the market with valuations that reflect future growth prospects rather than current fundamentals, pushing issue prices above realistic market value. When share price demand fails to match these lofty valuations, the stock naturally corrects downward once trading begins.
In effect, overly optimistic expectations—often propagated by a strong grey market premium (GMP) and hype around high-profile listings—lead to inflated upward adjustments in the issue price band. When actual secondary market demand fails to sustain these valuations, the stock price adjusts downwards, often below the issue price.
Post-IPO performance is heavily dependent on consistent revenue growth, profitability, and sound corporate governance. A significant number of companies that listed recently reported slower-than-expected growth, weaker margins, or delays in achieving planned milestones. This reality often sets in immediately after listing, causing investor confidence to taper and share prices to decline.
When companies fail to meet earnings expectations or reveal tepid growth stories in post-listing communications, institutional and retail investors often reassess their positions, leading to selling pressure.
Global macroeconomic factors, rising interest rates, geopolitical uncertainty, and tightened liquidity conditions have also weakened investor appetite for risk assets like IPOs. Markets that were once buoyed by ultra-low interest rates and aggressive portfolio reallocation have become more cautious.
Institutional investors, which once played a significant role in stabilising newly listed stocks, are now focusing more on profitability and cash flow generation rather than pure growth narratives. This shift has direct implications for newly listed stocks, which often depend on continued institutional backing.
Retail investors often exhibit behavioural biases that can distort valuation and performance of IPO stocks. An initial rush of retail demand—especially where subscription levels are high—can create an artificial sense of stock strength. However, once listing day arrives and early profit-taking begins, prices can fall sharply as traders sell into strength.
Behavioural finance studies also suggest that social media sentiment and market hype can inflate investor expectations disproportionately, feeding into inflated valuations that do not hold up under rational assessment.
When Park Medi World debuted on the stock exchanges, its shares opened below the issue price, erasing initial excitement and signaling cautious investor sentiment. In its early trading sessions, the stock struggled to reclaim the original IPO price — a reflection of market skepticism around valuation and business prospects.
Laxmi India Finance’s listing also served as an example of sharp market correction. Despite a modest opening, shares traded substantially below the issue price as initial enthusiasm faded into selling pressure. Analysts highlighted that investors were pricing in future growth risks rather than simply betting on listing gains.
The eyewear platform’s entry into the public markets was another attention-grabbing offering. Yet, despite a heavily marketed IPO, the company’s stock opened below expectations and faced selling pressure as investors questioned valuation levels and profitability prospects.
The methods employed in determining the IPO price band play a crucial role in final pricing and post-listing performance. In some cases, stringent pricing models, excessive optimism, and peer group valuation mismatches can lead to higher-than-justified issue prices.
Institutional pricing mechanisms and underwriter strategies can inadvertently push prices upward to capture maximum proceeds, limit risk for issuers, and satisfy anchor investors. However, this may come at the cost of long-term share performance.
Grey market premiums (GMP) often reflect an unofficial price of IPO shares before actual listing based on demand and supply in unofficial markets. A high GMP can create unrealistic expectations, attracting speculative interest from investors rather than genuine long-term capital.
When GMP-driven excitement wanes post-listing, share prices can correct sharply, making the post-listing performance look weak.
Historically, IPOs were perceived as safe avenues for high short-term gains. While many IPOs still deliver returns, the recent trend shows that investors must now weigh risks more carefully. Not all IPOs automatically deliver premium listings; instead, fundamental analysis should dictate investment decisions.
Investors would do well to focus on business profitability, cash flow strength, realistic growth projections, and sector dynamics before subscribing to any IPO.
An IPO listing is not a guaranteed pathway to quick profits. For many newly listed companies, early underperformance might reverse over time as growth trajectories materialise and fundamentals improve. Therefore, adopting a medium to long-term investment stance often makes more sense than chasing listing-day gains.
Despite these challenges, the IPO market remains robust in terms of capital raised and investor participation. Many companies continue to view public markets as a key channel for raising growth capital. However, aligning market expectations with realistic valuations and performing rigorous due diligence are critical for sustainable performance.
Regulators and market intermediaries have also increasingly emphasised transparency and pricing discipline, which could help strengthen IPO outcomes in the future. Institutional frameworks that encourage accurate pricing, robust disclosure norms, and investor education may mitigate underperformance.
The trend of nearly half of recently listed IPOs trading below their issue price sheds light on a market in transition. While exuberant valuations and market hype once drove significant subscription levels, today’s market demands a more discerning approach. From pricing methodologies and investor psychology to broader macroeconomic headwinds, multiple factors conspire to influence IPO performance.
Investors who understand these forces and integrate fundamental analysis into their decisions are better positioned to navigate the secondary performance of newly listed stocks.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Readers should perform their own research or consult a financial professional before making investment decisions.
Dalal Street Spotlight: Top 10 Stocks Investors Are Watching as Markets Open on a High
Indian stock markets begin the week with strong momentum, and several blue-chip and mid-cap stocks a
Market Movers Today: Key Stocks Set To Watch In Indian Markets
Indian equity markets are poised for active trading as several major companies, including Bharti Air
Milan Welcomes the World: Inside the Grand Opening Ceremony of the 2026 Winter Olympics
The 2026 Winter Olympics opening ceremony in Milan marked a defining moment for global sport, blendi
Unfolding Market Drama: Sensex & Nifty Trade Volatility Amid Budget Fallout and India-US Trade Breakthrough
Indian equity markets exhibited high volatility this week as the 2026 Union Budget triggered sharp s
Dhurandhar 2 Teaser Countdown Ignites Fan Frenzy: All You Need to Know
The highly anticipated sequel to the blockbuster Dhurandhar is building intense excitement as the Dh
Vietnam Overtakes Thailand as Top Choice for Chinese Tourists
Vietnam has quietly surpassed Thailand as the favorite destination for Chinese tourists in 2025.
