Let me start with a simple question.
What’s common between DMart, IRCTC, Happiest Mind, Route Mobile, and Burger King?
All of them opened, touched, or closed 100% above their offer price on the very first day of listing. In simple terms, investors doubled their money in just a few trading sessions – a classic case of IPO listing gains in India.
Burger King, for example, was offered at ₹60 during its IPO. Within days, it raced up to ₹214 after three consecutive upper circuits! DMart and IRCTC weren’t far behind, they also tripled in value quickly, though without the drama of daily circuits.
Sounds exciting, right? But here’s where the story takes a twist: Burger King IPO soon hit a lower circuit, wiping away much of that exuberance.
This raises the burning question many investors ask:
What were the merchant bankers even smoking, launching these IPOs at such steep discounts? Were they incompetent or did they fool the promoters?
Let’s bust the IPO pricing and valuation myth.
Busting the Myths Around IPO Pricing & Valuation
Myth 1: Bankers undervalue companies intentionally
Reality: Investment bankers don’t just “decide” the IPO price. Their role is more as facilitators, ensuring process and compliance. The final IPO price band is shaped by market demand, not banker whims.
Myth 2: Complex valuation models set the price
Reality: While bankers and analysts do rough valuations, IPO valuation is feedback-driven. During IPO roadshows, investors grill analysts and management, then indicate what price they’d actually invest at. This investor appetite forms the real basis for pricing.
Myth 3: Promoters or PE funds are fooled
Reality: Promoters and private equity sellers in IPOs are savvy players. Often, they choose partial exits, leaving value for the secondary market. IPO regulations also mandate promoter share reductions over time, making it logical to leave headroom for future fundraising.
How Is an IPO Really Priced?
Contrary to popular belief, IPO pricing isn’t about a few bankers making fancy valuation models in a closed room. It’s a structured, market-driven process with multiple players involved.
The Core Team
- Sector/coverage team
- Equity Capital Markets (ECM) team
- Research analysts
- Sales team
- Internal legal & compliance
Add to that: the company’s management, promoters, and external lawyers (both domestic and international, if FIIs are in play).
Draft Red Herring Prospectus Explained (DRHP)
Bankers and lawyers help management put disclosures together as per IPO regulations. The DRHP is a detailed document containing the company’s financials, risks, and business information. Bankers act more as facilitators; valuation at this stage is just a rough estimate.
Research Analyst’s Role
An independent analyst, working behind a “Chinese wall,” builds their own view of the company. Bankers can’t influence this.
Roadshows
- Analyst Roadshow: Investors grill analysts based on DRHP data.
- Management Roadshow: Investors directly question management about the business, growth, and risks.
Roadshows are presentations where management and bankers pitch the IPO to institutional investors to gauge interest.
These are crucial steps in the IPO book building process.
Price Discovery
ECM bankers and sales teams collect investor feedback—how much they want to invest and at what price. This forms the “soft book.” This process, known as book building, determines the final IPO price band based on demand.
Bottom line: Investor feedback drives the IPO bidding process—not the merchant banker’s greed or incompetence.
Key Realities Behind IPO Pricing
Private Equity Sellers Aren’t Fools
Promoters Leave Value on the Table
Merchant Bankers’ Incentives
Market Exuberance ≠ Intrinsic Value
IPO Performance: Who’s Really Smart Here?
Clearly, promoters and PE funds know what they’re doing. Investors who think bankers are either “too greedy” or “too incompetent” are missing the point.
IPO performance is a delicate balance of market sentiment, investor demand, and regulatory structure. It’s not about fooling anyone.
IPO Investing Basics – Lesson for Investors To Learn
- Upper circuits don’t mean a company is worth that much.
- Low IPO prices don’t mean bankers are fools.
IPO investing basics show that pricing is about ensuring a win-win—for promoters, institutions, and retail alike.
That’s why finance education matters. Understanding IPO analysis arms you with clarity that goes beyond WhatsApp forwards and half-baked theories.
At the end of the day, IPOs aren’t lotteries—they’re structured financial instruments shaped by real market dynamics. The smarter you are in understanding the primary market, the better investor you become.
Think You Understand IPO Pricing? Think Again!