What Determines The Success of An IPO?

Success of An IPO

You would be familiar with brands like Zomato, Nykaa, and Paytm. They all came with their IPO in 2021. But what is an IPO (Initial Public Offering)?

When a private company wants additional capital to increase business, reduce debt, spread risk of ownership with many shareholders, and get liquidity & marketability of its shares, it goes public.

Thus, an IPO is a process where for the first time a private company offers its shares to the public.

In the year 2021, 65 companies in India collectively raised around Rs. 1.2 - 1.3 lakh crore through IPO investment - it was the highest amount ever raised in a single year.

The two biggest IPOs in 2021 were: Nykaa (Fsn E-Commerce Ventures Ltd) that raised Rs. 5,352 crores and Paytm (One 97 Communications Ltd) that raised Rs. 18,300 crores. Nykaa’s IPO was really successful, but Paytm’s IPO did not receive the response as expected.

So what are the factors that will determine whether an IPO was successful or not? Let us understand that.

What factors determine the success of an Initial Public Offering?

Below are a few factors that will determine the success of an IPO:

1. Oversubscription/Under Subscription of the IPO

One of the main factors that determine the success of an IPO is whether the IPO was oversubscribed or undersubscribed. Oversubscription of an IPO means the demand for its shares is more than the number of shares available to the public. In contrast, an IPO is undersubscribed when the demand for its shares is less than the shares open to the public. So, if the demand for a particular IPO is more, it means more people are making IPO investment and that it is successful.

For example, Paytm’s IPO was oversubscribed by only 1.89 times and Nykaa’s IPO was oversubscribed by 82 times, which is enormous. Therefore, we can say Nykaa got a better response than Paytm.

An investor will need a trading account to invest in an IPO. You can open a free trading account for that. 

2. Listing price

The share price on the day of the listing is also one of the critical indicators of a successful IPO. If the price is trading at a premium on the day of listing, it is considered to be successful, and if it is trading at a discount, it is deemed to be unsuccessful.

For example, Zomato’s issue price was Rs. 76, and its listing price was Rs. 116, i.e., a 53% premium. This signals it was a successful IPO.

Whereas Kalyan Jewellers’ issue price was Rs. 87, and its listing price was Rs. 73.95, i.e., a 15% discount, meaning it was not a very successful IPO.

3. Sustainable price after listing

To fairly value an IPO, it is said that the company's share price should be measured 30 days after an IPO.

For example, Latent View Analytics Limited share on the day of IPO (23nd Nov 2021) was Rs. 488.75 and after 30 days (4th Jan 2021) was Rs. 545. There is an appreciation in the price, which is a positive sign and could mean a successful IPO.

Fino Payments Bank’s share on the day of IPO (12th Nov 2021) was Rs. 544 and after 30 days (27th Dec 2021) was Rs. 391. The price has drastically fallen, indicating that the IPO could not sustain the price. 

Source: NSE

4. Valuation relative to peers

Valuation multiples could also be a factor that determines whether an IPO is successful or not. After the IPO is listed, an investor should compare the valuation multiples like Price to Earnings, Price to Book, Price to Sales, etc., with its industry peers. If the valuation multiples of the company which is listed recently are more than of its peers, it could be a signal that investors have more expectations from the company and vice versa.


Coming with an IPO is a huge decision for a company. There are many factors that will determine whether an IPO is successful or not. However, to make the IPO successful, a company should market its IPO in a better way, choose the right investment banker, and be as transparent as possible.

Before investing in an IPO, an investor should also carefully analyse the company, the risk involved, its pros and cons, read the prospectus carefully, check the valuation, research about the management or talk to the advisor.

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