Should you buy every IPO? Research suggests patience may be the smarter strategy

The excitement surrounding an initial public offering (IPO) often creates a fear of missing out among investors, especially when a high-profile company makes its stock market debut. However, decades of market research suggest that chasing every IPO may not be the best investment strategy, with many newly listed companies struggling to sustain their early momentum over the long term. The Julius Baer caution comes at a time when India's primary market is preparing for one of its busiest years.

A report by Julius Baer, authored by Group Chief Investment Officer Yves Bonzon, says investors should focus less on listing-day excitement and more on valuation, fundamentals and timing. Rather than rushing to buy a stock as soon as it lists, the report argues that waiting for the initial hype to fade may often lead to better investment opportunities.

First-day gains are difficult to capture

IPOs have historically generated impressive first-day returns. According to research cited in the report, US IPOs have delivered average listing-day gains of around 18-19% since 1980, with the average first-day jump exceeding 60% during the dot-com boom of 1999-2000.

However, the report notes that these headline returns rarely benefit ordinary investors. The biggest gains usually accrue to institutional investors that receive shares at the IPO offer price. Retail investors typically buy after the stock begins trading, often at significantly higher prices.

The report also highlights the "winner's curse" in IPO investing. Oversubscribed, high-quality IPOs generally allocate only a small number of shares to retail investors, while weaker offerings are easier to obtain. As a result, investors who indiscriminately apply to every IPO often earn far less than the headline listing gains suggest.

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India's IPO pipeline is booming

India's initial public offering (IPO) market is witnessing renewed momentum, supported by robust domestic investor participation and led by large offerings such as the $1.22 billion SBI Funds Management IPO. 

Bhavesh Shah, Managing Director and Head of Investment Banking at Equirus Capital, told CNBC TV18 recently that Indian companies could raise nearly $20 billion through IPOs in 2026, led by marquee offerings such as SBI Mutual Fund, the National Stock Exchange (NSE) and Jio.

Shah estimates that these large public issues alone could mobilise ₹80,000-90,000 crore over the coming months. More broadly, IPO activity is picking up after a relatively subdued first half of the year, supported by improving participation from both retail and institutional investors. Foreign institutional investors (FIIs), which had turned cautious amid market volatility earlier this year, are also expected to gradually return to India's primary market.

Karan Marwah, Head of CFO Advisory and IPO Advisory at Grant Thornton Bharat, said the pipeline remains healthy, with more than 250 companies preparing to go public. At the same time, issuers are likely to remain selective about launch timing, particularly as several large public issues could compete for investor liquidity. Companies are also placing greater emphasis on governance standards, financial reporting and regulatory preparedness before tapping the capital markets.

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Long-term performance often disappoints

Historical evidence indicates that many IPOs fail to maintain their initial momentum.

The report cites research by University of Florida professor Jay Ritter, which found that newly listed companies significantly underperformed comparable firms during the three years after listing. Subsequent studies also showed that companies issuing equity through IPOs or follow-on offerings underperformed non-issuers by roughly five percentage points annually over the following five years.

According to the report, one reason is that companies often choose to go public when investor optimism and market valuations are high. Strong market sentiment allows promoters and existing shareholders to maximise valuations, potentially limiting upside for new investors entering at the IPO stage.

IPO Myth	What the Research Says
Buy every IPO to earn quick profits	Many IPOs underperform over the long term despite strong listing-day gains.
Retail investors enjoy the biggest listing gains	Most first-day gains go to institutional investors with IPO allocations.
Listing day is the best time to invest	Better buying opportunities often emerge after the initial hype fades.
All IPOs are worth applying for	The "winner's curse" means retail investors often get allotted weaker IPOs more easily than blockbuster issues.
Lock-up expiry doesn't matter	Stock prices often face pressure when lock-up periods end and insiders are allowed to sell shares.
Avoid IPOs altogether	The goal is to invest in quality companies, but with valuation discipline rather than FOMO.

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Why waiting may pay off

Instead of rushing to buy on listing day, the report suggests investors may benefit from exercising patience.

One reason is the expiry of lock-up agreements, which restrict promoters, early investors and company insiders from selling their shares for a specified period after listing. Research cited in the report shows that stock prices often experience a statistically significant decline when these lock-up periods expire because a larger supply of shares becomes available in the market.

The report adds that IPO enthusiasm also tends to cool over time. As investor excitement fades and valuations become more grounded, better entry opportunities frequently emerge in the months following a listing. Rather than trying to secure an IPO allocation at any cost, investors can use this period to reassess the company's fundamentals, governance standards and valuation before making an investment decision.

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Discipline over FOMO

Despite its cautionary stance, the report does not advise investors to avoid IPOs altogether. It notes that every successful listed company was once an IPO and cites research showing that just 4% of listed stocks have generated the entire net wealth created by the US equity market since 1926. Missing such companies could hurt long-term portfolio returns.

Instead, Julius Baer recommends maintaining valuation discipline in both public and private markets. With India's IPO pipeline expected to remain robust through the rest of 2026, investors are likely to have no shortage of opportunities to participate in public issues. The report concludes that investors should focus on identifying high-quality businesses at reasonable valuations rather than chasing every new listing. In a market driven by blockbuster IPOs and listing-day excitement, patience may prove to be the smarter long-term investment strategy.

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