Lessons from Reliance Power and Infosys: Experts urge caution, selectivity amid IPO frenzy

As the initial public offering (IPO) market continues to attract attention, industry veterans are urging investors to exercise caution. Nilesh Shah, MD & CEO of Envision Capital and Devina Mehra, Founder and CMD of First Global, stressed that while IPOs can offer opportunities, they are often overvalued and not guaranteed to deliver immediate gains.

Shah noted that participating in IPOs has historically been selective in terms of profitability. "Broadly over a period of time, participating in IPOs has not necessarily been the best way to generate returns. Maybe just 2-10 per cent of IPOs actually make money at listing or within the first month," he told Business Today on Tuesday.

He advised investors to wait for two to four quarters of performance from newly listed companies before considering them, as this often provides a clearer picture and more realistic pricing after potential weak quarters.

Highlighting the role of IPOs in shaping future investment strategies, Shah added, "What it does for me is it creates a pipeline for future ideas and investments. But directly participating in IPOs may not be the most rewarding experience on an aggregate basis."

Mehra echoed the cautious stance, emphasising that IPO demand is no indicator of future stock performance. "Most of the time, when there is a frenzy in the IPO market, it almost never makes sense to participate because IPOs are overvalued. The occasional good business or well-priced IPO often does not provide allotment," she said.

She cited historical examples, including Reliance Power Ltd (RPower), which saw massive demand at listing but the stock later plunged and Infosys, whose IPO was undersubscribed but went on to become one of the biggest wealth creators in the Indian market.

Mehra also criticised the lottery-like approach some investors adopt, chasing IPOs purely for listing gains rather than evaluating business fundamentals or valuations. "Frenzy or demand at IPO time is absolutely no indicator of subsequent stock performance," she added.

On the broader market outlook, Shah expects the next one to two years to offer better prospects than the past year, while Mehra believes that an earnings uptick may be delayed until the third quarter (Q3) of FY26.