IPO Mistakes Investors Keep Making, And How to Avoid Them in 2026
Case studies from Zomato, LIC, and Mamaearth that reveal the real red flags.
Hello and welcome back to The Finance Lens!
Every time a new IPO comes out, my phone suddenly becomes the busiest place on earth.
Hey, are you applying?
Listing gains confirmed?
Iska grey market premium kitna hai?
Even people who have not checked their portfolios in six months suddenly become super investors during IPO season. Honestly, I used to be the same, excited, hopeful, and sometimes blindly trusting whatever market sentiment was saying.
But over time, something became very clear to me: Most IPOs are not designed to make you rich. They are designed to let someone else exit comfortably.
Nobody talks about this openly, so let’s talk about it like normal people.
Don’t just read once; stay connected. If you are enjoying this piece, tap the ❤️ or hit “Repost” to share it with your Substack friends, as it helps more curious readers discover this community. And subscribe for free to get thoughtful insights, fresh ideas, and more stories like this straight to your inbox.
1. Okay, So What Really Happens in an IPO?
Forget the complicated definitions. Here is the simple version:
An IPO is basically the moment a private company says: Hey, public, we want your money now. And in return, we will give you a piece of our company.
Fair enough.
But the twist is this:
Many IPOs are NOT raising money for the company.
They are helping early investors or promoters cash out.
That part is called OFS (Offer for Sale).
You will rarely see this highlighted in shiny IPO ads.
2. Why I Think You Should Be Careful
I have seen a pattern:
The company becomes hot
Markets are buzzing
Valuation goes through the roof
IPO hits the market
Everyone wants a piece
A few months later… reality settles
And suddenly, the WhatsApp groups become very quiet.
This is not pessimism; it is just how hype cycles work.
Let’s look at some real examples we all lived through.
Case Study 1: Zomato - The IPO Everyone Wanted a Slice Of
I still remember people applying for Zomato as if it were the new iPhone launch.
And to be fair, the listing was great. But later, as the dust settled, the stock corrected hard.
Why?
Because the valuation was basically asking people to pay today for profits that might come in the future.
Lesson Zomato gave us:
Great apps do not always make great investments, at least not at any price.
Case Study 2: LIC - The Emotional IPO That Didn’t Reward Emotion
LIC’s IPO was huge. Everyone from uncles to neighbours felt this was their chance to own a piece of LIC.
But here is the subtle part:
Heavy OFS (government selling)
Expensive compared to global insurers
Market mood was weak
And the IPO price left almost no cushion for listing gains
What hurts many people is not that LIC is a bad company; it is not, but that the IPO pricing did not leave room for retail investors to breathe.
Case Study 3: Mamaearth - The Power of Branding (and Overpricing)
This one was wild.
Before the IPO even opened, social media had already declared it overpriced.
And honestly, some of the criticism was not wrong.
High valuation, thin profits, and a big chunk of OFS made it tough to justify.
It is a nice brand. People love the products.
But the IPO asked people to pay for future growth that was not visible yet.
A classic case of narrative overshooting numbers.
So Should We Avoid All IPOs? Nah.
IPOs are not evil.
You just need to know what is inside the box before you open it.
Many legendary Indian stocks were once IPOs:
DMart
Infosys
IRCTC
Coal India
HDFC Bank
So the idea is not to avoid IPOs.
It is to avoid blind IPOs.
Here is My Simple 5-Question Filter
Whenever I look at an IPO, I ask:
1. Is most of it OFS?
If insiders are running to the exit, I do not want to enter.
2. Are valuations crazy compared to peers?
If yes, I would rather wait for the hype to fade.
3. Is the company actually profitable?
If not, I want to see a clear path.
4. What will they do with the money?
If the answer is repay debt or general corporate purposes, I move on.
5. Do I understand this business?
If I can not explain it to a friend in one sentence, I avoid it.
It is not perfect, but it keeps me sane.
Before You Go
I love IPOs. Not the hype, not the grey market gossip, but the actual breakdown of what is under the hood.
That is why I started the IPO Deep Dive Series: to make every IPO easy to understand, so you do not get trapped by excitement or marketing.
I break down things like:
who is selling
whether valuations make sense
whether you should apply or avoid
what peers are doing
and the part nobody talks about: the red flags
If you want honest, simple, no-nonsense IPO analysis, stick around for the series.
Your money deserves clarity, not hype.
Unlock all chapters here: https://smita6.gumroad.com/l/xmtnn
**A small personal note: I recently wrote a children’s book on gentle money habits for kids. You can check out the details here if you would like to explore 💛
Thanks for spending time with The Finance Lens! If this piece helped you, tap the ❤️, share it, or repost it on Substack; it really helps our insights reach more thoughtful readers like you. And if you have not yet, subscribe for free to stay up to date with our latest stories and insights. Because investing wisdom grows stronger when it is shared.
For ipo series it would be kind if you if you could enable upi payment