GMP is not analysis. A structured checklist for reading the red herring prospectus — objects of the issue, OFS share, valuation, risk factors and lock-in expiry.

Most IPO decisions in India are made on grey market premium and subscription figures. Both describe demand. Neither describes the business.

Here is a structured way to read the offer document instead, and a sense of what the recent data says about outcomes.

First, the Base Rates

FY 2025-26 set a record: 112 companies raised ₹1,78,963 crore through mainboard IPOs, up 10% on the previous year’s ₹1,62,387 crore from 78 issues — the first time India recorded two consecutive years of record IPO fundraising. The largest were Tata Capital (₹15,512 crore), HDB Financial Services (₹12,500 crore) and LG Electronics (₹11,605 crore).

But enthusiasm moderated. Only 56% of IPOs were subscribed more than 10 times, against 72% the previous year. Average retail applications fell to 12.87 lakh from 21.31 lakh.

And listing gains are not the same as investment returns. Analysis of the 2025 cohort found only 43 of 79 companies that listed delivered positive returns subsequently, with roughly half trading below their listing prices.

The conclusion worth carrying: listing day performance does not predict what happens afterwards.

Where to Get the Real Information

The Red Herring Prospectus (RHP) is filed with SEBI and available on sebi.gov.in, the exchanges and the lead managers’ websites. It is long, and it is the only complete source. Everything else is a summary of it, often written by someone selling the issue.

The Checklist

1. Objects of the issue — where does the money go?

The most informative single section.

• Fresh issue — new shares, money goes into the company for expansion, debt repayment or working capital
• Offer for sale (OFS) — existing shareholders selling, money goes to them, not the company

A large OFS is not automatically negative — early investors need exits. But an issue that is overwhelmingly OFS means the company raises no capital, and you should ask why insiders are reducing at this price and this moment.

Within the fresh issue, examine the split. Debt repayment is a defensible use. Large allocations to “general corporate purposes” are a disclosure gap, and SEBI has been tightening exactly this area — proceeds monitoring and clearer use-of-funds disclosure have been focus points of recent amendments.

2. Financials — three years minimum, restated

The RHP contains restated financials. Compute:

• Revenue growth, and whether it is organic
• EBITDA and net margin trajectory
• Cash flow from operations versus net profit across all disclosed years
• ROCE and ROE
• Debt before and after the issue

Watch specifically for a profit spike in the year immediately preceding the IPO. It is common, and it is sometimes real. Check whether the margin improvement is explained by something durable or by deferred spending, one-off items or a favourable input-cost cycle.

3. Valuation — versus listed peers, on the same metric

The RHP includes a peer comparison. Read it critically: companies choose comparable sets that flatter them.

Build your own comparison. Compute the P/E on post-issue equity, which is diluted by fresh shares. Compare against listed peers on the same basis — and against the same company’s own valuation in earlier private funding rounds, where disclosed.

The core question: what growth rate does this price require, and for how long?

4. Promoter and shareholding structure

• Post-issue promoter holding, and lock-in periods
• Whether pre-IPO investors bought at materially lower prices recently — a sharp step-up between the last private round and the IPO price is a signal about who is capturing the value
• Related party transactions in the RHP notes
• Litigation involving promoters and directors, disclosed in the legal section

5. Risk factors — read the whole section

Companies are legally required to disclose risks and generally do so thoroughly. This is the one part of the document written to protect the issuer rather than to sell the issue, which makes it the most candid.

Look for: customer concentration, supplier dependence, regulatory approvals pending, working capital intensity, contingent liabilities, and dependence on individual key personnel.

6. Industry section — check the sponsor

The industry report is usually commissioned by the company. Its market-size and growth projections are not independent. Cross-check headline claims against government data or independent industry sources before accepting them.

7. Lock-in expiry calendar

Anchor investor lock-ins and pre-IPO investor lock-ins expire on a schedule disclosed in the RHP. These dates frequently coincide with supply pressure on the stock. Know them before you plan a holding period.

8. Book-running lead managers

Track record is not a guarantee, but the quality and history of the lead managers, and how their previously managed issues have performed post-listing, is publicly checkable information.

What the Allocation Structure Means for You

The retail quota for profitable issuers under Regulation 6(1) of the ICDR Regulations remains at 35% of the issue. SEBI had proposed reducing this to 25% for issues above ₹5,000 crore in a July 2025 consultation paper, but withdrew that proposal and instead addressed large-issuer concerns by easing minimum public offer requirements.

Practical implications:

• Retail applications are allotted by lottery when oversubscribed, not pro-rata
• One application per PAN. Multiple applications from the same PAN are rejected
• Applying for more than one lot does not improve odds of getting an allotment in a heavily oversubscribed issue — a single lot maximises the chance of receiving something
• Cut-off price bidding is available to retail and generally advisable
• Funds are blocked via ASBA or UPI mandate; blocked funds continue to earn bank interest

Two Decisions, Not One

Separate them explicitly:

“Should I apply for listing gains?” — a short-term demand bet. Depends on subscription momentum and market conditions. Roughly half of recent listings traded below their listing prices afterwards, so this is a coin flip with costs attached.

“Do I want to own this business for five years?” — an investment decision. Depends entirely on the checklist above, and is unaffected by grey market premium.

Confusing the two produces the common outcome: applying for a listing pop, failing to sell on day one, and holding a business you never evaluated.

Frequently Asked Questions

Is grey market premium reliable?

GMP is an unofficial, unregulated indicator with no supervisory oversight. It reflects sentiment in an opaque market and has no bearing on business quality.

Should I apply to every IPO?

No. A record ₹1.79 lakh crore was raised in FY26 across 112 mainboard issues; indiscriminate application is not a strategy, and each application blocks capital.

What if I do not get an allotment?

You can buy on the exchange after listing, often at a better price if the issue was aggressively priced. Nothing about an IPO makes the first-day price the best available.

How long should I hold an IPO stock?

The same as any other stock — as long as the investment thesis holds. IPOs carry an additional consideration: lock-in expiry dates create predictable supply events.

Sources and Further Reading

• SEBI filings and RHP documents — sebi.gov.in
• PRIME Database Group IPO statistics for FY 2025-26
• SEBI (ICDR) Regulations, 2018 and subsequent amendments
• NSE and BSE IPO sections