37% IPOs Flopped: 6 Red Flags in Your RHP

More than one in three recent IPOs have listed below their issue price. Before you apply for any IPO, check these 6 warning signs hidden inside the Red Herring Prospectus — the document most investors never read.

Here's what happened: Over a third of recently listed Indian IPOs have traded below their issue price after listing, wiping out retail investor capital applied at full price.. Most retail applicants rely on grey market premiums and social media buzz rather than reading the Red Herring Prospectus, missing critical disclosures.. SEBI regulations require full disclosure of risks, related-party transactions, and use of proceeds in the RHP — but these sections are rarely read by ordinary investors..

What you should do: Download the RHP from SEBI's EDGAR portal (sebi.gov.in) before applying — search 'Objects of the Issue' to confirm proceeds fund real business growth, not debt repayment.. Compare the IPO's P/E ratio with at least two listed peers in the same industry — if the IPO is priced more than 50% higher, demand a clear justification before investing.. Check the 'Offer for Sale' versus 'Fresh Issue' split: if more than 60% of the IPO is an OFS (existing shareholders selling), treat it as a caution signal and dig into promoter intent..

Search 'related party transactions' in the RHP — if the company has been paying large fees to promoter-owned entities for years, that cash leak continues post-listing at your expense.

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