Are Retail Investors Falling for the Low-Price Trap in IPOs?

The IPO market picked up pace again this week. Subscriptions were strong across the board - not just from QIBs and HNIs, but also from retail investors, who showed unusually high enthusiasm.

But behind the headline numbers, a different question is emerging: Are retail investors simply chasing low-priced IPOs without evaluating the fundamentals?

A Strong Week for IPOs

Two IPOs stood out - Meesho and Aequs - and both saw massive demand.

Meesho IPO subscriptions:

• Overall: 79.03×
• QIB: 120×
• HNI / NII: 38×
• Retail: 19×

Aequs IPO subscriptions:

• Overall: 102×
• QIB: 121×
• HNI: 81×
• Retail: 78×

The impressive part wasn’t QIB or HNI demand - those segments often show high oversubscription. The real surprise was retail investors, who bid far more aggressively than in recent weeks.

The “Price Effect” - Why Retail Rushed In

Both companies - Meesho and Aequs - have been loss-making for three consecutive years. Yet, retail appetite surged.

Why?

Because the IPO prices looked “affordable.”

• Meesho upper band: ₹111
• Aequs upper band: ₹124

For many retail investors, this creates a psychological comfort: “₹100-odd is not much downside even if the stock falls.”

This is called the price effect - the illusion that a low IPO price means lower risk.

Why the Price Effect Is Misleading

The harsh truth: The IPO price means nothing by itself.

An IPO priced at ₹100 is not automatically cheaper or safer than one priced at ₹3,800. Price must be evaluated relative to:

• earnings,
• growth prospects,
• business model,
• valuations,
• peers, and
• future profitability.

In this case, both Meesho and Aequs had negative earnings. That means the price alone tells you nothing about the fair value or risk.

This illusion is similar to the NAV fallacy: People assume a mutual fund with a ₹10 NAV is “cheaper” than one with a ₹75 NAV.

But NAV reflects unit price - not performance or value.

The same applies to stocks after a split. When a ₹2,000 stock splits to ₹200, nothing fundamentally changes - yet retail investors often rush in because the price “looks affordable.”

This is the danger retail investors must avoid.

What Retail Investors Should Actually Look At

Before applying for an IPO, look beyond the issue price. What matters is:

• Business model: Is it sustainable or dependent on discounts and cash burn?
• Profitability outlook: When will the company turn profitable?
• Competitive moat: Does it have something unique?
• Use of IPO proceeds: Debt repayment? Expansion? Working capital?
• Valuation: Is the IPO priced fairly compared to peers?
• Risks: What can go wrong?

The IPO price tells you nothing unless you connect it to earnings and value.

Key Takeaways

• Meesho and Aequs saw massive retail oversubscription despite being loss-making.
• The “low-price effect” (₹100–₹125 range) may have driven retail enthusiasm.
• IPO price alone is not a measure of value or risk.
• Low nominal price ≠ low downside.
• Investors must evaluate business fundamentals, valuations, and future profitability - not just the issue price.

Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice.