Can You Lose Money in IPOs - A Guide for NRI Investors

"I applied for every IPO in 2025. Got allotment in four. Three are trading below issue price."

This message came from an NRI in our Belong WhatsApp community last month. He was frustrated. The financial news kept talking about listing gains. But his portfolio told a different story.

The truth is uncomfortable. Yes, you can absolutely lose money in IPOs. And in 2025, many investors did.

At Belong, we help NRIs navigate Indian investments with clarity. This guide covers what nobody wants to talk about.

How IPOs fail. Why they fail. What happens to your money when they do. And how you can protect yourself.

The Reality of IPO Losses in India

Let us start with hard data.

According to INDmoney's 2025 IPO analysis, 59% of IPOs that listed in 2025 are now trading below their listing price. Only 41% managed to stay above.

That means more than half the IPOs lost money for investors who held on.

The median listing gain collapsed from 15.2% in 2024 to just 3.8% in 2025. And 23% of IPOs in 2025 listed at a loss on day one itself.

👉 Tip: Listing gains are not investment returns. A stock that jumps 20% on listing day can easily fall 30% in the next three months.

Why Do IPOs Fail?

Several factors cause IPOs to underperform or lose money:

Overvaluation

This is the most common culprit. Companies and investment bankers often price IPOs based on future growth expectations. Not current earnings. When the market corrects, share prices fall to realistic levels.

Zomato's 2021 IPO is a classic example. Despite initial euphoria, the stock dropped below issue price due to profitability concerns and high valuation.

Weak Financial Performance

Many startups entering the IPO market in 2024 and 2025 were loss making. According to Business Standard, eight out of twelve startups filing for IPO in one period had cumulative losses. The total was ₹8,000 crore.

Companies with no clear path to profitability often disappoint investors post listing.

Poor Market Timing

The LIC IPO in 2022 listed at an 8.5% discount from the issue price. Unfavourable macroeconomic conditions at the time crushed investor appetite.

Even solid companies can struggle if they go public during market downturns or political instability.

High Promoter Exits

When a large portion of the IPO is Offer for Sale (OFS), existing investors are cashing out. This leaves less upside for new investors. It also signals that insiders want to exit at peak valuations.

Worst Performing IPOs: Real Examples

Let us look at specific IPOs that lost money for investors:

The Hyundai IPO was India's biggest ever. Yet it ended listing day with an 8% loss. Size does not guarantee success.

MVK Agro Food Products dropped from ₹120 issue price to ₹41.85 current price. That represents a 65% total loss for investors who held on.

👉 Tip: SME IPOs carry significantly higher risk than mainboard IPOs. Many SME IPOs never recover from listing losses.

What Happens When You Lose Money in an IPO?

Your shares get credited to your demat account at the listing price. If the listing price is below issue price, your investment is immediately underwater.

You have three choices:

Hold and Wait

Some IPOs recover over time. Jana Small Finance Bank listed at an 11% loss but later traded at 73% gains. JG Chemicals recovered from a 16% listing loss to post 8% overall gains.

But this is not guaranteed. Many IPOs keep falling further after a weak debut.

Sell and Book the Loss

You can exit your position and book the loss. This crystallizes your capital loss. But it also frees up your capital for better opportunities.

Average Down

If you believe in the company's fundamentals, you can buy more shares at lower prices to reduce your average cost. This is risky. It can lead to deeper losses if the stock keeps falling.

For NRIs, the decision depends on your investment horizon and conviction in the business. Learn more about making informed investment decisions.

NRI Tax Treatment on IPO Losses

Here is where it gets important. IPO losses in India have specific tax implications for NRIs.

Offsetting Losses Against Gains

According to Indian tax law, you can offset capital losses against capital gains:

Short term capital loss (STCL) can be offset against both short term and long term capital gains. Long term capital loss (LTCL) can only be offset against long term capital gains.

If you cannot use the loss in the current year, you can carry it forward for up to 8 years.

Holding Period Matters

For listed equity shares, the holding period for long term classification is 12 months. If you sell within 12 months, any loss is short term. If you sell after 12 months, the loss is long term.

You Must File Returns to Claim Losses

This is critical. You cannot carry forward losses unless you file an income tax return in India by the due date. Miss the deadline and you lose the benefit.

👉 Tip: Even if your Indian income is below the exemption limit, file ITR if you have capital losses to carry forward.

Understand more about NRI tax filing requirements.

Why NRIs Face Additional IPO Risks

NRIs investing in Indian IPOs face some unique challenges:

Currency Risk

Your IPO investment is in Indian rupees. If the rupee depreciates against your home currency, your effective returns drop. Even if the stock goes up in INR, you might see lower returns in AED, USD, or GBP.

A stock that gains 10% in INR but faces 8% rupee depreciation gives you only 2% real return.

Information Gap

Living abroad means less access to local news, management commentary, and market sentiment. You might miss warning signs that local investors catch early.

Repatriation Timing

When you sell IPO shares at a loss and want to repatriate funds, the exchange rate at that time matters. If rupee has weakened, your loss in dollar terms is even larger.

For currency considerations, track rates using our rupee vs dollar monitor.

Red Flags to Watch Before Applying

How can you spot a potentially bad IPO before applying? Look for these warning signs:

High Offer for Sale Component

When most of the IPO is OFS, promoters and existing investors are cashing out. Fresh issue money goes to the company for growth. OFS money goes to existing shareholders. Prefer IPOs with higher fresh issue component.

Negative Operating Cash Flows

Revenue growth means nothing if the company burns cash. Check if operating cash flow is positive. Companies with consistent negative cash flows often struggle post listing.

Stretched Valuations

Compare the IPO valuation (Price to Earnings, Price to Sales) with listed peers. If the IPO is priced significantly higher than similar companies, be cautious.

Generic Use of Proceeds

When the DRHP says funds will be used for "general corporate purposes" without specifics, be cautious. It signals lack of clear growth strategy.

Pending Litigation

Check the risk factors section of the DRHP. Major pending lawsuits or regulatory issues can impact the business significantly.

👉 Tip: Always read the risk factors section in the DRHP. Most investors skip it. Those who read it make better decisions.

Common Mistakes NRIs Make in IPO Investing

We see these patterns repeatedly in our community:

Chasing Grey Market Premium

Grey market premium (GMP) is the unofficial price at which IPO shares trade before listing. Many NRIs use GMP to decide applications. This is dangerous. GMP is speculative and can swing wildly. A high GMP today can disappear by listing day.

Applying to Every IPO

Some investors apply to all IPOs hoping to get lucky. This dilutes your capital across mediocre opportunities. Selective investing based on fundamentals works better.

Ignoring Sector Concentration

If you apply to five tech IPOs in a row, you are heavily concentrated in one sector. When tech falls, your entire IPO portfolio falls together.

Using IPO Funding

Taking loans to invest in IPOs is extremely risky. The listing premium must cover both the gain expectation and the funding cost. When IPOs underperform, the losses amplify.

These patterns align with common NRI investment mistakes we have observed.

How to Evaluate IPO Risk Before Applying

Follow this framework to assess each IPO:

Step 1: Check Profitability

Is the company profitable? If not, does it have a clear timeline to profitability? Loss making companies need higher scrutiny.

Step 2: Read Peer Comparison

The DRHP contains peer comparison data. How does this company compare to listed peers on margins, growth, and valuation?

Step 3: Examine Promoter Background

Who runs this company? What is their track record? Have they been involved in controversies or failed ventures before?

Step 4: Review IPO Proceeds Usage

Where is the money going? Debt repayment is neutral. Expansion is positive. Vague "general purposes" is negative.

Step 5: Check Anchor Investor Participation

Strong anchor investor participation signals institutional confidence. Look for reputable mutual funds and insurers in the anchor book.

IPO Alternatives for Risk Averse NRIs

If IPO risk concerns you, consider these alternatives:

Mutual Funds

Let professional fund managers pick stocks for you. Many mutual funds invest in IPOs with better research and risk management. Explore options through our GIFT City mutual fund explorer.

Consider funds like DSP Global Equity Fund or Tata India Dynamic Equity Fund for diversified exposure.

Fixed Deposits

For capital preservation, NRI fixed deposits offer guaranteed returns without market risk. Compare rates across banks before choosing.

GIFT City Options

GIFT City investments offer tax efficient alternatives to direct equity. Mutual funds through GIFT City provide specific tax benefits under Section 10(4D).

Alternative Investment Funds

For sophisticated investors, GIFT City AIFs provide access to private market opportunities with professional management.

Wait and Buy Post Listing

You do not have to buy in the IPO. Wait for listing. Watch the price action. Buy after volatility settles and you see the real demand. This removes allotment uncertainty and initial price swings.

What About GIFT City IPOs?

India's first GIFT City IPO marked a new chapter for NRI investors. GIFT City offers a different regulatory framework with specific advantages.

Companies listing at the GIFT City IFSC operate under IFSCA regulations. Returns may qualify for tax exemptions under Section 10(4D) and Section 10(4E).

Track IPO opportunities at GIFT City through our platform.

When IPO Losses Make Sense

Counterintuitive point. Sometimes taking an IPO loss is the right decision.

Tax Loss Harvesting

If you have capital gains elsewhere, selling a losing IPO generates losses to offset those gains. This reduces your overall tax liability.

Opportunity Cost

Money stuck in a falling stock cannot work elsewhere. Selling at a loss frees capital for better opportunities.

Learning Experience

Every IPO loss teaches something. Wrong sector timing. Overvaluation miss. Management red flag. These lessons improve future decisions.

The goal is not to avoid all losses. The goal is to ensure gains exceed losses over time.

Portfolio Approach to IPO Investing

Smart NRIs treat IPO investing as one part of a broader portfolio strategy.

Allocation Rule

Limit IPO exposure to 10% to 15% of your India equity allocation. This caps downside while maintaining upside participation.

Diversification

Spread IPO investments across sectors and company sizes. Do not concentrate in one theme regardless of how hot it seems.

Time Horizon

Be prepared to hold for 2 to 3 years minimum. Short term IPO trading rarely works consistently.

For balanced portfolio construction, explore mutual fund options alongside direct IPO investments.

Consider diversified options like Sundaram India Mid Cap Fund or Edelweiss Greater China Equity Fund for geographic diversification.

FAQs About IPO Losses for NRIs

Can NRIs lose money in Indian IPOs?

Yes. According to 2025 data, 59% of IPOs are trading below their listing price. IPOs carry market risk. Loss making is common. NRIs face additional currency risk that can amplify losses when converting back to their home currency.

What percentage of IPOs fail in India?

Approximately 30% to 40% of IPOs underperform or fail to meet investor expectations. In 2025, 23% of IPOs listed at a loss on day one. Many more declined below issue price in subsequent months.

Can I offset IPO losses against other gains?

Yes. Short term capital losses can offset both short term and long term gains. Long term capital losses can only offset long term gains. Unused losses can be carried forward for 8 years. You must file ITR by the due date to claim this benefit.

Are SME IPOs riskier than mainboard IPOs?

Yes, significantly. SME IPOs have lower regulatory requirements, less institutional participation, and thinner liquidity. Several SME IPOs in 2024 and 2025 lost 50% to 80% of value. Stick to mainboard IPOs if you are risk averse.

Should I hold or sell a loss making IPO?

It depends on your conviction in the company's fundamentals. Some IPOs recover after initial losses. Others keep falling. If fundamentals have deteriorated or better opportunities exist, selling may be the right choice. Do not hold just hoping for recovery.

How can NRIs minimize IPO risk?

Read the DRHP carefully. Check company profitability and cash flows. Compare valuations with listed peers. Avoid IPOs with high OFS and vague use of proceeds. Diversify across sectors. Limit IPO allocation to 10% to 15% of your equity portfolio.

Join Our NRI Investor Community

At Belong, we believe in transparent financial guidance. IPOs can create wealth. They can also destroy it. Knowing the difference requires research, patience, and discipline.

Download our app to explore GIFT City mutual funds, compare NRI FD rates, and track IPO opportunities.

Join our WhatsApp community to discuss investment strategies and learn from fellow NRIs navigating the same decisions.

Disclaimer: This article is for educational purposes only and should not be considered investment advice. IPO investments carry market risk. Past IPO performance does not guarantee future results. Consult a SEBI registered advisor before making investment decisions. Tax laws are subject to change. Verify current regulations with official sources before investing.