The Rs. 1 Lakh Crore IPO Debate: Who Should Decide Valuation — SEBI or Investors?

Introduction

India’s primary market has entered a new phase of scale and ambition. Several companies — especially digital-first and consumer-focused businesses — are coming to the public markets with valuations crossing tens of thousands of crores.

From lifestyle brands and fintech platforms to manufacturing, mobility, and renewable energy firms, IPO fundraising has become a key corporate strategy to unlock growth capital, facilitate early investor exits, or gain market visibility.

But with increasing deal size comes an increasing question:
Who decides what an IPO should be priced at — SEBI, the investment bankers, or the investors themselves?

A recent wave of public offerings has brought valuation practices under closer scrutiny. Companies are seeking valuations that many investors find aggressive, while others argue that growth potential justifies premium pricing. Meanwhile, SEBI has clarified that its role is not to control valuation, but to ensure transparency and fair disclosures so that investors can make informed decisions.

This brings the spotlight directly on investors — retail, institutional, and high-net-worth participants — to evaluate IPOs using a clear and rational framework.

This blog breaks down the issue in a structured way:

• How IPO pricing works
  
  

• Why SEBI does not intervene in valuation
  
  

• How to evaluate whether an IPO is fairly priced
  
  

• Risks and opportunities for investors in high-valuation markets
  
  

 

Understanding How IPO Valuations Are Determined

IPO pricing is not arbitrary. It is shaped by multiple quantitative and qualitative factors.

 

1. Business Fundamentals

Companies with:

• Strong predictable revenue streams
  
  

• Sustainable margins
  
  

• Large addressable markets
  
  

tend to command higher valuations.

 

2. Comparable Listed Peers

Investment bankers benchmark valuation multiples like:

• Price-to-Earnings (P/E)
  
  

• EV/EBITDA
  
  

• Price-to-Sales (P/S)
  
  

• Market Cap to Operating Profit
  
  

against similar companies already listed.

 

3. Growth Expectations

Future potential matters. Fast-scaling sectors like fintech, EVs, specialty chemicals, and consumer tech attract premium pricing, even when current profits are moderate.

 

4. Supply–Demand Dynamics

If demand is high among institutional investors, the price band tends to be on the higher side.

 

Why SEBI Does Not Control IPO Valuations

There is a common misconception that SEBI should ensure “reasonable pricing.”
However, SEBI’s regulatory approach is principle-based, not price-based.

SEBI’s Role

• Ensures disclosure accuracy
  
  

• Ensures no misleading information
  
  

• Ensures investor awareness
  
  

• Monitors governance and compliance
  
  

 

What SEBI Does Not Do

• It does not decide what a company is “worth”
  
  

• It does not set or approve the IPO price band
  
  

• It does not guarantee that an IPO is a “good deal”
  
  

Why?

Because valuation is ultimately a market function, not a regulatory function.

Prices in the market are set based on:

• Investor willingness to pay
  
  

• Risk appetite
  
  

• Competitive landscape
  
  

• Market liquidity
  
  

If SEBI sets or restricts valuation, it interferes with free market price discovery.

 

The Real Question: Are Investors Prepared to Judge Valuation?

This is where the debate becomes meaningful.

India has seen strong retail participation in IPOs.
However, many retail investors still apply without analyzing fundamentals, influenced by:

• Grey Market Premium (GMP)
  
  

• Momentum narratives
  
  

• Social media commentary
  
  

• Brand familiarity
  
  

But brand familiarity and business value are not the same thing.

 

How Investors Can Evaluate Whether an IPO Is Fairly Priced

Step 1: Check Revenue and Profit Growth

 

 

Step 2: Compare Valuation Multiples

Compare valuation multiples to peers in the same sector.

If IPO multiples are significantly higher than listed peers, ask:
Does the company justify the premium with stronger growth and profitability prospects?

 

 

Step 3: Understand IPO Type

High OFS % may signal early investor exit → approach with caution.

 

 

Step 4: Look at Anchor & Institutional Participation

Strong institutional demand may indicate long-term belief in the business.

 

 

Step 5: Never Rely Only on GMP

GMP is speculative and can change overnight.
It should not form the basis of decision-making.

 

How ETFs and Market Instruments Can Help Investors Navigate Valuation Cycles

Investors uncomfortable with evaluating individual IPOs can consider:

• Index ETFs (diversified exposure)
  
  

• Sector ETFs (focus on industries benefiting from structural growth)
  
  

• Multi-asset mutual funds (auto-balance equity, debt, and gold exposure)
  
  

This reduces concentration risk.

 

Risks Investors Should Be Aware Of

 

Opportunities for Investors

 

Bottom Line

SEBI’s stance is clear and practical — its responsibility is disclosure, not pricing.
The responsibility of evaluating valuation lies with investors.

IPO investing is not about applying for everything.
It is about understanding what you are paying for — and why.

If investors adopt a disciplined valuation approach, IPOs can be a strategic addition to portfolios — not just a short-term listing gain bet.

 

FAQ

1. Does SEBI regulate IPO pricing?
No. SEBI ensures transparency and fair disclosures but does not decide pricing.

 

2. Why do some IPOs list at a discount even when they are popular?
Because market sentiment and valuation mismatches can override brand interest.

 

3. Should retail investors apply for every IPO?
No. Investors should evaluate fundamentals, valuation, and IPO structure first.

 

4. Is an IPO with high GMP a sure gain?
No. GMP is speculative and can change rapidly.

 

5. Is it better to invest during IPO or after listing?
If valuation seems aggressive, waiting for post-listing price discovery can be wiser.

 

Disclaimer:  This blog is dedicated exclusively for educational purposes. Please note that the securities and investments mentioned here are provided for informative purposes only and should not be construed as recommendations. Kindly ensure thorough research prior to making any investment decisions. Participation in the securities market carries inherent risks, and it's important to carefully review all associated documents before committing to investments. Please be aware that the attainment of investment objectives is not guaranteed. It's important to note that the past performance of securities and instruments does not reliably predict future performance.