From Hype to Hope: The Mental Model of a “Bombed Out IPO”

The Origins of IPOs: A Brief Look Back

The concept of a company going public is centuries old. The Dutch East India Company in the 1600s pioneered the idea of selling shares to the public, creating a marketplace for investment. Fast forward to modern India — after liberalisation in the 1990s, IPOs became a gateway for ambitious companies to raise capital and for investors to participate in the country’s growth story.

Over the last three decades, India has witnessed IPOs across every sector — from banking to consumer goods to technology startups. Some became wealth-creators. Others turned into cautionary tales. But every IPO, whether successful or failed, holds valuable lessons.

This article unpacks a few important case studies — Paytm, JSW Infrastructure, Zomato, PB Fintech and Bector Foods — and connects them with a larger investing framework: the Bombed-Out IPO Mental Model.

The Curious Case of Bombed-Out IPOs: Where the Real Story Begins

When a company comes out with an IPO, the excitement is almost electric. Investment bankers, anchor investors, media houses, and retail investors all scramble to grab a piece of the pie. The stock lists with glamour, trading volumes explode, and valuations often touch the sky. But very few talk about what happens after the dust settles. And that’s where the real story begins.

The IPO Frenzy is like KDRAMA Fans:  At first, everyone is talking about it — new K-drama episodes, BTS concerts, Korean BBQ joints popping up in every city. Crowds rush in. Exactly like IPO day, when retail investors, anchor funds, and media all create hype.

But then reality strikes: not every K-drama attracts you the same or every K-pop band is a BTS. Many disappear after the hype fades. Same with IPOs — not every company can deliver sustained earnings growth.

Over time, only the businesses with everlasting value remain, just like Korean Ramen or food outlets that are still running strong after the hype died. IPOs work the same way. Hype brings the crowd, but only enduring businesses with solid fundamentals last.

The Post-IPO Playbook

1. Pre-IPO Window Dressing

Companies inflate margins or use channel stuffing to appear attractive before an IPO, leading to inflated pricing.

2. Elevated Base 

Reporting from an elevated base results in weak growth, disappointing markets, and potential stock price declines to 52-week lows, increasing scrutiny of management.

3. Benign Base

The operational base normalises, requiring management to meet public market expectations and stricter disclosures.

4. Earnings Growth Surprise

As business fundamentals improve, earnings stabilize, cash flows enhance, and trust begins to rebuild despite ongoing skepticism.

5. IPO Base Breakout

Sustained performance boosts investor confidence, allowing the stock to reclaim IPO highs and potentially initiating a broader re-rating cycle.

The Mental Model: The Lifecycle of a Bombed-Out IPO

Across these stories, a clear pattern emerges. Most IPOs, especially in India’s recent history, have followed a pattern:

Runway Zone: Pre-IPO hype, inflated margins, aggressive growth (Bector Foods, Flair Writing, Paytm before listing). Stock consolidates post-listing; high valuations, low conviction. Investors are unsure.

Takeoff Zone: IPO excitement, fast growth, stretched valuations (Zomato 2021, PB Fintech early phase). Strong results, improving sentiment, and a better understanding of the business spark rallies.

Stagnancy Zone: Reality sets in, growth slows, stock prices crash, investors lose interest (Paytm 2022, Zomato 2022). After initial excitement, stocks correct or move sideways as reality sets in.

Reversal Zone: Valuations normalise, growth stabilises, companies mature, investor confidence slowly returns (Zomato 2023, Paytm 2023, PB Fintech today). With reasonable valuations, investor memory fading, and companies learning to deliver consistently, the stock becomes interesting again for long-term investors.

This cycle is much like a mountain peak — hype builds the ascent, reality triggers the fall, but patient investors can find value at the bottom when everyone else has walked away.

One of The Case Study where noise was low and results were high

1. Case Study: JSW Infrastructure — The Anatomy of a Successful IPO

In September 2023, JSW Infrastructure (part of the JSW Group) launched its IPO at ₹113–119 per share, raising ₹2,800 crore. The issue was oversubscribed 39 times and debuted with a 20% listing gain. Why did it succeed where others failed?

• Clear, profitable business model (ports, infrastructure expansion).
• Consistent financials — steady revenue growth and profitability.
• Sector tailwinds — India’s infrastructure push supported growth expectations.
• Reasonable pricing — leaving value for new investors.

JSW’s IPO showed that fundamentals still matter more than hype. When valuation, sector outlook, and execution align, IPOs can deliver outsized returns.

2. Case Study: Zomato — The Unicorn That Grew Up

When Zomato went public in July 2021, it was the first Indian tech unicorn to test the IPO waters. One of India’s most celebrated tech IPOs. The issue was oversubscribed 38 times and created tremendous buzz. Stock listed at a premium but later tanked more than 50%.

Initially, skeptics pointed to its losses and high cash burn. But unlike Paytm, Zomato showed operational discipline post-IPO.

• FY24 revenues grew 71% YoY to ₹12,114 crore.
• Zomato posted a net profit of ₹351 crore in FY24, a sharp turnaround from losses.
• Brand strength and market expansion allowed it to build a durable business.

Stagnancy: Investors realised food delivery isn’t instantly profitable; rising costs and questions on profitability dragged it down.

Reversal: Over time, Zomato cut losses, exited non-core businesses, and showcased consistent improvement in contribution margins. As expectations normalised and the company delivered, the stock began reversing from its bombed-out levels.

Zomato’s journey highlights how companies themselves learn to deal with public markets — improving disclosures, focusing on profitability, and aligning with investor expectations.

3. Case Study : Paytm — When Hype Outpaces Reality

Paytm’s IPO in November 2021 was historic in size (₹18,300 crore raised, valued at $20 billion). But on listing day itself, the stock crashed 27%. What went wrong?

• Overvaluation: Investors struggled to justify sky-high pricing for a company still loss-making.
• Complex business model: With payments, wallets, lending, insurance, and e-commerce — it was hard to identify the core engine of growth.
• Regulatory overhang: Digital finance is closely monitored in India, creating uncertainty.
• Poor timing: Market volatility dampened enthusiasm.
• IPO Hype (2021): India’s largest-ever IPO, but also one of the most controversial. Listed below issue price and kept falling.

Paytm’s IPO became one of the most high-profile examples of a “bombed-out IPO.” But fast forward to 2023–24 — valuations have cooled, the company has narrowed losses, and the stock is stabilising. This is the reversal stage in the IPO lifecycle, where long-term investors start paying attention again.

• Bombed Out: At one point, the stock lost ~70% of its value. Analysts and investors wrote it off as another ‘fad.’
• Reversal: Slowly, Paytm restructured, focused on core businesses, exited ticketing, and doubled down on merchant lending. As losses narrowed and the lending narrative picked up, valuations began to look attractive, leading to a reversal.

4. Case Study: PB Fintech (Policybazaar)

• IPO Hype: The ‘insurance-tech disruptor’ IPO got strong demand but later slid as investors realized profitability was far off.
• Bombed Out: The stock corrected sharply as tech valuations across the globe crashed.

• Reversal: As PB Fintech showed operating leverage, improved unit economics, and benefited from India’s rising insurance penetration story, the market started re-rating it.
• When a stock stops making lower lows and starts forming a rounding bottom over its trend, it often indicates a structural shift. This change is usually supported by favourable financial results or an inflated base of prior performance. Past examples of this phenomenon can be seen in stocks like Policybazaar and Zomato, where these patterns were evident.
• In both cases, we can clearly observe the trend change when these stocks stop their downward movement and begin a new uptrend. Typically, such stocks will align with their 30-week exponential moving average (EMA) during this structural Stage 2 advancement.

5. Case Study: Bector Foods

• IPO Hype: The food processing player got attention as a consumer brand play.
• Stagnancy: After listing, stock went quiet. Growth wasn’t immediate and the market lost interest.
• Reversal: Over time, with stable demand in the biscuits and bread segment and capacity expansions, the stock began consolidating and showing signs of revival.
• IPO Base Breakouts is another way to play these companies . As IPO breakouts are often exhausted of forced sellers these are also horizontal breakouts and bagged by good financial numbers these IPO based breakouts leads to a healthy and strong stage 2.
• One such example is Mrs Bectors Food which can be observed below.

6. Case Study: Flair Writing

• IPO Hype (2023): A stationery brand with high visibility and growth prospects listed with decent attention.
• Runway Zone: Post-listing, the stock consolidated as investors evaluated whether it could sustain margins.
• Outlook: If Flair executes well on exports and premiumization, it could move from stagnancy to reversal—similar to earlier examples.

Why Do These Reversals Happen?

1. Companies Learn: After listing, management understands how to balance investor expectations, quarterly reporting, and long-term strategy.
2. High Base Effect Normalises: Initial comparisons to IPO projections fade; valuations come to reasonable levels.
3. Investor Memory Fades: Once the hype dies, only serious investors track the business. That’s when valuations often look compelling.
4. Business Matures: The model stabilises, costs get controlled, and growth visibility improves.

Strategy for Investors

• Don’t chase IPO hype: One or two lots in an IPO won’t change your wealth. What matters is entering at the right valuation.
• Read the DRHP carefully: It teaches you not just about the company but also about the industry.
• Wait for consolidation: Often, the best opportunities come 12–24 months after listing, once the dust settles.
• Focus on value, not fashion: Like the craze for KDRAMA and KPOP — trends fade, but lasting value sustains. The same applies to businesses.
• Look for reversal signals: Rounding bottom charts, improving financials, and stabilising valuations are key.

The Mental Model of Bombed-Out IPO Investing

Bombed-out IPO investing is like waiting at the station after everyone else has rushed in and left disappointed. If the train (business) has strong tracks (fundamentals) and a capable driver (management), you can board at a far better price—and enjoy the full journey.

In the end, IPOs are just a starting point, not the final story. Real wealth is created not in chasing hype but in identifying enduring businesses after the public attention fades.

Conclusion: The Real Story Starts After Listing

The IPO is just the beginning. The real story of a company unfolds after it enters the market — as it learns to deliver, adapts to scrutiny, and proves whether its growth is sustainable.

Paytm taught us humility, JSW Infra proved fundamentals still matter, and Zomato showed that bombed-out IPOs can make comebacks.

For 2025 and beyond, the smartest strategy is not chasing every hot IPO, but patiently tracking businesses through their Runway → Takeoff → Stagnancy → Reversal cycle. That’s where true value investing opportunities lie.

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Disclaimer: 

The information provided is for educational purposes only and should not be considered investment advice. As an educational organisation, our objective is to provide general knowledge and understanding of investment concepts. We are SEBI-registered research analysts. 

It is recommended that you conduct your own research and analysis before making any investment decisions. We believe that investment decisions should be based on personal conviction and not borrowed from external sources. Therefore, we do not assume any liability or responsibility for any investment decisions made based on the information provided in this reference.

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