Long-run Performance of IPOs in Indian Context

Abstract: The study has analysed the short run as well as the long run performance of all IPOs (Initial Public Offering) listed during 2015-2020 in India. The study found that 74% of the sample companies were underpriced while the rest of the sample overpriced. Event study methodology was adopted to measure the short-, medium- and long-term performance of the companies. The study found that the returns were positive during the listing day and there was no difference between the returns of stocks and the broader market index namely, BSE Sensex. The returns captured by Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR) shows that most of the days were positive during 30 and 60 days. But in the long run measuring 756 and 1250 days indicate that the returns are negative. On further classification of companies as underpriced and overpriced, the study found that there is no significant difference in the returns between the groups in the long run albeit significant difference found in the returns during 252 days of analysis. Trading or speculative theory best explains the performance of IPOs in the Indian market. The study concludes with suggestions to the regulator and directions for future research.

Keywords: IPOs, BSE Sensex, AAR, CAAR, Under-pricing, Overpricing, Event Study

JEL Classification Number: G1, G14