IBIMA Publishing

Journal of Financial Studies & Research

https://ibimapublishing.com/articles/JFSR/2021/418441/
Vol. 2021 (2021), Article ID 418441, 20 pages, ISSN: 2166-000X
DOI: 10.5171/2021.418441

Research Article

Post Listing IPO Returns and Performance

in India: An Empirical Investigation
T. Ramesh Chandra Babu and Aaron Ethan Charles Dsouza

CHRIST University, Bangalore, India

Correspondence should be addressed to: T. Ramesh Chandra Babu; aarseebee@gmail.com

Received date: 4 August 2020; Accepted date: 18 January 2021; Published date: 31 May 2021

Academic Editor: Gatot Nazir Ahmad

Copyright © 2021. T. Ramesh Chandra Babu and Aaron Ethan Charles Dsouza. Distributed under
Creative Commons Attribution 4.0 International CC-BY 4.0

Abstract

Objectives: (a) To analyse the performance of Indian IPOs in the short term. (b) To determine
the significance of abnormal return of the IPOs. (c) To study the impact of over-subscription,
profit after tax, promoters’ holdings, issue price and market returns on IPO performance.
Design/ Methodology/Approach: This research paper is based on empirical analysis. All
the 52 IPO’s listed in the NSE (National Stock Exchange, India) during the year 2018 to 2020
were considered for the study. The study is based on secondary data. The daily share price
and Nifty-50 index value were taken from NSE website (www.nseindia.com) and other
relevant data from red-herring prospectus of the respective company. The research /
statistical tools used are: Market adjusted short run performance model, Wealth relative
model, ‘t’ test and regression analysis. Scope of the study: The scope of the study is limited
to the IPO’s listed only in the National Stock Exchange (NSE), India. Period of study: The
study covers a period from January 2018 to December, 2020. Limitation of the study: The
study considers only the influence of the external factors on the performance of IPOs.
Findings: The average IPO return on the first trading day is 13.52%, ranging from -23.15%
to 82.16% with standard deviation of 26.72%. The average IPO return on the third trading
day was the highest and is found to be14.52%, ranging from -19.22% to 117.55% with
standard deviation of 18.57%. The analysis reveals that the over subscription impacts the IPO
performance and the other factors namely, issue price, Profit after Tax, market returns and
promoters holdings do not influence IPO returns.
Originality / Value: This is an original work that analyses the listing gain or loss and the post
listing performance of IPO’s in India and other factors that might influence the listing gain or
loss.

Keywords: IPO Underpricing, IPO performance, listing gains, subscription ratio, Market
adjusted short run performance model, Wealth relative model.

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Cite this Article as: T. Ramesh Chandra Babu and Aaron Ethan Charles Dsouza (2021)," Post Listing IPO
Returns and Performance in India: An Empirical Investigation", Journal of Financial Studies & Research, Vol.
2021 (2021), Article ID 104815, DOI: 10.5171/2021.104815
Journal of Financial Studies & Research 2
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Post listing IPO returns and performance theories (2) Institutional theories (3)
in India: An empirical investigation Ownership and Control theories (4)
Behavioral theories.
Introduction
The theories that support Information
Initial Public Offering (IPO) refers to the Asymmetry theories are: (a) Principal –
issue of shares by the company directly to Agent theory (b) Ex-ante Uncertainty
the public for the first time. The subsequent theory (c) Book-Building theory (d)
issue of shares by the company directly to Signaling theory (e) Certification (f)
the public is referred to as Follow on Public Winner’s Curse theory (g) Entrepreneurial
Offer (FPO). It is really a tricky decision to Wealth loss theory (h) Partial adjustment
put the money in a relatively new company. theory.
In IPO investing, there is a chance of getting
a significant first day capital gains, or long- The theories that support Institutional
term capital gains. On the other hand, there theories are: (a) Law-suit avoidance theory
is a chance of incurring a significant first day (b) Price Stabilization theory (c) Tax
capital loss, or long-term capital loss. argument theory.

Usually, a company hires an investment The theories that support Ownership and
bank to manage an IPO before it goes for a Control theories are: (a) Entrenchment
public issue. The under-writers and Managerial Control theory (b) Agency-cost
investment bankers assess the quality of theory.
management, future cash flows and returns
before arriving at the final offer price and The theories that support Behavioral
the comparative valuation is done based on theories are: (a) Information cascade theory
the listed peer company. (b) Investor Sentiment theory (c) Prospect
theory.
The usual anomaly which an investor finds
in an IPO issue are (a) underpricing or All the above said theories tried to give
overpricing (b) information asymmetry (c) explanations as to why the IPO Under-
agency problem between the investment pricing happens and the variations in in the
bank and the issuing firm. IPO underpricing IPO Under-pricing among different firms
refers to a situation where the listing day across different countries. Despite enough
closing price is greater than the initial offer evidence of underpricing, all the available
price and the overpricing refers to a research papers show that there are no
situation where the listing day closing price universal explanations for IPO underpricing.
is lesser than the initial offer price. An IPO
maybe underpriced deliberately or
accidentally. Sometimes, an IPO maybe Review of literature
deliberately underpriced to woo the
investors or accidentally underpriced when Madan (2003) - “Investments in IPOs in the
the underwriters underestimated the Indian capital market” examined the
demand. Information asymmetry refers to relationship between return on listing and
the imbalance in the knowledge of issue price, issue size, age of firm, issue
information among the investors (and other capital listing and was found negative. The
stakeholders) about the company and its study found that the relationship between
potential growth. the variables was statistically significant.
The researcher also found that the issue
Theories related to the study rating was positive for relationship between
returns on listing of the IPO shares and
The theories closely related with this study foreign equity. The study concluded that in
are the theories of Under Pricing. The IPO the long run, there was a significant fall in
Underpricing theories can be broadly IPO returns. The returns of initial public
classified into (1) Information Asymmetry

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offerings was observed to be negative for pricing on the first day. The study also found
the period of the 2nd to the 5th year of listing. that the performance of the IPO post 1
month of listing is negative.
Vichakorn C, Kennedy D. G. (2005) –“The
factors affecting on IPO return in Thai Stock Singh and Sehgal (2008) - “Determinants of
Market”. The research was carried out by Initial and Long-Run Performance of IPOs in
applying multiple regression models to Indian Stock Market” investigated the
study possible determinants of underpricing and
the relationship between several variables the long run performance of 438 Indian
and the initial return of the IPO. Secondary initial public offerings (IPOs) listed on the
data was the necessary information for the Bombay Stock Exchange during June 1992--
analysis. The initial return of the IPO was March 2001. The researchers found that
regarded by the investigator as the underpricing in Indian IPO’s has been found
dependent variable and 7 other variables as to be 99.20%. The level of under-pricing is
the independent variable. extremely high compared with the
international evidence. The study also
It was found that there was 14% to 24% found that some of the important
returns by IPOs in Thai stock market. The determinants of under-pricing are Age of
figure was similar with the returns seen in the firm, listing delay of the IPO and the
the international Stock markets. demand for the IPO. It was also found that in
the long run, the Indian initial public
Datar and Mao (2006) - “Deep underpricing offerings don’t tend to underperform.
of China’s IPOs: sources and implications”
have suggested that the issuer company Sahoo and Prabina (2010) in the research
knowingly underprice the IPOs to paper titled, “After Market Pricing
encourage a wider subscription. According Performance of Initial Public Offerings:
to the researcher, on the listing day of the Indian IPO Market 2002-2006” studies
shares, it is noted that investors are over- performance of 92 IPOs. The researchers
enthusiastic and thus bid for IPOs at a price have determined that the average level of
well above the true fundamental value of under pricing of initial public offerings in
the stock. This is the major reason for India is to the extent of 46.55%. The level of
abnormal returns of the IPO on the listing under-pricing was obtained by comparing
day. the listing day performance with the market
index.
Alok Pande and R. Vaidyanathan (2007) -
“Determinants of IPO Underpricing in the Nurwati A. Ahmad-Zaluki and Lim Boon
National Stock Exchange of India” , looks at Kect (2012) - “The investment performance
the pricing of IPOs in the NSE. In terms of of MESDAQ market initial public
the demand that the IPO has generated offerings(IPOs)” provided evidence on both
among the investors, the delay in listing of the short-run and long-run investment
the shares on the stock exchange, and the performance of Malaysian initial public
money that the company spends on offering (IPO) companies that are listed on
marketing the initial public offering, the the Mesdaq market. The researchers
researchers try to understand empirically studied about the factors that influence the
the 1st day underpricing of initial public performance of IPOs. The results of the
offerings. The researchers are also trying to study were in line with previous Malaysian
understand whether the Indian IPO market studies. It was found that the raw returns
has any emerging trends. The research also and the market-adjusted initial returns of
tries to find a month in the post IPO returns. IPOs are extremely under-priced in the
The study's key findings was that the short-run. However, it was seen that the IPO
demand which the initial public offering had companies were underperforming the
generated and the listing delay of the IPO market in the long run. In contrast to the
had a significant positive impact on the first results found in previous Malaysian studies
day of pricing. The money spent on the using a subset of listed firms, the
promotion of the IPO had no major effect on researchers' findings concentrated on long-

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term success. Researchers determined that Puri H (2012) in his research entitled “An
businesses in the technological sector that Empirical Investigation of Short-Run
launched IPOs in the hot issue period and Performance of IPOs in India” analyzeded
under-priced their IPOs did less well in the the short run market adjusted performance
long term. The fad hypothesis of long-run of 100 IPOs listed on National Stock
under performance is confirmed by this Exchange (NSE) from the period April 2008
observation. The results obtained also to March 2011(3 years). This study found
suggest that investors who buy shares of the that Indian IPO market provides positive
IPO on the Mesdaq market make significant abnormal return to investors on short-run
returns in the short-run. However, they do basis (1st and 7th day). The researchers
not fare well in the long-run. The research found that the IPO returns start decreasing
provides new information to investors in at the end of 30th day and the IPO shows
order to evaluate IPOs listed on bursa negative return. It was found that market
Malaysia. adjusted average return of the IPO for the
first, seventh and thirtieth trading day is
Bansal &Khanna (2012) analyzed that there 7.23%, 2.09%, and -8.58%. The researchers
is significant difference between the also used T-Statistic to determine the
magnitudes of level of underpricing of IPOs significance of the market adjusted returns.
that priced through the book build with The researchers made use of the wealth
those priced through the fixed price option relative model to analyze the short run
and IPOs price through book build are more performance of IPOs. This model also
underpriced than fix price option IPOs. proved the same results that the returns
start diminishing towards the end of the
Bagga, Khurana & Singh (2012) analyzed 30th trading day. It was found that the
that IPOs of January, 2001 to August, 2011, wealth relative index values are 1.07, 1.02
most of the stocks have generated listing and .91 for first, seventh and thirtieth
profits whereas in long term most of the trading day. The researchers presented the
companies have underperformed compared performance of IPOs on yearly basis. It was
to market returns. The researchers advised found that for the year 2009-10, IPO’s
the investors the following 3 strategies showed exceptional performance.
while investing in an initial public offering.
The first strategy is that the investors could Ganesamoorthy, L., & Shankar, H. (2013) in
sell all their shares on the listing day itself their study entitled “The performance of
and thereby make listing gains in most cases. initial public offerings based on their size:
The second strategy is that the investors An empirical analysis of the Indian scenario”
could book partial profit on the listing day focused on the performance of Initial Public
and hold the remaining shares for a long Offerings (IPOs) made by the Indian
term. This will help in reducing risk. The companies on the basis of the IPO size. For
third strategy is that the investors could this analysis, the researchers used a sample
hold their shares for a period of more than of 219 Indian IPOs that were released
5 years. However, they should ensure that during the 2001 to 2010 period. The
the company is fundamentally strong if they research used the traditional approach of
decide to invest for a long period. event study and an event window was built
for a span of 75 days from the shares' listing
Jotwani and Singh (2012) noted that date. The researchers calculated the
subscription rate of the IPO plays major role market-adjusted return by subtracting the
only in short run. The sudy concluded that market returns from the actual return of
the investors may try to analyse the demand shares in order to eliminate market factors.
and supply for an IPO before deciding The researchers classified the IPOs into 3
whether to invest or not. They can use the categories namely small, medium and large
over subscription rate of IPO, before based on the size of the issues. It was found
deciding whether to invest or not. It was that large-size IPOs performed better
found that the demand for the IPO has a compared to small and medium-size IPOs.
significant impact on the performance in the The research also found that small-size IPOs
short run

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were relatively overpriced compared to January, 2010 to December, 2014, listed in

medium and large-size IPOs. National Stock Exchange (NSE) India. The
researchers found that, on an average, most
Batool K. Asiri and Aalaa J. Haji (2014) - IPOs have a significant positive return on
“The determinants of IPO underpricing in the first trading day. It was also found that
the GCC countries” documented the the Market Adjusted Abnormal Returns
phenomenon of underpricing initial public (MAAR) of the IPO companies was 7.19%.
offerings (IPOs) for 194 firms that went The researchers observed that most IPOs
public between 2000 and 2013 in the are underpriced initially. They made use of
markets of the six gulf cooperation council t-test to verify the returns of the IPOs. The
(GCC) countries. The research was carried mean initial return of the IPOs was 7.19%.
out to determine the factors that potentially In order to analyse whether there is a link
influence abnormal returns on the listing between the degree of underpricing of IPOs
day. The researchers have used several and other independent variables such as the
variables which have been previously issue price, the scale of the problem, over
evaluated like. The researchers also made subscription and the returns from the
use of various other variables and market index, the researchers used the
additional variables like seasonal affective regression model. The findings obtained
disorder. The key findings of the study were from the regression analysis showed that
that both the firm age and the size of the bid there was no important relationship except
are negatively linked to the under-pricing over subscription between the IPO's degree
stage. The study also indicated that there of underpricing and the other independent
exists a relationship between financial and variables. As the IPOs are underpriced
non-financial companies, and that there are during the initial days, the researcher
many gaps which exist between insurance recommends that investors should consider
and banking firms. One of the significant to invest a part of their capital in a new issue
results of the analysis was that it seemed during the initial days.
that the discrepancy between the month of
Ramadan and the month of the IPO was Reddy K S (2015) in his article entitled “The
significant. The author had carried out the aftermarket pricing performance of initial
models during the financial crisis period public offers: Insights from india”
and it was found that almost all appeared to examined the underpricing of initial public
be significant. offers (IPOs), which were announced by
Indian firms for the period 2007 through
Leila B & Farshid A. (2014) –“Study of 2009. The fact that well-developed capital
Factors Affecting the Initial Public Offering markets are a function of the economic
(IPO) Price of the Shares on the Tehran development of a nation and a reflection of
Stock Exchange.” The research was carried its financial system motivated the report.
out to determine if the pricing of IPOs in The key findings of the analysis were that, in
Tehran Stock Exchange is less than actual. the short run, post-listing IPOs produce a
The researchers also study the different good return. In the long run, however, the
factors which affect pricing of IPOs on the returns begin to plunge and they become
Tehran Stock Exchange. To carry ou the negative. The highest returns from IPOs
study, a sample of 115 stock exchange were observed during the first week of post-
companies which were listed between 2006 listing.
to 2012 was considered. The finding of the
study was that the Price to Earnings ratio of Jampala, R. C., Lakshmi, P. A., & Dokku, S. R.
a firm has a significant impact on the price (2016) - “A Study on Factors Influencing the
changes of IPO’s. The ration had the highest Initial Public Offerings (IPO) in the Bombay
impact on price of the IPO. Stock Exchange (BSE), India: During 2007-
2013” This study has examined the IPO
Shah S, Metha D (2015) - Initial performance in India from 2007 to 2013.
performance of ipos in india: evidence from The major finding of the study was that
2010-2014 studied listing day performance underpricing exists in the 1st day of trading.
pertaining to 113 IPOs in India during However, the researcher has observed that

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the degree of underpricing has significantly returns and the average market adjusted
decreased compared to the previous studies. excess returns (MAER) are substantially
The research also found that the issue below values. The researcher found that
variables influence the initial public during the study period, the MAER of all
offerings. It is observed that the face value samples IPOs was 14.01 percent and it was
of shares and level of over subscription important at the 1 percent stage. The
influence the listing day performance of investigator concluded, therefore, that IPOs
IPOs in a major way. After 3 years from were substantially underpriced. The
listing, it is seen that IPOs are researcher also used the Multiple
underperformed by 29.09%. The Regression model to examine the
researcher found that some of the factors relationship between MAER and other
impacting the IPO performance in the long independent variables such as the size of
term are the market capitalization of the the problem, subscription question, listing
company, issue share premium, face value delay, keeping of the business age and post
of the shares, issue price of the IPO, and the problem promoters. It was found that there
number of times the IPO is over-subscribed was no important association between
are some of the factors affecting IPO success MAER and the other independent variables
in the long run. The researchers considered such as the keeping of age and post problem
a sample of 146 companies to identify the promoters through the multiple regression
various factors influencing the Initial Public study. It was also noticed that MAER
Offerings (IPO) in the Bombay Stock showed a significant link with the size of the
Exchange (BSE) issue, over-subscription and delay in listing.

Poornima S, Haji A (2016) - “A study on the Ambilya. M et al (2016) in their paper

performance of initial public offering of entitled “A Study On Performance of IPOs
companies listed in NSE, India & Gulf base under NSE from issue price to last trading
GCC index.” The researcher analyzed the price in the year 2013-2015”, studied the
short-term performance of the companies performance of IPO’S listed in National
in this analysis in order to explain the Stock Exchange (NSE) during, 2013 to 2015.
phenomenon of irregular returns as well as The study found that, on average, initial
the long-term performance in order to public offerings yield dramatically positive
evaluate the long-term performance of the returns. The majority of investors were also
IPOs. Between Jan 2013 and Dec 2014, the found to invest in the IPO primarily on the
thesis was performed. The researchers basis of the company's image and not on the
considered a sample of nine companies basis of a fundamental analysis. It has also
listed in NSE for the study. The researchers been found that most shareholders tend to
found that IPO stocks are a good instrument buy at a lower cost. It is noted that the last
for long term investment. In order to trading price is often greater than the price
maximize their profits, they recommended provided by the IPO. The new trade price
that investors subscribe to the initial public comes after the price offered in the analysis
offering or buy the shares from the primary by the IPO.
market and retain them for a defined time in
the secondary market. Roopa P. (2016) investigated on
introductory execution of Initial public
Patel A (2016) - “Determinants of Listing offerings’ in India during 2015-2016 -
Day Performance of IPOs: Study from Indian Valuing Instruments is a significant choice
Equity Market” carried out a study based on before giving Initial public offerings. The
listing day performance of 80 initial public study assumes that any initial public
offerings (IPOs) in India during January, offerings in the stock market are an
2011 to June, 2016, listed on National Stock indispensable job in success and failure.
Exchange (NSE), India. The researchers One of the big developments Indian Capital
observed that on an average, the listing day Markets has seen in the past is the
returns of IPOs were positive. The presentation of deals through the method of
investigator performed a sample t-test to book building.The researchers considered
check whether or not the average raw in this paper the execution of 69 initial

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public offerings on the posting day either by owned or private), lead manager credibility
Book Building technique for open initial (LMP), promoter retention and the scale of
public offerings or through fixed value the issue are the significant problem
strategy during the monetary year 2015-16. characteristics that affect the long-term
success of IPOs in India.
Bhanu M et al. (2016) in their article
entitled “Long-run performance of IPO Suri A, Hada B (2018) in their article
market in India” examined the Long-run entitled “Performance analysis of initial
performance of initial public offerings public offerings in India” examined the
(IPOs). The data was obtained for 31 IPOs performance of 107 IPO’s in Indian stock
from the period 2000 to 2003. Using SPSS market . The time period for the study was
Version 16, the researchers used the between the period 2011 to June 2017. The
Logistic Regression Model to test the researchers verified the IPOs on the basis of
relationship between long-term IPO output two main performance metrics namely the
and short-term company performance over-subscription ratio of the IPO and the
variables. The study reveals that long-term listing day gains generated by the IPO. The
variables have no relationship or negative purpose of the study was to compare
relationship with short-run variables. It has between January 2011-May 2014 and June
a positive relationship with some of the 2014-June 2017 the performance of the
theory supporting the view that there IPOs. The study findings indicate that the
should be small listing gains, moderate performance of the IPOs launched between
short-run gains and large long-run gains for 2011 and May 2014 was substantially
IPO markets to be successful. Only then will different from the performance of the IPOs
the long-term growth of the IPO sector take launched between June 2014 and June 2017.
place. But the true scenario is the opposite. It was also investigated that the amount of
Companies have listing earnings, short-run IPOs and the fund raised from them also
earnings, but they do not make long-term varied significantly for the two years.
gains.
Tanted N, Mustafa S (2019) - “ A Study of
Dhamija, S., & Arora, R. K. (2017) in their Returns Between IPO Issue Price and
article entitled “Determinants of long-run Listing Day Price” (2019) conducted a study
performance of initial public offerings: to identify the difference in returns between
Evidence from India” studied the the long- IPO offered price, Listing day opening price,
run performance of 377 initial public closing price. The goal of the study was to
offerings (IPOs) made by Indian companies assist investors to make an investment
during the period 2005–2015. The aim of decision through the IPO or buy it directly
the paper is to examine if, in the long run, from the secondary market. Data is
Indian IPOs are underperforming or collected for the review of all IPOs released
outperforming the large market and to over 10 years. The study concluded that the
identify the key determinants of their long- price offered by the IPO, the open-day
term success. The findings indicate that listing price and the closing-day listing price
Indian IPOs outperform the general market, did not vary statistically significantly. The
preceded in the long run by considerable mean value for the open price listing day
under-performance initially. During 2005- was higher than the price provided by the
2015, the IPOs listed on the main board IPO. For the listing day close price, the mean
yielded an average initial excess return value was high compared to the listing day
(IERs) of about 22 percent. Negative IERs open price. For the listing day closing price,
were, however, provided by 37 per cent of when the price offered by the IPO was high,
the IPOs. The IPOs underperformed the the mean value was high.
wide industry, producing an abnormal buy-
and-hold return of 57.33 percent (BHAR) Statement of problem
over 36 months following listing. Over 36
months holding time, just 38 out of 377 IPOs IPO's are often seen as a speculative
(10 percent) outperformed the benchmark possibility to make exceptional gains on the
index. The type of issuer (government- listing day. There is, however, uncertainty

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about the effects of various determinants Research Methodology

such as issue size, over subscription, age of
business, holding of promoters post issue Research Design
and various other fundamental factors on Descriptive research design is used to
the success of the IPOs. There also exists assess the efficiency of IPOs and the effects
confusion among investors whether to hold of different determinants such as issue size,
the stock for a short term or to sell it on over subscription, listing delay,age of the
listing day. If these problems are not firm and post issue promoter's holding on
addressed, investors may not be able to the performance of IPOs.
effectively analyze the stock while
formulating an investment strategy. Period of study

Objectives of the study The study covers a period from January

2018 to December, 2020.
The objectives of the study are:
Data Collection
1. To analyse the performance of Indian
IPOs in the short term. This study was completely based on
2. To determine the significance of secondary data. The official website of NSE
abnormal return of the IPOs. India is used to collect the list of IPOs during
3. To study the impact of over- the study duration, the daily stock price and
subscription, profit after tax, promoters’ the data on the market index namely, nifty.
holdings, The red herring prospectus issued by the
issue price and market returns on IPO company ois used to get details regarding
performance. the listing date, issue size, age of firm and
Promoter's holding. Over subscription and
Scope of the study listing date data are collected from NSE
website.
The scope of the study is limited to the
IPO’s listed only in the National Stock Sample Selection
Exchange (NSE), India.
The sample consists of all Indian companies
Hypothesis which issue IPOs and listed on National
Stock Exchange (NSE) during January 2018
H0 = There is no association between IPOs to December 2020. The below table shows
performance and various determinants. the number of IPOs which have been listed
H1 = There is significant association
between IPOs performance and various
determinants.

Year Number of IPOs listed in NSE

2020 13
2019 16
2018 23

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Table 1: Sample Details

Sr. No. Name of the issue Year of

Issue
1 Burger King India Limited 2020
2 Gland Pharma Limited 2020
3 Equitas Small Finance Bank Limited 2020
4 Mazagon Dock Shipbuilders Limited 2020
5 Likhitha Infrastructure Limited 2020
6 UTI Asset Management Company Limited 2020
7 Angel Broking Limited 2020
8 Chemcon Speciality Chemicals Limited 2020
9 Computer Age Management Services Limited 2020
10 Route Mobile Limited 2020
11 Happiest Minds Technologies Limited 2020
12 Rossari Biotech Limited 2020
13 SBI Cards and Payment Services Limited 2020
14 Prince Pipes and Fittings Limited 2019
15 Ujjivan Small Finance Bank Limited 2019
16 CSB Bank Limited 2019
17 Vishwaraj Sugar Industries Limited 2019
18 Indian Railway Catering and Tourism Corporation 2019
Limited
19 Sterling & Wilson Solar Limited 2019
20 Spandana Sphoorty Financial Limited 2019
21 Affle India Limited 2019
22 IndiaMART InterMESH Limited 2019
23 Neogen Chemicals Limited 2019
24 Polycab India Limited 2019
25 Metropolis Healthcare Limited 2019
26 Rail Vikas Nigam Limited 2019
27 MSTC Limited 2019
28 Chalet Hotels Limited 2019
29 Xelpmoc Design and Tech Limited 2019
30 Aavas Financiers Limited 2018
31 Garden Reach Shipbuilders & Engineers Limited 2018
32 CreditAccess Grameen Limited 2018
33 HDFC Asset Management Company Limited 2018
34 TCNS Clothing Co. Limited 2018
35 Varroc Engineering Limited 2018
36 Fine Organic Industries Limited 2018
37 RITES Limited 2018

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38 IndoStar Capital Finance Limited 2018

39 Lemon Tree Hotels Limited 2018
40 ICICI Securities Limited 2018
41 Mishra Dhatu Nigam Limited 2018
42 Sandhar Technologies Limited 2018
43 Karda Constructions Limited 2018
44 Hindustan Aeronautics Limited 2018
45 Bandhan Bank Limited 2018
46 Bharat Dynamics Limited 2018
47 H.G.Infra Engineering Limited 2018
48 Aster DM Healthcare Limited 2018
49 Galaxy Surfactants Limited 2018
50 Amber Enterprises India Limited 2018
51 Newgen Software Technologies Limited 2018
52 Apollo Micro Systems Limited 2018

The logarithmic returns for stock “i” at the end

Data Analysis & Interpretation of the dth day is calculated as:

Short Term Returns R , = Ln(P ) – Ln(P )

Where,
The methodology for investigating the short-
run performance of IPOs has been kept simple Ri,d is the return on “i” at the end of the dth
and is based on the methodology used by many day,
of such past researchers. P1 is the closing price of the stock i at the dth
day
Returns for first 22 trading day for stocks and P0 is its issue price
market are calculated based on the below
formulas.

Table 2: Mean Stock Returns

Mean Return Standard Deviation Maximum Return Minimum Return

1st Day IPO return 0.135176555 0.267211081 0.821636587 -0.231511801
2st Day IPO return 0.138804673 0.269524012 0.993251773 -0.182988446
3st Day IPO return 0.145209899 0.288717181 1.17557333 -0.192254597
4st Day IPO return 0.138537195 0.289069073 1.070441412 -0.21511138
5th Day IPO return 0.135911097 0.288348604 0.986669309 -0.206587809
6th Day IPO return 0.126191699 0.293770569 0.970660539 -0.259560252
7th Day IPO return 0.127412562 0.299398605 1.06096811 -0.279243204
8th Day IPO return 0.135573507 0.304805068 1.149780575 -0.307654206
9th Day IPO return 0.142207082 0.300671205 1.10359983 -0.346436974
10th Day IPO return 0.143013634 0.313326566 1.089683658 -0.351844017
11th Day IPO return 0.136946997 0.313906472 1.05836883 -0.383048751
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12th Day IPO return 0.14042296 0.317532567 1.073864119 -0.365185634

13th Day IPO return 0.136603236 0.31700323 1.073294481 -0.360313517
14th Day IPO return 0.134223039 0.31453043 1.06096811 -0.338083704
15th Day IPO return 0.136140386 0.309573389 1.048779915 -0.277157011
16th Day IPO return 0.140541135 0.3086986 1.042629654 -0.284675843
17th Day IPO return 0.144733859 0.298825346 1.030809185 -0.271430664
18th Day IPO return 0.140758343 0.299290713 1.013304006 -0.401169711
19th Day IPO return 0.139421127 0.297469408 7.763361387 -0.40285263
20th Day IPO return 0.136330806 0.294437117 1.069977018 -0.349886308
21th Day IPO return 0.128285621 0.30031662 1.069065466 -0.422613678
22nd Day IPO return 0.134471621 0.294468608 1.04215216 -0.366711602

The logarithmic return on the market index Rm,d is the return on index at the end of the
(NIFTY 50) during the same time period is: dth day,
I1 is the closing S&P CNX Nifty value at the
Rm,d = Ln(I1) – Ln(I0) dth day and
I0 is the closing S&P CNX Nifty value on the
Where, offering day of the stock

Table 3: Mean Index Returns

Mean Return Standard Deviation Maximum Return Minimum Return

1st Day Index return -0.000239568 0.03719721 0.062578406 -0.203134758
2st Day Index return 0.001265956 0.042072951 0.076310101 -0.228498845
3st Day Index return 0.000913966 0.049010167 0.082843963 -0.285666771
4st Day Index return -0.000487073 0.053204622 0.090967553 -0.310213417
5th Day Index return 0.003095826 0.046657506 0.097671075 -0.253522028
6th Day Index return -0.000270926 0.064132301 0.099075973 -0.39255957
7th Day Index return 0.000601537 0.062088806 0.099373474 -0.367797253
8th Day Index return 0.003193764 0.055577417 0.102431344 -0.303651785
9th Day Index return 0.00422715 0.050445082 0.077848052 -0.2654852
10th Day Index return 0.005148893 0.050413866 0.084852363 -0.263312002
11th Day Index return 0.005189893 0.056653815 0.094211235 -0.308079783
12th Day Index return 0.007937803 0.054302659 0.096209565 -0.270555052
13th Day Index return 0.008016622 0.058418915 0.09963738 -0.311381893
14th Day Index return 0.006787963 0.062309666 0.096180145 -0.332193534
15th Day Index return 0.01028846 0.053787357 0.099025682 -0.248190628
16th Day Index return 0.009822065 0.055223456 0.085302848 -0.25314476
17th Day Index return 0.012368779 0.052732012 0.095587356 -0.39255957
18th Day Index return 0.011649458 0.053729611 0.08205567 -0.225514583
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19th Day Index return 0.013699246 0.055206451 0.087708821 -0.233165652

20th Day Index return 0.015654262 0.054663648 0.088453744 -0.225631336
21th Day Index return 0.018234682 0.053212514 0.097062795 -0.195622868
22nd Day Index return 0.017044197 0.054798912 0.101062934 -0.19615178

Interpretation On 5th trading day, it is seen that the

average stock return were 13.59%, ranging
The above tables show the various statistics from -20.65% to 98.66% with standard
like mean return, minimum return, deviation of 28.83%. For the similar 5th
maximum return and standard deviation on trading day, Index return on average
the stock and index value for the first 22 remains 0.30% and it ranges from -25.65%
trading days. It is observed that on an to 9.76% with standard deviation of 4.66%.
average, the stock return was 13.52%, Therefore, we can conclude that the IPOs
ranging from -23.15% to 82.16% with continued to outperform the markets at the
standard deviation of 26.72% after first end of one week of listing.
trading day. For the similar 1st trading day,
Index return on average remains -0.0%, On the 22nd trading day, the stock return on
while it ranges from -20.31% to 6.25% with average was 13.44%, ranging from -36.67%
standard deviation of 3.72%. Therefore, we to 104.21% with standard deviation of
can conclude that the IPO outperforms the 29.44% . For the similar 22nd trading day,
market on the first trading day. Index return on average remains 1.70%,
while it ranges from -19.61% to 10.10%
It is observed that the highest returns are with standard deviation of 5.47%. This
observed on the 3rd trading day. The implies that there is a small decrease in the
average returns were 14.52%, ranging from performance of the compared to the first
-19.22% to 117.55% with standard and fifth trading day. The IPO under
deviation of 18.57%. For the similar 3rd performs compared to the broader market.
trading day, Index return on average is 0.09%
and it ranges from -28.56% to 8.26% with Graphical Representation of mean IPO
standard deviation of 4.90% return and market return

0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
4th Day
5th Day
6th Day
7th Day
8th Day
9th Day
10th Day
11th Day
12th Day
13th Day
14th Day
15th Day
16th Day
17th Day
18th Day
19th Day
20th Day
21th Day
22th Day
1st Day
2nd Day
3rd Day

-0.02

Mean Stock Return Mean Market Return

Figure 1 : Graphical Representation of mean IPO return and market return

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Interpretation systematic risk of the newly listed stock to

be 1.
From the above graph, we can observe that
the IPO’s outperform the markets in the The average of market adjusted short run
short run. It is seen that the IPO deliver performance return for the dth trading day
superior returns during the first three is represented in the formula by MASRPd,
trading days. The highest returns are seen which is a performance index. It is actually
on the third trading day. Following the third the return in excess of the market return on
trading day, there is a small fall in the investment divided equally among n new:
returns of the IPO which could be due to
profit booking of investors. The fall MASRPd = 1N ∑ MASRPi,d
continues till the 6th trading day. Following
this the returns gradually start increasing To test if the MASRP equals zero, the
again. associated t statistic is computed:
t = (MASRPd) / (S/√N)
It is also observed that towards the end of
the month, the returns start decreasing. On Where,
the last day of the month (22nd trading day),
the returns of the IPO are slightly lower S is the standard deviation of MASRP,d
compared to the first day returns. across the companies and N is the no. of
sample.
Market-adjusted Short Run Performance The wealth relative model has also been
& Wealth Relative Model applied to measure the short run
performance for group of IPOs.
Using these average stock returns and the
market returns, the market-adjusted short WRd = (1+ 1/N ∑Ri,d) / (1+ 1/N ∑Rm,d)
run performance for each IPO on dth day of
trading is computed as: Where WRd is the Wealth Relative for the
dth trading day
MASRPi,d = { [ ( 1 + Ri,d ) / ( 1 + Rm,d )] – 1 } and n is the total number of IPOs in the
sample.
This model measures the initial trading
returns adjusted with the market returns. A wealth relative score of more than one
This sort of measurement has been means that the IPOs has performed better
commonly used in many past studies to than market during the period of study.
measure the short run performance of IPOs Wealth relative index score less than one
with risk adjustment, assuming the indicates poor performance in comparison
to market.

Table 4: Market-adjusted Short Run Performance & Wealth Relative Model

Standard
MASRP T Statistic Wealth Relative
Deviation
1st Day 0.135263416 0.260982919 3.737403077 1.135448572
2st Day 0.138041713 0.26551783 3.749024856 1.13736482
3st Day 0.145479396 0.285833472 3.670202932 1.144164172
4st Day 0.14131695 0.290834566 3.503885506 1.139092015
5th Day 0.134300055 0.289359206 3.346883201 1.132405367
6th Day 0.129250726 0.294750885 3.162128725 1.126496896
7th Day 0.129061616 0.29794282 3.123675032 1.126734789
8th Day 0.133038114 0.299793279 3.200043321 1.1319583
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9th Day 0.137382327 0.291759427 3.395530556 1.137399125

10th Day 0.136730333 0.302121694 3.26350762 1.137158527
11th Day 0.129794731 0.296716283 3.154404295 1.131076829
12th Day 0.129882508 0.298488422 3.13779703 1.131441798
13th Day 0.125996657 0.2960764 3.068717437 1.127563982
14th Day 0.12460119 0.290439504 3.093628606 1.126575884
15th Day 0.121970405 0.284652512 3.089876467 1.12457029
16th Day 0.126345627 0.281505169 3.236499271 1.129447626
17th Day 0.128267608 0.274045403 3.375173838 1.130747888
18th Day 0.124296655 0.273935463 3.271996677 1.127622157
19th Day 0.120342883 0.269360954 3.221717389 1.124022861
20th Day 0.115654487 0.267940693 3.112615552 1.118816558
21th Day 0.104962368 0.275972613 2.742643151 1.08080132
22nd Day 0.115750762 0.288380924 2.894403003 1.11545951

Interpretation wealth relative index which is 1.14, 1.13 and

1.11 for respective days. The critical value of
The above table shows the market adjusted T at 95% confidence level is 2.009. It is
initial returns, standard deviation and observed that the calculated values for all
wealth relative index along with t-statistic. the days are greater that the critical value.
The market adjusted short run performance Hence, we can conclude that the returns are
for the 1st, 5th and 22nd day are 13.52%, significant.
13.43% and 11.58% respectively which
simply means that the abnormal returns are Graphical Representation of Market
slightly falling near the end of the month. Adjusted Short Run Performance
The similar result is being shown by the

MESRP
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
4th Day
5th Day
6th Day
7th Day
8th Day
9th Day
10th Day
11th Day
12th Day
13th Day
14th Day
15th Day
16th Day
17th Day
18th Day
19th Day
20th Day
21th Day
22nd Day
1st Day
2nd Day
3rd Day

Figure 2 : Graphical Representation of Market Adjusted Short Run Performance

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Interpretation can include mergers, dividend

announcements, company earning
From the above graph, we can observe that announcements, interest rate increases,
the market adjusted sort run performance lawsuits, etc. all of which can contribute to
of the IPO rises between the first and the an abnormal return. Events in finance can
third trading day. The performance is the typically be classified as information or
highest on the 3rd trading day. occurrences that have not already been
priced by the market.
Toward the end of the month, the market
adjusted short run performance is falling The abnormal returns and cumulative
which shows that the returns of the IPO in abnormal returns are calculated using the
comparison to the market returns is slowly below formulas.
decreasing.
Abnormal Return
Calculation of Abnormal Returns = Actual Return
− Expected Return
Abnormal return is the difference between Expected Return = α + β(R " )
the actual return of a security and the Cumulative Abnormal Return
2
expected return. Abnormal returns are
sometimes triggered by "events." Events = & '()*+, -.)*/01
34

Table5: Abnormal Returns

Mean
Mean Abnormal Cumulative
T Statistic T Statistic
Return Abnormal
Return
1st Day 0.110973429 3.676746088 0.110973429 3.676746088
2nd Day -0.001356318 -0.2009212 0.109617111 3.719650864
3rd Day 0.002410338 0.347329173 0.112027449 3.581725823
4th Day -0.015364303 -2.82861117 0.096663146 3.292774471
5th Day -0.003561295 -0.704068393 0.093101851 3.203551401
6th Day -0.00667685 -1.473656201 0.086425001 2.913613707
7th Day -0.006017799 -1.07247467 0.080407201 2.784940297
8th Day 0.001131914 0.211469888 0.081539116 2.996099875
9th Day 0.000258713 0.04035626 0.081797828 3.287126872
10th Day -0.002864881 -0.587957588 0.078932947 3.204838078
11th Day -0.012519802 -2.26514627 0.066413146 2.948515075
12th Day -0.003812589 -0.78503934 0.062600557 2.863991811
13th Day -0.009548172 -2.393292513 0.053052385 2.590531479
14th Day -0.003914079 -1.068033435 0.049138305 2.637202943
15th Day -0.005091027 -1.025542605 0.044047278 2.685677785
16th Day -0.002804946 -0.471727879 0.041242333 2.725007987
17th Day -0.001502377 -0.269304445 0.039739956 3.186840388

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18th Day -0.013449416 -2.272526489 0.02629054 2.49034637

19th Day -0.008632904 -1.738109719 0.017657636 2.233883785
20th Day -0.00625037 -1.110245764 0.011407266 1.405939814
21th Day -0.010790681 -1.834146816 0.000616585 0.112928156
22th Day -0.000616585 -0.112928156 -4.49944E-17 -2.869959313

Interpretation calculated T value for mean abnormal

return is greater that the critical value for
From the above table, we can observe that the first day only. Therefore, only the first
there is significant abnormal returns day Mean Abnormal Return are significant.
delivered by the IPO on the first trading day.
The mean abnormal returns on the first The T statistic of the mean cumulative
trading day is 11.09%. From the second day, abnormal returns is greater than the critical
the abnormal returns are negative. At the T Value for the first 19 trading days.
end of the 22nd trading day, it is observed Therefore, only the first 19 days Mean
that the cumulative abnormal returns are Cumulative Abnormal Returns are
approximately equal to zero. significant.

The critical value of T at 95% confidence Graphical Representation of Cumulative

level is 2.009. It is observed that the Abnormal Returns

Mean Cumulative Abnormal Return

0.12

0.1

0.08

0.06

0.04

0.02

0
3rd Day

5th Day
6th Day
7th Day
8th Day
9th Day
10th Day
11th Day
12th Day
13th Day
14th Day
15th Day
16th Day
17th Day
18th Day
19th Day
20th Day
21th Day
22th Day
1st Day
2nd Day

4th Day

-0.02

Figure 3 : Graphical Representation of Cumulative Abnormal Returns

Interpretation Determinants of IPO performance

From the above graph, we can observe that Multiple regression analysis has been
the mean cumulative abnormal returns are applied to examine the effect of issue price,
highest on the first trading day. The over subscription, profit after tax, post IPO
cumulative abnormal returns have been promoters’ holdings and the market returns
subsequently falling. At the end of the on the IPO returns at the end of 22 trading
month, the cumulative abnormal returns days. This technique helps in identifying the
are approximately equal to zero. extent and direction of relationship
between the dependent variable and
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several independent variables. The R

square and the adjusted R square generated Stock Returns = Constant + β1 (ln_IP) + β2
by it indicates the proportion of variation in (ln_OS) + β3(ln_PAT) + β4 (ln_PH) + β5
the dependent variable explained by the (Market Returns)
independent variables
Where,
Hypothesis
ln_IP = Natural Logarithm of the issue price
H0 = There is no association between IPOs ln_OS = Natural Logarithm of the over
performance and various determinants. subscription
H1 = There is significant association ln_PAT = Natural Logarithm of the profit
between IPOs performance and various after tax
determinants. ln_PH = Natural Logarithm of the promoters’
holdings
Regression Equation: Market Returns = Mean Market returns

Dependent Variable: STOCK_RETURNS

Method: Least Squares
Date: 01/19/21 Time: 22:52
Sample: 1 52
Included observations: 52

Variable Coefficient Std. Error t-Statistic Prob.

C 0.169906 0.185754 0.914682 0.3651

LN_IP -0.041541 0.033594 -1.236547 0.2225
LN_OS 0.102113 0.017603 5.800997 0.0000
LN_PAT -0.009459 0.007932 -1.192583 0.2391
LN_PH -0.030540 0.031277 -0.976432 0.3340
MARKET_RETURNS 1.155253 0.606814 1.903801 0.0632

R-squared 0.464877 Mean dependent var 0.134472

Adjusted R-squared 0.406712 S.D. dependent var 0.294469
S.E. of regression 0.226815 Akaike info criterion -0.021197
Sum squared resid 2.366473 Schwarz criterion 0.203947
Log likelihood 6.551113 Hannan-Quinn criter. 0.065118
F-statistic 7.992317 Durbin-Watson stat 1.926161
Prob(F-statistic) 0.000017

Figure4: Results of Regression Analysis

Interpretation F Statistics probability i.e. 0.000017 also
shows that when independent variables are
From the probability values, it is observed taken
that except over subscription (P =0.0000), simultaneously, they are equal to zero.
all the other factors like Issue Price (P =
0.2225), Profit after tax (P= 0.2391), Findings
promoters holdings (P= 0.3340) and market
returns (0.0632) have no impact on IPO 1. Based on the daily IPO returns, the
returns. study found that the IPOs outperform
the markets on the first trading
For 1 unit increase in the over subscription day (listing gain). The average stock
causes 0.102-unit increase in the IPO return on the first trading day were
returns. Looking at the Adjusted R squared 13.52%, ranging from -23.15% to
value i.e. 0.406712, we can say that around 82.16% with standard deviation of
40.67% variations can be explained from all 26.72%. For the similar 1st trading day,
independent variables. Index return on average remains -0.0%,

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while it ranges from -20.31% to 6.25% over subscription causes 0.102 unit
with standard deviation of 3.72%. increase in the IPO returns. The other
2. It was found that the IPOs offered the factors namely, issue price, Profit after
highest returns on the third trading Tax, market returns and promoters
day. The average returns were 14.52%, holdings do not influence IPO returns.
ranging from -19.22% to 117.55%
with standard deviation of 18.57%. For Conclusion
the similar 3rd trading day, Index
return on average is 0.09% and it From the study we can conclude that an
ranges from -28.56% to 8.26% with initial public offering is a great opportunity
standard deviation of 4.90%. for investors to earn good profits in the
3. The research found that there was a short run. The investors also use this as a
small fall in the IPO returns after the speculative opportunity and sell off their
third trading day. At the end of the shares on the listing day. The abnormal
month, the IPO returns was slightly returns are also highest on the listing day
lesser compared to the returns on the after which the gradually decrease. One of
listing day. the major factors an investor should
4. It is found that the market adjusted consider while applying for an IPO is the
short run performance starts falling over subscription as it has a significant
from the 3rd trading day. This indicated impact on the performance of the IPO.
that the returns of the IPO in
comparison to the market returns is Scope for Further Studies
slowly decreasing, which is due to the
decrease in the abnormal returns. The scope for further research:
From the ‘t’ test, it is found that the
market adjusted short run 1. This study is focused on the short run
performance is significant. performance of IPOs. A study can be
5. The wealth model signified that the conducted on the performance of IPOs in
IPOs have performed better than the long run and the factors that influence
market during the first month from the long run performance.
listing. 2. A study can be conducted to understand
6. It is found that the abnormal returns the factors which influence the customers to
are highest on the first trading day. The invest in an IPO and the various factors
cumulative abnormal returns have that are considered while evaluating the IPO.
been subsequently falling. At the end of
the month, the cumulative abnormal References
returns are approximately equal to
zero
7. It is found that the critical value of ‘t’ at • Madan, A. (2003). Investments in ipos
95% confidence level is 2.009. It is in the indian capital market. Bimaquest,
observed that the calculated ‘t’ value 24–34. Retrieved from
for mean abnormal return is greater https://www.academia.edu/3311699/
that the critical value for the first day Investments_in_IPOs_in_the_Indian_Ca
only. Therefore, only the first day Mean pital_Markets
Abnormal Return are significant. • Chiraphadhanakul, V., & Gunawardana,
8. The T statistic of the mean cumulative K. D. (2005). The Factors Affecting on
abnormal returns is greater than the IPO Return in Thai Stock Market. SSRN
critical T Value for the first 19 trading Electronic Journal, 19.1-19.6.
days. Therefore, only the first 19 days https://doi.org/10.2139/ssrn.293263
Mean Cumulative Abnormal Returns 3
are significant. • Datar, V., & Mao, D. Z. (2006). Deep
9. From the results of the regression underpricing of China’s IPOs: sources
analysis, it is found that only over and implications. International Journal
subscription impacts the IPO of Financial Services Management,
performance. For 1 unit increase in the 345–362.

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https://doi.org/10.1504/ijfsm.2006.0 -short-run-
09635 performance/docview/1478010385/s
• Pande, Alok and Vaidyanathan, e-2?accountid=38885
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T. Ramesh Chandra Babu and Aaron Ethan Charles Dsouza, Journal of Financial Studies & Research
DOI: 10.5171/2021.104815