Short Run Underpricing of Initial Public Offerings (IPOs) in the National Stock Exchange (NSE)

Abstract

In order to gauge the phenomenon of underpricing and behaviour of returns generated by Indian IPOs with respect to underlying factors, a complete analysis of the short run performance of IPOs listed on National Stock Exchange (NSE) has been done by taking 210 sample stocks from 2009- 2017 for which Market Adjusted Average Returns have been calculated for first, fifth, tenth, fifteenth and twentieth trading days respectively. After an analysis of the Short Run Performance of the stocks using Market Adjusted Average Returns (MAAR) technique, t-statistics, Wealth Relative statistics, etc, it is analysed whether size of the offering as measured by the price at which it is offered has any correlation or effect on the short run performance of the IPO. Further the relationship between the short run performance of an IPO and its volume (measured by market capitalisation value) has been studied by dividing the entire data into categories above and below median volume. The results show maximum returns on the 10th trading day and a positive correlation between underpricing and size of the IPOs. Overall, the high volume stocks give a consistent return of 11% and maximum returns when the stock is held till the fifteenth day of trading. The study provides useful insights to both investors for their investment and divestment planning as well as to issuer companies with respect to timing of IPO issue.