Revisiting underpricing of Initial Public Offerings (IPO's) - Evidences from Indian stock markets

Abstract

Initial Public Offerings (IPOs) is one of the main strategy of going public adopted by firms across the globe, hence marks as an important seminal moment in the life of a concern, Underpricing of initial public offerings (IPOs) is a universally well-documented arena of equity markets. Such an event is evident in context to the pricing of such offerings, which are usually in the form of first hand sale of securities to public. The present study endeavors to access and evaluate the underpricing phenomenon with respect to IPO offerings in the Indian capital markets, using a sample of 290 IPO stocks that floated in the primary market from 2007 to 2017. The findings of the study reveals that the average underpricing marked to 17.9 percent and with adjustment to the market indices i.e. both Nifty and Sensex for the same period the returns accounted to 19.1 percent and 18.4 percent respectively. In order to seek proper justification, several factors like offer price and date, Size of issue, lead time, and so on are considered. The study based empirical evidences suggest that underpricing remains one of the aspect of great concern to investors furthermore significant level of underpricing phenomenon do exist amongst IPOs pricing in Indian capital markets.