Indian IPO Market Research Articles

IPO subscription dynamics: A comprehensive inquiry into the Indian stock market

The Indian IPO market showcased resilience during the global stock market downturn in 2022, emerging as a notable bright spot in regions such as Europe, the Middle East, India, and Africa. As the bullish rally of 2022 persists, Indian stock markets remain enticing for foreign institutional investors in 2023. A resurgence in IPO activity is anticipated, driven by increasing momentum and larger deals that are poised to overcome the constraints of subdued global sentiments and liquidity pressures, addressing the challenges posed by these factors. The study offers insights into factors influencing IPO subscriptions, capitalizing on the context of heightened stock market volatility and optimistic trends in the Indian stock market. A total of 132 IPOs listed on the Indian stock market between April 2019 and March 2023 were analyzed in this study. Multiple Linear Regression was used to assess the strength of the association between several factors outlined in the literature, and the overall subscription. Among the ten variables investigated in the study, it was observed that three variables under the external factors, specifically Grey Market Premium, IPO Rating, and Broker Recommendations, exerted a significant influence on the overall subscription. While other factors such as allocation proportion and issue attributes, were found to have no discernible influence on the overall subscription. The results indicate that the Indian IPO market demonstrates a prevalence of speculative behavior and a stronger reliance on expert recommendations, rather than being primarily driven by IPO characteristics. Acknowledgment Authors acknowledge that the publication fee is funded by Kingdom University, Bahrain.

Do retail and institutional investors react differently to earnings management? Evidence from Indian IPOs

PurposeThis study investigates the impact of pre-IPO earnings management on investor demand in the Indian IPO market. It also examines whether earnings management by issuer firms affects IPO valuation, a topic that is underexplored in accounting research.Design/methodology/approachThe study uses the data of 310 IPOs from India during the period 2000–2021. The association between pre-IPO earnings management with investor demand and valuation is tested using cross-sectional ordinary least squares regression models with heteroscedasticity-robust standard errors.FindingsThe study finds that the degree of pre-IPO earnings management impacts retail investor demand, measured as their over-subscription multiple. Pre-IPO earnings management is unrelated to institutional investor bidding. Further, this paper suggests no relation between pre-IPO earnings management and IPO valuation.Research limitations/implicationsFuture studies could explore various other forms of earnings management and their impact on investor demand and valuation.Practical implicationsThe findings of this study will help the investors and regulators to understand the practice of earnings management among IPO firms and how it is related to IPO demand and valuation.Originality/valueThis study contributes to the existing literature on IPO-earnings management and investor demand by documenting that issuer firms engage in earnings management to influence investor demand, particularly retail investor demand. Analysis of IPO valuation reveals that earnings management is mostly unrelated to IPO valuation, contrary to the general perception in the literature.

Hot Issue Markets: A Conceptual Framework and Research Developments

The study aimed to analyse the studies pertaining to market conditions around public issues with a deep concentration on the hot and cold issue market. It provides an insight into the Indian IPO market in the last two decades from 2001 to 2020. The review of literature consists of four major sections concentrating on contemporary market conditions, hot and cold issue markets, and postissue performance. It attempts to synchronize the literature over the hot and cold market with reference to post-issue performance and group affiliation of the issuers. The study revealed the strong influence of market conditions (hot and cold markets) in various parts of the world. It was also observed that along with other factors, hot and cold market issues also lead to the variation in their post-issue performance. Group affiliation as an essential company characteristic was also found to influence post-issue performance substantially.

Grey Market for Indian IPOs: Investor Sentiment and After-Market Performance

Extant research on developed markets shows that investor sentiment is a prominent feature in IPO grey markets. There is sparse work in the context of emerging markets. We fill this lacuna by studying the working of the Indian IPO market. We consider this work interesting and relevant for the following reasons. First, grey market trading always involves short-selling as securities are not yet available. Since legal and institutional environment is less developed in emerging markets, the functioning of grey markets is of interest to policy makers and financial economists. Second, retail investors participate to a greater extent in IPOs of emerging markets, ostensibly due to the relative paucity of institutional investors. Since prior research has shown that retail investors are more prone to overreaction, it is useful to examine if grey market prices proxy for investor sentiment. Finally, if grey markets are associated with price distortion in initial trading prices, then investors can potentially exploit this by using trading strategies. Our empirical results show that grey market prices are predictable and that these prices are associated with initial listing returns. Furthermore, selling at grey market prices and subsequent short-covering is shown to be profitable.

Allocation Discretion, Information Sharing and Underwriter Syndication

The competitiveness of the IPO underwriting market suffers from the concentration of restricted mandates in the hands of a limited number of underwriters with good reputations. Academic research has focused extensively on the relationship between underpricing and the influence of an individual underwriter. However, we have only scant research on the effect of IPO syndication on underpricing. Nevertheless, most IPOs are managed by underwriters operating as an IPO syndicate. Here, we contribute to an analysis of underwriting syndicates by examining 329 IPOs issued in the Indian IPO market in the period 2000-10 that were made subject to either a discretionary or a proportionate allocation regime. We find that the underwriting market in India is highly concentrated and is dominated by a few large and reputable underwriters who have ongoing relationships amongst themselves to manage IPOs. This highlights a potential entry barrier for new underwriters. We find that underwriters form large syndicates when the issue size is large. Also, we do not find any evidence that the motivation for underwriters to form a syndicate is due to market risk sharing or price manipulation. We conclude that underwriters syndicate to share the inventory risk of an IPO. When allocation discretion is regulated, and the risk of managing an IPO is high, we observe that the size of an underwriting syndicate is smaller. However, the results support the role of institutional subscription acting as a mediating factor for reputable underwriters to syndicate. Able to share the risk in this way, the syndicate partnership benefits the issuer with lower underpricing. Overall, we conclude that regulatory intervention is positive for market welfare due to lower underpricing. We also find that in the absence of allocation discretion, syndication by reputable underwriters acts as an effective medium of discretion for higher information and risk sharing.

Growth performance of indian ipo market since liberalisation

The present study analyses the growth patterns of Indian IPO market since liberalization. It studies the general and specific trends in IPO Market from 1992–2015. The general trends in the IPO market are given in the form of six phases starting from the pre-liberalization era to the post-liberalization era. The specific trends are studied in three variables- Number of IPOs, Market Capitalisation and average size of the issue. With the help of regression analysis, the growth rates per annum are calculated for number of IPOs, the amount of IPOs and the average size of IPOs. The calculated growth rates are tested for significance by observing the p-values. The results are highly significant and show that the amount raised through IPOs have grown at a rate of 11.5% p. a compounded annually and average size of IPOs has grown at a rate of 23% p. a compounded annually whereas the number of IPOs have declined justifying the fact that with liberalization, markets have assumed maturity and become more efficient in discriminating between the ‘good’ and the ‘bad’ issues.

Investor Sentiment, Profitability and Offer Price Band: Evidence from the Indian IPO Market

Offer price band is a crucial component of the book building process in the Initial Public Offering process of a firm. Extant research shows that investor sentiment plays a prominent role in IPO markets. We therefore suggest that investor sentiment plays a significant role in determining the offer price range. The determinants of offer price band have not been studied in the IPO literature. We fill this lacuna by studying the Indian IPO market. We hypothesise that investor sentiment will positively influence offer price band. We also posit that the profitability of a firm will be inversely related to the offer price band. Our empirical tests support these hypotheses.

Informational Asymmetry Between Informed and Retail Investors While Investing in the Indian IPO Market

Do retail investors make investment decisions in the primary markets based on personal decisions (mainly gut feeling) ? by taking clues from institutional investors ? or by seeking help of ratings given by credit-rating agencies ? - these are the common questions about retail investors investing in primary markets. Primary markets give a lot of opportunities to retail investors to purchase stocks at lower rates considering the future prospects of the companies. Underpricing of the IPOs and market efficiency play a crucial role in the primary markets as suggested by asymmetric information models. The true value of a share is determined by many factors, which are considered in various proportions to assess the demand in the market. The book building process, adopted throughout the world, helps in identifying the strength of the value of a share, but still, in many ways, to a researcher, finding the true value of a share is an art and not an absolute science. The study aimed at understanding the decision making capabilities of the retail investors based on the information available to them. The study mainly examines how and why information asymmetry exists between the informed and retail investors and whether the winner's curse exists in the Indian stock markets. A sample of 177 IPOs were considered for the study, with the time period of the study being from 2008-12. Stepwise regression analysis, correlation, and Granger's causality tests were conducted. The study found conclusive evidence to support asymmetric behavioural theories. The study revealed that retail investors took clues from institutional investors before investing in the primary markets, but they did not conduct any market research, nor did they consider credit ratings as an important component before entering the primary markets.

Informational Asymmetry Between Informed and Retail Investors While Investing in the Indian IPO Market

Do retail investors make investment decisions in the primary markets based on personal decisions (mainly gut feeling) ? by taking clues from institutional investors ? or by seeking help of ratings given by credit-rating agencies ? - these are the common questions about retail investors investing in primary markets. Primary markets give a lot of opportunities to retail investors to purchase stocks at lower rates considering the future prospects of the companies. Underpricing of the IPOs and market efficiency play a crucial role in the primary markets as suggested by asymmetric information models. The true value of a share is determined by many factors, which are considered in various proportions to assess the demand in the market. The book building process, adopted throughout the world, helps in identifying the strength of the value of a share, but still, in many ways, to a researcher, finding the true value of a share is an art and not an absolute science. The study aimed at understanding the decision making capabilities of the retail investors based on the information available to them. The study mainly examines how and why information asymmetry exists between the informed and retail investors and whether the winner's curse exists in the Indian stock markets. A sample of 177 IPOs were considered for the study, with the time period of the study being from 2008-12. Stepwise regression analysis, correlation, and Granger's causality tests were conducted. The study found conclusive evidence to support asymmetric behavioural theories. The study revealed that retail investors took clues from institutional investors before investing in the primary markets, but they did not conduct any market research, nor did they consider credit ratings as an important component before entering the primary markets.

Do analyst's pre-issue recommendation create value? Empirical evidence from Indian IPO market

This study investigates impact of pre-issue analysts coverage on IPO performance i.e. subscription rate, underpricing, volatility and liquidity. Using pre-issue analyst's recommendation for a sample of 157 IPOs issued in India during the period 2007–2012, we find that analysts’ recommendation reduce underpricing. Precisely, more analysts participated in issuing recommendation (including favorable recommendation) reduce underpricing. The result also shows that favorable recommendation issued by more number of participating analyst's boosts confidence of potential investors and hence probability of getting success for IPOs in terms of oversubscription is more. Further, affiliated analysts are associated with lesser oversubscription rate. Additionally, independent analyst's recommendation is inversely associated with underpricing. In support of IPO grading, which is a unique practice in India, we find that superior grading reduce underpricing and attract more response from investors. Further, evidence suggests that pre-issue analyst coverage increase oversubscription rate, while reduce listing day volatility and liquidity for IPO stocks.

Price Band, Offer Price Adjustment and Initial Listing Returns: Evidence from the Indian IPO Market

Extant research on developed markets shows that investor sentiment plays a prominent role in IPO markets. There is sparse work in the context of emerging markets. We fill this lacuna by studying the Indian IPO market. We examine the determinants of offer price band and its influence on offer price adjustment and subsequent listing performance. Offer price band is a crucial component of the book building process and has not been studied in the context of emerging markets. Our work fills this void. We hypothesise that retail demand which is a proxy for investor sentiment will positively influence offer price band. We also posit that the profitability of a firm will be inversely related to offer price band. Our empirical tests support these hypotheses. We also find that offer price adjustment is positively related to offer price band.

Transparent bookbuilding, certification and initial public offerings

India has the unique distinction of being the only country that releases information on the IPO bookbuilding process live to investors. Against this backdrop, we investigate the role this mechanism plays in generating investor interest during the bookbuilding process and the subsequent performance of IPOs in the immediate aftermarket. We show that, to retail investors, institutional bids in the early days of the bookbuilding process offer a coherent signal about the quality of the IPO. IPOs with high levels of institutional demand in the early days of the book also see high levels of bids from retail investors in the later days of the book. Large subscriptions have a strong positive effect on initial returns. Known certification mechanisms, such as the reputation of the sponsor, VC affiliation and IPO grading, are of limited importance in the Indian IPO market.

Underpricing, long-run performance and secondary-market liquidity: an empirical examination of Indian IPO market

In this paper, we study the underpricing, long-run performance of IPOs and the impact of underpricing on secondary market liquidity of IPOs which were issued in India during the period 2000–2008. The average underpricing for Indian IPOs is 37%. Uncertainty, information asymmetry and investor optimism are the factors which explain underpricing. The IPOs which take more time in getting listed on stock exchange after the close of the issue have higher underpricing. In the case of big IPOs, mature firms have less underpricing and the IPOs which have more lead managers have more underpricing. Calendar-time factor regression results show that IPOs underperform in the long-run. However, underperformance is more for big and more oversubscribed IPOs than that of small and less oversubscribed IPOs respectively. IPOs which are more underpriced in the primary market are more liquid in the secondary market and this relation holds for all the measures of liquidity used in the study.

When-issued trading in the Indian IPO market

We examine the contribution of when-issued trading to price discovery and underpricing in the Indian IPO market. Besides the when-issued trading, there exists IPO grading, analyst recommendation, group affiliation, and the subscription rates in the bookbuilding process. We examine the impact of these activities and find three sequential factors that explain the IPO underpricing. Higher grades for an IPO lead to higher when-issued premiums, which in turn leads to higher subscription rates. Then, higher subscription rates lead to higher IPO underpricing. Overall, we find that the when-issued trading plays an important role in price discovery in the Indian IPO market.

When-Issued Trading in the Indian IPO Market

We examine the effect of when-issued trading on price discovery in the Indian IPO market. There are five potentially interrelated activities that collectively have lowered the overall IPO underpricing in India. Besides the when-issued trading, there exists IPO grading by a rating agency, analysts recommendations, group affiliation with other companies, and the subscription rates in the bookbuilding process. We examine the impact of these activities and find three sequential factors that explain the IPO underpricing. Higher grades for an IPO lead to higher when-issued premiums, which in turn lead to higher subscription rates for institutional investors, as well as high net worth and retail investors. Higher subscription rates lead to higher IPO underpricing and avoid winner’s curse of retail investors. Overall, we find that the when-issued trading plays an important role in the price discovery in the Indian IPO market.

Coal India IPO - 'Big Boss' of Indian IPO Market!

Coal India IPO is a historic public issue in many metrics. If Commonwealth Games are an answer to China's Olympics, then Coal India IPO may prove to be the answer to Agricultural Bank of China's US $20 Bn IPO (world's largest IPO).

IPOs with and without allocation discretion: Empirical evidence

Bookbuilding, the dominant offering mechanism for IPOs, is controversial because of the power it gives underwriters over IPO allocations. Critics argue that allocations could be abused to generate kickbacks for underwriters while proponents hold that allocation power could improve pre-market price discovery. We examine underpricing, bidding, and allocations from two regimes in the Indian IPO market with varying underwriter allocation power. When underwriters control allocations, bookbuilding is associated with lesser underpricing, but the effect quickly dissipates when regulations withdraw allocation powers. Using proprietary datasets of IPO books in both regimes, we find that allocation powers are used quite extensively. Identical bids can receive significantly different allocations, which depend not only on the bid but also on the bidder identity. When allocation powers are withdrawn, we find evidence of bidder exit, new bidder entry, and altered bidding strategies with exit by both favored and unfavored bidders. Our evidence supports bookbuilding theories in which giving underwriters allocation powers assists in pre-market price discovery

'Busiest' Week in Indian IPO Market in India after 1995

The starting 20th September 2010, features 11 IPOs which remain open. This will be the busiest week in the Indian primary market history after 1995. Even during the red-hot bull market of 2007, no single featured 11 IPOs.

When Bookbuilding Meets IPOs

Bookbuilding, the dominant offering mechanism for IPOs in the U.S. and other markets, is controversial because of the power it gives underwriters over IPO allocations. Critics point to the fact that allocations could be abused to generate kickbacks for underwriters while proponents argue that allocation power could improve pre-market price discovery. We examine the effect of varying underwriter power over IPO allocations in the Indian IPO market, exploiting its natural variation due to regulatory changes. When underwriters control allocations, bookbuilding is associated with lesser underpricing, but this effect quickly dissipates when regulations bar allocation discrimination. Using a proprietary dataset of IPO books, we find that allocation discrimination is pervasive, economically significant, and is used to differentiate between institutional investors based on hard information in bids, issue and bidder characteristics and soft information possessed by underwriters. Our evidence supports bookbuilding theories in which discretion in allocation helps in pre-market price discovery.