1. Dr. Omprakash Kajipet
Professor & Head
Department of Commerce and Business Management
Kakatiya University, Warangal, AP
2. A.Sathish Kumar
Sree Chaitanya PG College
LISTING DAY PERFORMANCE OF INDIAN IPOs
Investment would imply the employment of funds with the objective of realizing additional income or growth in value of investment at a future date. Investment choices are found to be the outcome of three different but related classes of factors like factual, expectation and valuation. Financial investment is an exchange of financial claims like stocks and bonds.
Most popular financial investment is equity shares. Equity is the ownership capital of a company. To invest in equity shares of a company investors have two markets through which they can invest. The two markets are primary market and secondary market. Primary market also known as New Issue Market which deals with new securities i.e., securities that are offered to the investing public for the first time by the company. The most important method to market the security of a company in the new issue market is public issue. When a company is new and has to raise huge funds it has to go in for public issue.
IPO ERA – INVESTORS’ DILEMMA:
Over the past ten years almost 300 companies have collectively gathered more than Rs.132000 crore in the capital market through New Issue Market i.e., Initial Public Offerings. However, the long term track record of IPOs in the Indian market suggests that a large proportion of them do not deliver on the initial promise. According to an analysis one out of every two Initial Public Offer stocks still trades below it issue price, even after the market recovered strongly.
An investor can neither decide the timing of an IPO nor its pricing. The question therefore, is whether at all he should invest in it. If so, fundamentals did matter in how IPO stocks fared after listing. Therefore, an IPO to deliver in the post listing in terms of increase in price of the share. A fundamentally weaker company may not be able to weather a slowdown, as evidenced by the numbers posted by IPOs that have seen substantial price erosion. Investors often select IPOs based on the market fancy at a particular point of time. Software IPOs were all the rage in the late 1990s and realty IPOs in 2007. The analysis shows that company fundamentals matter much more than the sector profile in Initial Public Offering performance. With the Initial Public Offering season back in full force now, what are the lessons investors should keep in mind?
IPOs performance – Focus:
Initial Public Offerings (IPOs) have been an important source of corporate financing for a long term. The empirical evidence on pricing and performance of IPOs provides a puzzle both in the short and long-runs. The Initial Public Offering anomalies that bother the researchers are the positive mean initial return also known as underpricing. Numerous studies have examined the performance of Initial Public Offerings where the focus has been on the initial behaviours of stock prices. The results of these studies in general report the existence of positive initial returns. This is known as under pricing of Initial Public Offerings.
A large volume of research (Ritter-1984, Balvinder-2007, Allen-1989 etc) has demonstrated that investors purchasing Initial Public Offerings of common stocks earn large positive abnormal returns in the early aftermarket period. The size of the under pricing of common stock Initial Public Offerings is related to the issue size, the issue price, the methods of offering, the distribution ownership, reputation of underwriter etc. The present study examines the listing day performance of Initial Public Offerings in India.
DATABASE AND RESEARCH METHODOLOGY:
The sample of the study consists of companies which raised capital through Initial Public...