An Empirical Investigation of Short-Run Performance of IPOs in India

Abstract

Initial Public Offering (IPO), is a way for companies to go public and meet its financing needs. IPOs are known to provide the initial abnormal returns to its investors. Therefore, this present paper is analyzing the short-run market adjusted performance of 100 IPOs listed on National Stock Exchange (NSE) from the period April 2008 to March 2011(3 years). This study found that Indian IPO market provides positive abnormal return to investors on short-run basis (1st and 7th day) like as observed in past literature. The returns diminished at the end of 30th day showing the negative return. The average market adjusted return for the 1st, 7th and 30th day is 7.23%, 2.09%, and -8.58% respectively. T-Statistic has been used to know the significance of these market adjusted returns. The wealth relative model has also been applied for analyzing the short run performance of IPOs, which provided the same results. The wealth relative index is 1.07, 1.02 and .91 for 1st, 7th and 30th day respectively. The year-wise analysis of IPOs performance is also documented. The results show that year 2009-10 demonstrate an excellent performance; that investors can earn 7.03%, 6.44% and 4.21% average return if they sell these stocks at the end of 1st, 7th and 30th day respectively. Keywords: IPO, NSE, Market Adjusted Return, Short-run Performance, Under-pricing.

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