The initial listing performance of Indian IPOs

Abstract

While underpricing is a ubiquitous phenomenon, the process of going public is not identical in different countries. There are important differences in the regulatory environment, the state of the development of the primary and secondary markets, the types of investors that allow for interesting comparisons to be made across countries. In this study, we describe the institutional arrangements of the public issue process of unseasoned equity offerings (IPOs) in India. We show evidence regarding the widespread underpricing of Indian IPOs and relate them to potential factors. Principal among them are: the lack of a formal mechanism for gauging the extent of demand from potential investors, the regulatory restrictions on pricing of new firms without a track record, and the large delay between the approval date of issue and the actual opening date of the public issue.