Soul in the Game

Such is the extant of IPO under-performance in India that in a sample of 77 IPO’s during 1994-2015 there is a growth of only 2.26%. The sum of their offer prices per share is ₹18559 and the sum of their market prices as on 31 st March 2016 is ₹18977 which translates to only a marginal growth of 2.26%. This is known as “Hot Issue” market phenomenon where companies take the advantage of a short “window of opportunity” in the form of overoptimistic investors as first reported by Ritter (1991). This long-term under-performance is contrasted by the short-term under-pricing where prices rise substantially on the listing day as compared to offer prices which is generally known as “IPO under-pricing”. In other words, IPO subscribers who get allotted shares earn a substantial profit on average in just a single day (around 15%) which if they keep holding those stocks instead of selling would decline only in the long-term (3-5 years). This doesn’t’ look right. Isn’t it? So beware of over-...

We began with constituent stocks of S&P BSE TASIS 50 index.( The list can be downloaded from here ). The following screens are applied: 1.  We apply a criterion based on Profit after Tax from Operations. 2 stocks are deleted in this stage. Interestingly all of the remaining stocks have a positive PAT. 2. Next, using annual sales growth, stocks having any negative growth in the preceding three years based on the latest available sales figure (in PROWESS database) have been screened out. After this screen, we are left with 28 stocks. 3.  Finally, we applied the next stringent criteria; the BM ratio. Stocks having book values less than 1/5 th of their market price are excluded. The list of stocks remaining after the screening of already screened stocks (based on business and financial ratios requirements of Shariah), we are left with the following 14 stocks: S.No. Stocks BM Beta a 1 C E S C Ltd. 0.980 0.75 ...