The Case of Over-hyped Indian IPOs.

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 31st 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-hyped IPOs. 

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