Performance of IPO Stocks in India:

An Event Study†
K Navyatha* and Gaddam Naresh Reddy**

The pricing and performance of Initial Public Offerings (IPOs) is difficult to predict as there
is no prior market history. However, investors are always curious about the returns they
can generate across industry sectors. This study analyzes the long-term performance of
IPOs across industrial activities during the period 2008 to 2019 through the event study
methodology. It also aims at analyzing the short-term performance of IPOs to determine
the underpricing and overpricing on the listing day of IPO stocks issued across industries
during the study period. Highest underpricing is seen in the professional, scientific and
the technical activities industries and the long-term performance is also found to be good
indicating good returns. High underpricing on the listing day is seen in mining and
quarrying. In case of the manufacturing, electricity, gas, steam and air-conditioning
activities high underpricing on the listing day is observed, with considerable long-term
returns.

Introduction
Initial Public Offerings (IPOs) are the largest and best sources of finance for companies to
raise capital in order to meet their business requirements. On the other hand, they offer the
investors investment opportunities and motivate them to mobilize their savings for high
growth earnings. Since the opening up of the Indian economy in 1990s, various reforms,
policy changes, technological advancements and tremendous changes have occurred in the
IPO market. As a result, the number of companies going public has increased over a period
of time; nearly 50% of the companies which issued IPOs outperformed the market’s success.
This means the risk of investing in IPOs is comparable to the risk of investing in the equity
market.

† Paper presented at 15th International Conference on Business and Finance (ICBF-2022) organized by IBS,
Hyderabad under the aegis of ICFAI Foundation for Higher Education (IFHE) (A deemed-to-be University
under section 3 of the UGC Act 1956, Government of India) (Held virtually from January 27-29, 2022).

* Research Scholar, Department of Commerce, University College of Commerce and Business Management,
Osmania University, Hyderabad-500007, Telangana, India; and is the corresponding author.
E-mail: karnati.navyatha@gmail.com
** Associate Professor, Commerce, University College of Commerce and Business Management, Osmania
University, Hyderabad - 500007, Telangana, India. E-mail: nareshreddygaddam@gmail.com

© 2022 IUP. All Rights Reserved.

46 The IUP Journal of Accounting Research & Audit Practices, Vol. 21, No. 3, 2022
 Due to the existence of high risk in IPOs, investors are in a dilemma whether to
invest in IPOs or not and also are interested to know the performance of IPOs after
listing. In contrast to this, some IPOs are listed with significant premium to issue price
where the investors earn significant returns on the listing day. In some cases, the
overpricing or underperformance of IPOs persists for a longer duration. This study seeks
to determine the performance of IPO stocks across industries through the “Event Study
Methodology.”

Need for the Study

An IPO refers to the process of offering company shares to the public for the first time. And
the biggest challenge for the investors is to evaluate the pricing of IPOs, because the firms
issuing them do not have the information of historical price. Even with respect to the book
building process of IPO pricing, no issuer or no Merchant Bank knows the true price of
shares. And the offering price of IPOs is set below the trading day price or listing price,
leading to underpricing. Even after listing, underpricing or overpricing continues for a period
of time. There is a need to track the performance of IPO stocks over a period of time.
Hence, this study is aimed at evaluating the performance of IPO stocks in the Indian context.

Literature Review
Hawaldar et al. (2018) studied the performance of IPOs, through book building and fixed
pricing process, and their post-listing performance in the Indian stock market. The pricing
and long-term performance of 464 Indian IPOs that went public between 2001 and 2011
were studied. The findings showed that, as compared to fixed-price IPOs, book-built IPOs
are underpriced by a smaller margin.
Loughran and Ritter (2004) discussed the evolution of underpricing. Three pro-explanations
were considered for the study: changing risk composition, realignment of incentives, and a
changing issuer objective function. The changing risk mix of the universe of firms going
public can constitute a small part of the increase in underpricing. The results revealed that
choosing a lead underwriter with a good reputation is an incentive for decision makers.
They concluded that the reasons for IPO underpricing vary considerably depending on the
environment.
Aggarwala et al. (2001) explored the strategic IPO underpricing, information momentum,
and lockup expiration selling. Managers usually do not sell any of their own shares in an
IPO, wanting to wait until the end of the lockup period, which persuades managers to
strategically underprice IPOs in order to increase personal wealth from selling shares at
lockup expiration. By attracting attention to the stock and thereby shifting the demand
curve for the stock outwards, first-day underpricing generates information momentum.
Using event study methodology, Manu (2013) explained the post-IPO performance of
many firms that went public in 2017 and inferred whether the IPOs are underpriced in the
short run. They also spotted the factors that influence price change in the short term. As per
the study, 70% of chosen IPOs are underpriced in the short run, and the movement of these

Performance of IPO Stocks in India: An Event Study 47

IPOs is unaltered by the company’s age, issue size, ownership sector, or promoter’s holdings
after the issue.
Sharma (2013) inspected the stimulus of IPOs across collective areas and time events in
order to identify the performing sectors and the impact of non-performing IPOs. During both
the short and long terms, public sector stocks beat all other sector equities. Stocks in the
manufacturing sector appeared to be worst players both in short and long terms.
Brown and Warner (1980) examined the characteristics of daily stock returns as well as
how the distinctive characteristics affect event study approaches. For most event
investigations, daily data presents minimal challenges. Even when particular daily data
properties are neglected, standard procedures are usually well-defined. However, recognizing
autocorrelation in daily excess returns and changes in autocorrelation in daily excess returns
have their variance conditional on an occurrence.

Research Gap
IPOs are mostly looked at as speculative investment by many investors for short-term gains
on the listing day. And companies that decide to go public face an added pressure to focus
on the short-term results rather than the long-term performance, which is serving as a catalyst
to the underpricing of IPOs. Upon the literature review, it was found that there are many
studies on performance of IPOs in short term and long term, but very few studies on the
performance based on the industrial activities considering the issues for a longer duration of
time period, presenting the scope to take up the present study on the performance of IPOs
based on the industrial activities as per the National Industrial Classification-2008 for a
period of 12 years from the years 2008 to 2019.

Motivation for the Study

There are studies related to the listing day and long-term performance of IPO, but there are
only a few studies related to the listing and the long-term performance of IPOs issued for
long-period based on the industrial activity classification in the Indian context. This study
aims at evaluating the listing day performance and identifying the underpricing or overpricing
of stocks based on industrial activity classification over a period of 12 years.

Objective
The important objectives of the paper are:
• To study the listing day performance of IPO stocks across industrial activities in
India.
• To study the long-term performance of IPO stocks across industrial activities in
India.
• To study the listing day performance of IPO stocks in India across years.
• To study the long-term performance of IPO stocks in India across years.

48 The IUP Journal of Accounting Research & Audit Practices, Vol. 21, No. 3, 2022
Hypotheses
The objectives are tested with the help of the following hypotheses:
H01: There is no significant difference in the listing day performance of IPO stocks
across industrial activities in India.
H02: There is no significant difference in the long-term performance of IPO stocks
across industrial activities in India.
H03: There is no significant difference in the listing day performance of IPO stocks
across years.
H04: There is no significant difference in the long-term performance of IPO stocks
across years.

Methodology
The following methodology is used to study the performance IPO stocks:
Sources of Data: Data is collected from the secondary sources from PRIME database and the
NSE website.
Sample Size: Among all IPOs, i.e., the rights issue, fresh equity issue and the further issues,
147 IPOs that are issued during the year 2008 to 2019 forming the part of the fresh equity
issue is considered for the study.
Sample Selection: IPOs of 147 companies are categorized into 14 industrial activities
(Table 1) based upon the economic activities as per the National Industrial Classification of
2008 (Table 2).
Event Study: This study was undertaken using the Event Study Methodology to measure the
listing day and long-term performance of IPOs. Event study is a statistical measure to assess
the impact of an event on the value of firm. The motive is to find the abnormal return
attributable to the event being studied by adjusting for returns from price fluctuation of
market as a whole.
Selection of IPO: IPOs have been selected on the basis of the industrial activities according
to National Industrial classification-2008 and on the basis of the year of issue. For the purpose
of study, only the fresh equity issue capital is considered.
Analytical Tools: To measure the market performance of IPOs, first-day adjusted opening
and closing market prices and the post-listing adjusted prices have been used.

First - Day's Opening Price  Issue Price

Primary Market Returns   100 ...(1)
Issue Price

First - Day's Closing Price  First - Day's Opening Price

Secondary Market Returns   100 ...(2)
First - Day's Opening Price

Performance of IPO Stocks in India: An Event Study 49

 Table 1: IPOs Issued Based on Industrial Activity

No. of
S. No. Industry Years of Issue
IPOs

1. Mining and quarrying 2 2011

2. Manufacturing 73 2008, 2009, 2010, 2011,

2012, 2015, 2016, 2017,
2018

3. Electricity, gas, steam and air-conditioning supply 6 2008, 2009, 2010

4. Construction 9 2008, 2009, 2010, 2015

5. Wholesale and retail trade; repair of motor 2 2016, 2017

vehicles and motorcycles

6. Transportation and storage 2 2010, 2014

7. Accommodation and food service activities 2 2012, 2014

8. Information and communication 12 2008, 2009, 2010, 2011,

2014

9. Financial and insurance activities 12 2008, 2010, 2011, 2013,

2016, 2019

10. Real estate activities 9 2009, 2010, 2011, 2017

11. Professional, scientific and technical activities 9 2008, 2010, 2011, 2012,
2017, 2019

12. Education 4 2009, 2010, 2011

13. Human health and social work activities 4 2008, 2010, 2011

14. Other service activities 2 2010, 2011

Source: National Industrial Classification

First - Day's Closing Price  Issue Price

Total Returns on First Day   100 ...(3)
Issue Price

N th Day's Closing Price  Issue Price

Raw Return on N th Day   100 ...(4)
Issue Price

Closing Index Value N th Day  Closing Index Value on Last Day of Issue Period
Market Return   100 ...(5)
First - Day's Opening Price

Abnormal Return = Raw Return – Market Return

If abnormal return is positive, then it implies that IPO is underpriced.

50 The IUP Journal of Accounting Research & Audit Practices, Vol. 21, No. 3, 2022
 Table 2: IPOs Issued During the Year 2008-2019

Year Number of IPOs Issued

2008 30

2009 15

2010 42

2011 35

2012 5

2013 1

2014 3

2015 3

2016 5

2017 5

2018 1

2019 2

Source: National Industrial Classification

If abnormal return is negative, then it implies that IPO is overpriced.

If abnormal returns are zero, then it implies that IPO is fairly priced.

n
1
AARit 
n  AR
i 1
it ...(6)

where AARt= Market Adjusted Average Abnormal Return; n= Number of IPO companies
in Period i.

To determine whether the average Raw and Abnormal Returns are statistically significant,
the following t statistics has been used:

nt
t  AAR   AARt  ...(7)
t

where AARt = Market Adjusted Average Abnormal Return for Day t; t= cross-sectional
standard deviation of the Return for Day t.

From the Market Adjusted Abnormal Return, Cumulative Abnormal Return (CAR) is
calculated as follows:

Performance of IPO Stocks in India: An Event Study 51

 s
CAR q,s   AAR
t q
t ...(8)

where CARq,s= Market Adjusted Post Day Listing Performance from Event Day
The t statistic for the Cumulative Market Adjusted Average Abnormal Return (Aktas et
al., 2003) is computed as follows:

CARt
t CAR   ...(9)
 CAR t

Performance of IPO Stocks

The performance of IPOs consists of both short-term and long-term gains. The short-term
performance consists of primary market returns and secondary market returns aggregating to
total market return. This shows the listing-day performance which is the event day of this
study comprising the listing price and the issue price. Long-term performance indicates the
post-event performance up to one year after listing.
Performance evaluation is based on the market adjusted abnormal returns and cumulative
abnormal returns. In order to measure the price behavior such as whether stock is underpriced,
the price movements across the industries standard deviation have been used. The performance
of IPO stocks has been evaluated across industries and year-wise.
Based on the National Industrial classification, IPOs consisting of fresh equity issue
capital are identified in 14 industrial activities. Its performance is categorized as the listing-
day performance and the long-term performance up to one year.

Industrial Activity – Listing-Day Performance of IPO Stocks

IPOs listing is regarded as the occurrence of IPOs on the IPOs event day. Listing-day returns
are segregated as the Primary Market Returns (PMR)—the returns on the opening of the
IPOs listing day, Secondary Market Returns (SMR) are incurred at the later part of the day
and the Total Returns (TR) are the returns incurred on the first day. The listing-day performance
across the identified industries is presented in Table 3. It is observed from Table 3 that the
highest listing-day returns or the highest underpricing is seen in the professional, scientific
and technical activities where PMR are of 10.7340, SMR are of 10.5432 and TR are of
10.7664, as this industrial activity focuses on performing professional, scientific and
technology activities and provides the services with high expertise and knowledge, especially
with IT and ITES-related services, according to the need.
The second highest underpricing or the listing-day returns is observed in electricity, gas,
steam and air-conditioning activities, where the PMR is 6.3107, SMR is of 6.1718 and TR is
of 6.1910 as there is rapid increase in demand for electricity and companies are looking for
investments in alternate sources for electricity generation leading for huge investments
through IPOs, creating the listing-day returns.

52 The IUP Journal of Accounting Research & Audit Practices, Vol. 21, No. 3, 2022
 Table 3: Industrial Activity-Wise Listing-Day Returns

Industrial Activity PMR AAR SMR AAR TR AAR

Mining and Quarrying 6.2275 5.7574 6.0339

Manufacturing 0.6113 0.4949 0.7062

Electricity, Gas, Steam and Air-Conditioning Supply 6.3107 6.1718 6.1910

Construction 0.9395 0.9244 0.9698

Wholesale and Retail Trade 0.3400 –0.1842 0.3865

Transportation and Storage 0.6397 0.3701 0.6782

Accommodation and Food Service Activities –0.4026 –0.5683 –0.4057

Information and Communication –0.6728 –0.8748 –0.7180

Financial and Insurance Activities –1.9088 –2.1354 –2.0166

Real Estate Activities 0.7981 0.7414 0.8479

Professional, Scientific and Technical Activities 10.7340 10.5432 10.7664

Education –3.0618 –2.7378 –2.6021

Human Health and Social Work Activities –2.6663 –2.5821 –2.3859

Other Service Activities –1.7352 –1.3636 –1.2930

Note: PMR – Primary Market Returns; SMR – Secondary Market Returns; TR – Total Returns.

Source: Compiled from PRIME database

The next highest underpricing is seen in the mining and quarrying activity where the
PMR is of 6.2275, SMR is of 5.7574 and TR is of 6.0339, as it is an important economic
activity in India. India’s mining sector contributes nearly 2.4% to the India’s GDP. Public
sector banks, in addition to private sector, commercial banks and NBFCs, provide debt
financing for mining projects in India.
The manufacturing activity consists of a wide range of industrial activities. Out of
total IPOs considered for the study, a majority of the IPOs are falling under the
manufacturing sector. But the returns generated on the listing day are meager; it is
observed that the listing-day returns in this industry are fairly priced or less underpricing
is observed.
Less underpricing with few returns is observed in the case of the construction industry
with PMR is 0.9395, SMR is 0.9244 and TR is 0.9698. In the case of wholesale and retail
industry, PMR is 0.3400, SMR is –0.1842 indicating the overpricing with negative returns
and TR is of 0.3865. In the case of transportation and storage activities, PMR is observed to

Performance of IPO Stocks in India: An Event Study 53

be 0.6397, SMR is 0.3701 and TR is 0.6782. And with regard to real estate activities, PMR
is observed to be 0.7981, SMR is 0.7414 and TR is 0.8479.
Highest overpricing with negative returns is observed in education activity where PMR
is –3.0618, SMR is –2.7378 and TR is –2.602. This could be due to the high-cost higher
education, disregard for Indian languages, brain drain, mass illiteracy, resource waste, and a
focus on general education which are hampering the growth of this industry in spite of the
growing demand.
Overpricing with negative returns is also observed in the (i) accommodation and food
services, where the PMR is –0.4026, SMR is –0.5683 and TR is –0.4057; (ii) information
and communication, where the PMR is –0.6728, SMR is –0.8748 and TR is –0.7180;
(iii) financial and insurance activities, where the PMR is –1.9088, SMR is –2.1354 and TR is
of –2.0166; (iv) human health and social work activities, where PMR is of –2.6663, SMR is
–2.5821 and TR is –2.3859; and (v) other service activities, where PMR is –1.7352, SMR is
–1.3636 and TR is –1.2930.

Industrial Activity – Long-Term Performance of IPOs

The performance of IPOs up to one year after listing for the intervals of one week, one
month, three months, six months and one year is studied through the Average Abnormal
Returns and the results are presented in Table 4. It is observed from Table 4 that human
health and social work activities are fetching the highest returns in the long run with CAR of
15.059, where the volatility is also observed to be more, which is of 23.509. The next
highest returns are observed in professional, scientific and technical activities with CAR of
7.4623 and volatility of 31.67.
The third highest returns are observed in the financial and insurance activities with CAR
of 6.0892 and SD of 15.989. Electricity, gas, steam and air-conditioning, mining and quarrying,
manufacturing, construction and other service activities are also recorded excess returns
with CAR of 4.5868, 3.8809, 2.4513, 2.5127 and 1.2435 respectively. Negative returns are
observed in the case of wholesale and retail trade, transportation and storage, accommodation
and food service activities, real estate activities and education. To know if there is any
significant difference in the performance of IPO stocks based on industrial activities, the
data is tested with the help of t-statistics and the same is presented in Table 5.
Table 5 represents the two return behaviors of IPOs across the industries, which is split into
two time periods: (i) short-term returns characterized by the total returns; and
(ii) the long-term returns characterized by CAAR. The t-test is conducted for Listing-Day
Returns and Long-term Returns separately to test the hypothesis, and the results indicate that
there is no significant difference in the listing-day returns of IPO stocks across the industrial
activities at 5% level of significance with p values greater than 0.05 for all the industries.
In the case of mining and quarrying, manufacturing and construction, it is observed that
there is a significant difference in the long-term returns of IPO stocks with p value of 0.007
for mining and quarrying, 0.032 for manufacturing and 0.041 for construction, whereas

54 The IUP Journal of Accounting Research & Audit Practices, Vol. 21, No. 3, 2022
 Table 4: Industrial Activity-Wise Long-Term Performance of IPOs

AAR AAR AAR AAR AAR

Industrial Activity One One Three Six One CAAR
Week Month Months Months Year

Mining and Quarrying 7.0373 –0.1196 6.3133 6.1177 0.0559 3.8809

Manufacturing 0.7566 0.3465 4.8503 5.2557 1.0474 2.4513

Electricity, Gas, Steam and 5.3905 3.6409 5.993 5.0792 2.8306 4.5868
Air-Conditioning Supply

Construction 0.3964 2.0373 0.2735 3.1144 6.742 2.5127

Wholesale and Retail Trade 0.6626 –2.9862 –1.034 –1.123 –0.3103 –0.4647

Transportation and Storage 0.0727 1.4109 0.3687 –3.549 1.0086 –0.1376

Accommodation and Food 0.6627 –0.5186 -1.034 –1.123 –0.3103 –0.4647

Service Activities

Information and –0.141 1.7539 0.7405 4.2605 –2.5442 0.6404

Communication

Financial and Insurance 4.1389 4.1453 3.7261 5.1031 8.1431 6.0892

Activities

Real Estate Activities 0.8122 0.081 0.3449 –2.66 –1.294 –0.5194

Professional, Scientific 9.4279 6.7684 11.479 15.196 –5.5599 7.4623

and Technical Activities

Education –2.334 –5.4526 –11.13 –13.16 –14.854 –9.3862

Human Health 1.7689 10.457 23.026 31.587 8.4577 15.059

and Social Work Activities

Other Service Activities –1.144 1.6839 1.5965 3.5631 0.5174 1.2435

Note: AAR – Average Abnormal Returns; CAAR – Cumulated Average Abnormal Returns.

Source: Compiled from PRIME database

p values for the listing-day returns for these industries are 0.560 for mining and quarrying,
0.464 for manufacturing and 0.182 for construction.
In the case of mining industry, more underpricing is observed and gradually with fluctuating
returns. In case of manufacturing industry, moderate returns are observed with less underpricing
on the listing day and gradually returns increase in the long term. This can be due to the
government focus and initiatives such as the “Make in India” program. In the case of
construction industry, there is moderate pricing on the listing day, but good returns in the
long term, as this industry is expected to remain in the growth prospects due to the increased
demand for infrastructure and the real-estate activities.

Performance of IPO Stocks in India: An Event Study 55

 Table 5: Industry-Wise Event Day and CAR Returns of IPOs

Event Day Returns CAR

Industry t-Test t-Test
Mean SD Mean SD
(p-Value) (p-Value)

Mining and Quarrying 6.0339 10.3046 0.560 3.8809 6.2284 0.007

Manufacturing 0.7062 8.1972 0.464 2.4513 15.085 0.032

Electricity, Gas, Steam and 6.191 11.8517 0.257 4.5868 9.5238 0.195
Air-Conditioning Supply

Construction 0.9698 1.9906 0.182 2.5127 5.0892 0.041

Wholesale and Retail Trade 0.3865 0.6324 0.546 –0.4647 1.1542 0.298

Transportation and Storage 0.666 2.8366 0.796 –0.1376 3.3786 0.944

Accommodation and Food –0.4057 0.7881 0.599 –0.4647 1.1542 0.298

Service Activities

Information and –0.718 3.3757 0.477 0.6404 7.5885 0.566

Communication

Financial and Insurance –2.0166 19.1626 0.722 6.0892 15.987 0.152

Activities

Real Estate Activities 0.8479 1.2353 0.073 –0.5194 3.2623 0.348

Professional, Scientific 10.7664 31.5791 0.336 7.4623 31.67 0.355

and Technical Activities

Education –2.6021 11.2198 0.674 –9.3862 13.261 0.203

Human Health and Social –2.3859 2.8079 0.933 15.059 23.509 0.176
Work Activities

Other Service Activities –1.293 28.5271 0.442 1.2435 3.8824 0.670

Source: Values computed using data from PRIME database

Year-Wise Listing Day Performance of IPO Stocks

Primary market is a clear reflection of what is happening in the secondary market. There are
some good years and some bad years for the IPOs. Launch of IPOs depends upon the
domestic socioeconomic and political factors along with the global factors. It is observed
from Table 6 that the highest underpricing is observed in the year 2008 with the TR of
7.5049 as a good number of IPOs were issued during the year with minimal impact of global
financial crisis on India. During the years 2011 and 2013, less underpricing is observed with
total returns of 1.0757 and 2.6161 and as many IPOs were quoted at a discount to offer price
during the year 2011, reflecting the lack of interest of investors. There is moderate pricing

56 The IUP Journal of Accounting Research & Audit Practices, Vol. 21, No. 3, 2022
 Table 6: Year-Wise Listing-Day Performance of IPO Stocks

Year PRM SMR TR

2008 7.3174 7.0758 7.5049

2009 0.2162 0.2666 0.2782

2010 –1.4404 –1.4662 –1.3608

2011 1.0824 1.0215 1.0757

2012 –4.8458 –4.8338 –4.8343

2013 2.6402 2.6558 2.6161

2014 –0.0707 –0.4093 –0.0808

2015 1.1324 1.1624 1.1153

2016 0.0874 0.003 0.0759

2017 0.5944 –0.2581 0.6234

2018 0.1421 –0.6461 0.0551

2019 –0.3092 –0.5354 –0.3376

Source: Computed values using data from PRIME database

of the IPOs during the years 2009, 2016, 2017 and 2018 with TR of 0.2782 during the year
2009, 0.0759 during the year 2011, 0.6234 during the year 2017 and 0.0551 during the year
2018. During the years 2010, 2012, 2014 and 2019, overpricing is observed with the TR of
–1.3608 for 2010, –4.8343 for 2012, –0.0808 for 2014 and –0.3376 for 2019.

Year-Wise Long-Term Performance of IPO Stocks

The year-wise IPOs gained momentum in India after the liberalization and globalization of
the economy. The year-wise long-term performance of IPO stocks is presented in Table 7. It
is observed that the highest long-term returns are observed during the year 2008 with CAAR
of 53.7966, followed by highest returns during the year 2011 with CAAR of 13.4595 and the
next highest returns during the year 2019 with CAAR of 13.0709 and during the year 2013
CAAR is of 6.4851.
Highest negative returns are observed during the year 2012 with CAAR of –40.018.
Negative long-term returns are also observed during the years 2009, 2010, 2014, 2016,
2017 and 2018 with CAAR of –17.6372 for 2009, –1.1428 for 2010, –11.7847 for 2014, –
13.7996 for 2016, –6.2534 for 2017 and –1.113 for the year 2018. Table 8 indicates the
year-wise listing day returns and the long-term returns of the IPO stocks. It is observed that
there is a significant difference in the listing-day performance and also the long-term
performance of IPOs issued during the year 2008 with p value of 0.046 for listing-day

Performance of IPO Stocks in India: An Event Study 57

 Table 7: Year-Wise Long-Term Performance of IPO Stocks

AAR AAR AAR AAR AAR

Year One One Three Six One CAAR
Week Month Months Months Year

2008 7.4022 7.4398 7.3809 23.2277 8.3461 53.7966

2009 0.0743 –1.0258 –0.9094 –4.2389 –11.5374 –17.6372

2010 –0.105 –2.1025 –2.1261 –1.6593 4.4989 –1.1428

2011 2.0337 –1.984 2.7704 6.8136 3.7241 13.4595

2012 –5.009 –5.925 –5.772 –10.598 –12.7 –40.018

2013 3.6716 0.8829 0.4111 4.0517 –2.5321 6.4851

2014 –0.693 –1.2158 –1.8859 –6.87941 –1.1101 –11.7847

2015 0.5405 1.5979 2.0357 3.8677 2.9826 11.0244

2016 0.5369 0.2181 0.1693 –5.5098 –9.2142 –13.7996

2017 0.6248 –1.0844 –2.1014 –1.0851 –2.6073 –6.2534

2018 –0.38 0.7926 0.9137 –1.3751 –1.0647 –1.113

2019 –3.166 –3.924 –4.1874 17.1726 7.1752 13.0709

Source: Computed values using data from PRIME database

Table 8: Year-Wise Event Day and CAR Returns of IPOs

Event Day CAR
Year
t-Test t-test
Mean SD Mean SD
p-Value p-Value

2008 7.5049 19.7046 0.046 10.7593 23.3455 0.001

2009 0.2782 9.9815 0.916 –3.5274 10.1340 0.126

2010 –1.3608 6.1711 0.161 –0.2989 9.2329 0.757

2011 1.2676 8.8838 0.481 2.6716 11.6693 0.025

2012 –4.8343 16.0024 0.536 –8.0076 14.4294 0.301

2013 2.6161 – – 1.2970 – –

2014 –0.0808 1.1604 0.915 –2.3569 3.5991 0.235

2015 1.4619 4.6501 0.622 2.7812 4.1605 0.392

2016 0.0759 0.2844 0.583 –2.7599 7.7067 0.275

58 The IUP Journal of Accounting Research & Audit Practices, Vol. 21, No. 3, 2022
 Table 8 (Cont.)

Event Day CAR

Year
t-Test t-test
Mean SD Mean SD
p-Value p-Value

2017 0.6234 0.9553 0.218 –1.2507 1.9766 0.035

2018 0.0551 – – –0.2226 – –

2019 –0.3376 3.0627 0.902 2.6142 18.4088 0.823

Source: Values computed using data from PRIME database

returns and 0.001 for the long-term returns of IPOs at 5% level of significance. During the
year 2008, a good number of IPOs got issued, in spite of the global financial crisis which
had little impact on the Indian companies.
During the year 2011, there is a significant impact on the long-term returns of IPOs with
p value of 0.025, but no significant difference in the listing-day returns of IPOs with p value
of 0.481 as during the year 2011, there was uncertainty over the macro indicators like
inflation, growth in GDP, government policies and also the political situation weighing on
the investor sentiment and capping the returns from the IPOs. Most of the IPOs were quoted
at a discount to offer price, reflecting the lack of interest of investors considerably impacted
the listing returns.
During the year 2017 also, there is no significant difference in the listing-day returns of the
IPOs with p value of 0.218 and there is a significant difference in the long-term returns with
p value of 0.035 at 5% level of significance as during this year all-time high mobilization was
driven by IPOs and qualified institutional placement; almost half of the total number of IPOs
were backed by private equity or venture capital investors. For the years 2009, 2010, 2012,
2014, 2015, 2016 and 2019, there is no significant impact on the listing-day returns and the
long-term returns of the IPOs issued as p value is greater than 0.05 at 5% level of significance.

Conclusion
Highest underpricing is observed in the professional, scientific and the technical activities,
and the long-term performance is observed to contribute good earnings for the investors
during the time period 2008 to 2019. This can be explained by the increasing contribution
of IT and the ITES activity. High underpricing on the listing day is witnessed in mining and
quarrying along with the long-term moderate returns. In the case of manufacturing, electricity,
gas, steam and air-conditioning activities, there is high underpricing on the listing day, with
only considerable long-term returns. Highest long-term returns are observed for human
health and social work activities and financial and insurance activities, but there is overpricing
on the listing day with negative returns. During the year 2008, there is high underpricing on
the listing day and huge long-term returns. During the years 2011, 2013 and 2015, there is
a considerable amount of the underpricing and the long-term returns are high. For the years

Performance of IPO Stocks in India: An Event Study 59

2010, 2014, 2017 and 2018, there is an overpricing of IPOs on the listing day and the
long-term returns are also observed to be negative.
Implications of the Study: The study is useful to investors who aim at short-term gains on
the listing day, and also for investors who are interested in long-term investments in IPOs.
The performance of IPOs based on the industrial activity helps to understand and identify
the profitable investment avenues in the particular industry. The performance of IPOs is
only up to a period of one year; further analysis of the performance of IPOs for a longer
duration can also be done.

References
1. Aggarwala Rajesh K, Krigman Laurie and Womack Kent L (2001), ”Strategic IPO
Underpricing, Information Momentum, and Lockup Expiration Selling”, Journal of
Financial Economics, Vol. 66, No. 1, October, pp. 105-137.
2. Brown Stephen J and Warner Jerold B (1980), “Using Daily Stock Returns the Case of
Event Studies”, Journal of Financial Economics, Vol. 14, pp. 3-31.
3. Hawaldar Iqbal Thonse, Kumar Naveen K R and Mallikarjunappa T (2018), “Pricing and
Performance of IPOs: Evidence from Indian Stock Market”, Cogent Economics & Finance,
Vol. 6, No. 1 pp. 1-20.
4. Loughran Tim and Ritter Jay (2004), “Why Has IPO Underpricing Changed Over Time?”
Financial Management, Vol. 33, No. 3, Autumn, pp. 5-37.
5. Manu K S (2020), “Valuation Analysis of Initial Public Offer (IPO): The Case of India”,
Article in Paradigm, June 2020.
6. Sharma Sudesh Kumar (2013), “Post-issue Performance of IPOs in India”, International
Journal of Financial Management, Vol. 3, No. 1, January, pp. 19-30.

Reference # 09J-2022-07-03-01

60 The IUP Journal of Accounting Research & Audit Practices, Vol. 21, No. 3, 2022
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