Valuation of Indian IPO’s Allotment and Current Price Analysis - Are Indian IPOs Overvalued?




Valuation, IPO’s, Market Return, Promoter Holdings


Purpose: This study was conducted to analyze the IPOs of companies listed between 1st January 2021 to 30th April 2021 with the objective to determine whether the price at which the IPOs were introduced are fair, undervalued or overvalued and whether the performance of these IPOs have a significant relationship with factors such as the size of the IPO, age of the company and the proportion of promoters holding in the company.


Theoretical framework: Companies registered in India can usually raise funds in two ways: borrowing money using debentures or issuing shares. An initial public offering is a financial arrangement wherein the shares of a private company are offered for sale for the first time to the general public. Based on the theory described in, a semi-theoretical pricing framework is created for the fixed-price and book-building mechanisms.


Design/methodology/approach: The data were collected from NSE (National Stock Exchange) website and analyzed using the metrics such as Abnormal Returns which is calculated in order to analyze if the IPOs are underpriced, overpriced or fairly priced and Regression has been performed to check if there is any significant relationship among the Age, Size of IPO and promoter’ holdings in the company after the IPO with the listing day gains or short-term gains of the IPO.


Findings: It was found that the Indian IPOs are undervalued and thus leave money on the table for the issuer of these IPOs. From the regression analysis, it is observed that there is no significant relationship between the factors such as age of the company, promoters’ holding in the company and the size of the IPO with the listing days returns and the 10-day period return of the IPO.


Research, Practical & Social implications: Although most researchers believe that IPOs are usually affected by hot and cold periods or bearish-bullish trends, we are trying to determine the effectiveness of book-building method for IPOs following the pandemic in India. The study uses tools such as Abnormal Mean Return (AMR) and Regression to analyze the price of IPO, total returns on and after 10 days of listing of the IPOs, the market return during the same period, and the relationship of these returns with other variable like size, ownership and promoter’ holdings in the company to determine if they have any significant impact on these returns.


Originality/value: Fair valuation of an IPO could be the reason for its success and over-valuation and under-valuation may lead to its failure and may result in huge monetary losses. The current research on IPO is significant in the sense it contributes by making it clear about the concept of IPO through Literature and about its valuations through analysis which is based on Abnormal Returns and Regression


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How to Cite

Nusrathunnisa, Khatoon, G., Bala, H., Belgacem, S. B., & Karaye, A. B. (2023). Valuation of Indian IPO’s Allotment and Current Price Analysis - Are Indian IPOs Overvalued?. International Journal of Professional Business Review, 8(5), e0700.