Initial and Aftermarket Performace of Indian IPOs

This paper investigates the initial and long-run performance of 438 IPOs listed on the BSE between June 1992 and March 2006. Underpricing of an IPO is measured as the return on the first day of trading (relative to the offering price). To examine the long-run performance of Indian IPOs, Buy-and-Hold Abnormal Returns (BHAR) and Cumulative Abnormal Returns (CARs) for 120 months of secondary market returns have been calculated. Benchmark-adjusted initial returns are found to be around 100%, which is in line with the previous researches in India. The underpricing also conforms to international evidence though the magnitude of initial return is higher than that of other countries. Buy-and-hold returns have been found to be negative between 18 and 40 months of holding; however, such underperformance disappears after 40 months, i.e., in India, underperformance persists for about one-and-a-half years subsequent to IPO to a little more than three years. To check the robustness of this result, CARs also exhibit the existence of underperformance in the second and third years. Thus, long-run underperformance in India appears in the second year and subsists till the third year, though it dies out in the fourth and fifth years.