International Journal of Applied Management & Business Utility

Vol. 3 No. 2 Jul-Dec 2015 eISSN: 2348-1382

A Study on Post Performance Analysis of Initial Public Offer (IPO)

in Indian Capital Market
Ms. Kavitha M
III Year ECE Department,
Sree Sastha Institute of Engineering and Technology, Chennai
ABSTRACT
The project work entitled A Study on post-performance of Initial Public Offering (IPOs) in Indian Capital
Market The major objective of the project is to study about the overview of Indian equity market and the
procedure to raise the IPO's to list in the Indian stock exchange and to analyze the recent trends of the IPO's and
disadvantages in equity market. This study will give a basic idea about the performance of the IPOs in the
Indian Capital Market. This study finds out the volatility of stock to identify the most consistent and inconsistent
stock. For this study 3 years data is used. The data is taken from the BSE & NSE sites. Using the data,
percentage analysis was performed to find out the performance of each sector. Using Kruskal Wallis H Test, to
identify the performance of three years of the stocks difference. Analyzing the price movements, the price
fluctuation and market movement of each stock is identified.

Keywords: IPO, BSE, NSE, Capital Market, Primary Market, Secondary Market
I. INTRODUCTION
INITIAL PUBLIC OFFERING (IPO)
The first public offering of equity shares or convertible securities by a company, which is followed by the
listing of a companys shares on a stock exchange, is known as an Initial Public Offering. In other words, it
refers to the first sale of a companys common shares to investors on a public stock exchange, with an
intention to raise new capital. The most important objective of an IPO is to raise capital for the company. It
helps a company to tap a wide range of investors who would provide large volumes of capital to the company
for future growth and development.
OVERVIEW OF STOCK MARKET
In general, the financial market divided into two parts, Money market and capital market. Securities market is
an important, organized capital market where transaction of capital is facilitated by means of direct financing
using securities as a commodity. Securities market can be divided into a primary market and secondary
market.
PRIMARY MARKET
The primary market is an intermittent and discrete market where the initially listed shares are traded first time,
changing hands from the listed company to the investors. It refers to the process through which the companies,
the issuers of stocks, acquire capital by offering their stocks to investors who supply the capital. In other words
primary market is that part of the capital markets that deals with the issuance of new securities. Companies,
governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This
is typically done through a syndicate of securities dealers. The process of selling new issues to investors is
called underwriting. In the case of a new stock issue, this sale is called an initial public offering (IPO). Dealers
earn a commission that is built into the price of the security offering, though it can be found in the prospectus.
SECONDARY MARKET
The secondary market is an on-going market, which is equipped and organized with a place, facilities and other
resources required for trading securities after their initial offering. It refers to a specific place where securities
transaction among many and unspecified persons is carried out through intermediation of the securities firms,
i.e., a licensed broker, and the exchanges, a specialized trading organization, in accordance with the rules and
regulations established by the exchanges

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SIGNIFICANCE OF IPO
Investing in IPO has its own set of advantages and disadvantages. Where on one hand, high element of risk is
involved, if successful, it can even result in a higher rate of return. The rule is Higher the risk, higher the
returns. The company issues an IPO with its own set of management objectives and the investor looks for
investment keeping in mind his own objectives. Both have a lot of risk involved. But then investment also
comes with an advantage for both the company and the investors.
SIGNIFICANCE TO THE COMPANY
When a privately held corporation needs additional capital, it can borrow cash or sell stock to raise needed
funds. Or else, it may decide to go public. "Going Public" is the best choice for a growing business for the
following reasons:

The costs of an initial public offering are small as compared to the costs of borrowing large sums of
money for ten years or more,

The capital raised never has to be repaid.

When a company sells its stock publicly, there is also the possibility for appreciation of the share price
due to market factors not directly related to the company.

It allows a company to tap a wide pool of investors to provide it with large volumes of capital for
future growth.
SIGNIFICANCE TO THE SHAREHOLDERS
The investors often see IPO as an easy way to make money. One of the most attractive features of an IPO is
that the shares offered are usually priced very low and the companys stock prices can increase significantly
during the day the shares are offered. This is seen as a good opportunity by speculative investors looking to
notch out some short-term profit. The speculative investors are interested only in the short-term potential
rather than long-term gains.
II.

THE RISK FACTOR

Investing in IPO is often seen as an easy way of investing, but it is highly risky and many Investment advisers
advise against it unless you are particularly experienced and knowledgeable.
The risk factor can be attributed to the following reasons:

Unpredictable.

No past track record of the company.

Potential of stock market.

III.

IPO MARKET IN INDIA

The IPO Market in India has been developing since the liberalization of the Indian economy. It has become
one of the foremost methods of raising funds for various developmental projects of different companies. The
IPO Market in India is on the boom as more and more companies areissuing equity shares in the capital
market. With the introduction of the open market economy, in the 1990s, the IPO Market went through its
share of policy changes, reforms and restructurings. One of the most important developments was the
disassembling of the Controller of Capital Issues (CCI) and the introduction of the free pricing mechanism.
This step helped in developing the IPO Market in India, as the companies were permitted to price the issues.
The Free pricing mechanism permitted the companies to raise funds from the primary market at competitive
price.
The Central Government felt the need for a governed environment pertaining to the Capital market, as few
corporate houses were using the abolition of the Controller of Capital Issues (CCI) in a negative manner. The
Securities Exchange Board of India (SEBI) was established in the year 1992 to regulate the capital market.
SEBI was given the authority of monitoring and regulating the activities of the bankers to an issue, portfolio
managers, stockbrokers, and other intermediaries related to the stock markets. The effects of the changes are
evident from the trend of resources of the primary capital market which includes Right issues, Public issues,
Private placements and Overseas issues. The IPO market in India experienced a Boom in activities in the year
1994. In the year 1995 the growth of Indian IPO market was 32%.The growth has halted with the South East
Asian crisis. The market picked up speed again with the introduction of software stocks.

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IV. OBJECTIVES OF THE STUDY
To analyze the performance of IPO over certain period (3 YEARS) at a particular sectors.
To determine the future prospects for the investor in making investment decision.
To find out the profitable issues among the total issues passed out during the period.
To know the market rate of return for the same period.
To analyze the Benefits to investor from IPOs

V.

NEED FOR THE STUDY

To evaluate the industry wise performance of IPOs released for the past three years, This study is
mainly conducted to give suggestion to the investors about investing IPOs by analyzing their past
performance .
To identify fluctuation in Indian capital market. Based on return provided and volatility of the stock
with respect to the index is being found out in order to suggest the best choice of Investment so as to
gain maximum profit out of it.
This study is conducted to give suggestions to the investors about investing in IPOs by analyzing
their past performance.
VI.

SCOPE OF THE STUDY

The scope lies in determining the future prospectus for the investor in making investment decision.
The study provides a comprehensive overview of performance of script in the primary market.
The study aims to find out the profitable issues among the total issues passes out during the period.

VII. REVIEW OF LITERATURE:

Wan nordin wan hussin (2007), done a paper on Ipo valuation, investor protection and
deregulation. The paper examines (1) the valuation impact of IPO profit guarantee as an investor
protection tool, and (2) the structural changes in ipo pricing before and after deregulation in 1996.
Based on a sample of 251 IPOs during 1994-2000, the evidence points to the paradoxical role of the
IPO profit guarantees.
Teppo martikainen (2008) done the paper on titled The maximization of shareholders' wealth: evidence
based on firm-specific financial characteristics and focuses on the long-term firm-specific determinants of
stock returns. The main goal of the investigation is to show which of the financial characteristics of a firm its
management should concentrate on, when maximizing the wealth of the common shareholders. It is found that
profitability, financial leverage, operating leverage and growth are important long-term determinants of firm
value in the finish stock market. However, significant differences are observed between the measures applied to
the same presumptive characteristics of the firm.
Saurabh ghosh(2005) done a paper on Underpricing of initial public offerings the Indian experience.
The paper attempts to identify the factors explaining under-pricing of initial public offerings (IPOs) in an
emerging economy, India, using 1,842 companies that got listed on the Bombay stock exchange from 1993 to
2001. It is found that uncertainty played a role in perverse under-pricing in the Indian primary market. IPOs
with a large issue size and those that went for seasoned offerings had less under-pricing. Contrary to the
international evidence, under-pricing was less during the high volume (hot) period compared to the slump
period in the Indian ipo market. During the hot period, new issues belonging to business groups underpriced
more than their stand-alone counterparts did. Small issues belonging to private stand-alone firms had less
under-pricing during the hot period and did not come to the market subsequently to raise funds
Saurabh ghosh, (2005) done a paper on The post-offering performance of IPOs in the Indian banking
industry explains in the literature, the underperformance of IPOs is a well-documented empirical anomaly.
This study concentrates on IPOs from the banking sector of an emerging economy, India. In a developing
country, the role of the banking sector for economic development is undisputed. In view of its importance in
economic resource allocation and its distinction from other industries in general, this paper analyses the post
offering performance of banking sector IPOs in detail. The performance evaluation on the basis of stock
returns did not find significant evidences of underperformance for the IPOs from the banking sector.
Peter wright (2010) done a paper on The impact of tmt board member control and environment on postipo performance explains about, We draw on theories of entrepreneurial firms to explore the impact of top
management team (tmt) board control on holding period returns (hprs). We posit a complex relation between a
firms performance after initial public offering (ipo) and the proportion of tmt members on its board. Hprs

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Vol. 3 No. 2 Jul-Dec 2015 eISSN: 2348-1382
increased modestly as tmt board membership rose to 50 percent, increased dramatically as it rose from 50 to
75 percent (the optimal range), and decreased materially as it rose beyond 75 percent. Further,
environmental conditions influenced the focal relationship, in some cases in unpredictable ways, even when
tmt board control was optimal.
VIII.

RESEARCH METHODOLOGY

SOURCE OF DATA
The source of data is in secondary in nature. Secondary data is those which already available.
Secondary data pertaining to this study was obtained from
Websites (BSE,NSE)
Books, magazines
Reports of the company
IX. DATA ANALYSIS AND INTERPRETATION
YEAR WISE IPOS FOR 3 YEARS
YEAR
2012
2013
2014

Total IPO
36
17
73

It is inferred that 2014 has maximum number of IPOs i.e 64 because of bullish market, least number 17
came from the year 2014 because of bearish market condition and in 2012 there were 40 IPOs .
SECTOR WISE IPOs IN PAST 3 YEARS
SECTOR
IPOS
PHARMA
14
MINING
5
POWER
21
MEDIA
8
ACCESSORIES
12
REALTY
26
BANK
19
ENGG&METAL
11
IT
13
RETAIL &LOGISTICS
7
OTHERS
17

It is inferred that maximum number of IPOs came from realty sector i.e 26.next to that is power and
Bank sector with 21 & 19 respectively, least number came from mining sector i.e 5.

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KRUSKAL WALLIS H-TEST
Year

Sector
Pharma
IT
Banking
Power
Infrastructure

2012
-23.35
-18.38
-22.64
-12.17
-22.69

2013
16.27
30.68
-45.23
-35.1
-45.24

2014
-11.63
6.889
22.03
3.975
-30.92

Step 1:
To determine difference between each sectors in 3 years.
Null hypothesis (Ho): There is no difference between 3 years at performance of IPOs.
Alternative hypothesis (H1): There is difference between 3 years at performance of IPOs.
Step2:

N1=n2=n3=3.
N=n1+n2+n3
=5+5+5
=15
(Combine all the sample values is an Descending order)
Original Data
30.68
22.03
16.27
6.889
3.975
-11.63
-12.17
-18.38
-22.64
-22.69
-23.35
-30.92
-35.1
-45.24
-45.23

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

RANK TABLE
Sector
Pharma
IT
Banking
Power
Infrastructure

Year
2012
11
8
9
7
10

2013
3
1
15
13
14

2014
6
4
2
5
12

2012 (R1) = 45
2013(R2) = 46
2014(R3) =29
H=12/15(15+1)*[45/3+46/3+22/5+]-3(15+1)
=1.82
=0.05
Degrees of Freedom= k-1=3-1=2
The Tabulated Value of with 4 degrees of freedom is 4.33
Since the tabulated value is greater than calculated value the NULL hypothesis is accepted.

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Vol. 3 No. 2 Jul-Dec 2015 eISSN: 2348-1382

INFERENCE: There is no difference between 3 years at performance of IPOs.

TREND ANALYSIS
It is inferred that the IT sector Trend is showing Positive trend towards next year i.e 6.39% for 2011. %. i.e
investing in IT stocks for the year 2011 seems to be a good avenue as the trend shows positive return.
X.

FINDINGS
There were totally 156 IPOs released in the past 3 years.(2008 to August 2011)
The sector which provides best listing day return are IT & Bank (25.45%, 24.12%).
Least listing day return has been provided by Power (4.3%).
Pharma sector provides an average listing return of 13.5%.
Power sector provides an average listing return of 4.38%.
Bank sector provides an average listing return of 24.12%.
IT sector provides an average listing return of 26.97%.
IT sector provides better 2 year return of 30.5%.
Bank & IT provides better 3 year return of 22%, 6.9 % resp.
Worst one year return is provided by Pharma sector (-23.35%).
Worst two year return is provided by Construction and Bank sector (-45.24% & 45.23%)
Worst three year return is provided by Construction sector (-30.92)
Maximum number of IPOs came from realty sector i.e 22 &.Least number came from mining sector
i.e 5.
Best listing day return by individual stock is by Lotus health care, it provided 177.5% return.
Worst listing day return by individual stock is by Microsec Financial Services Ltd, it provided -75.75%
return.
The IT sector Trend is showing Positive trend towards next year i.e. 6.39% for 2011.

XI. SUGGESTIONS
IPO provides a better short term return when compared to other investments.
IT & Bank proves to be a good investment strategy for long term perspective.
Investors are suggested not to invest in Construction sector for long term.
Before investing in IPO investors must know about the companys future plans, growth
opportunities, market trend movement.
The stock of any fundamentally sound company would go up after being listed in an exchange.
Hence the IPO is the only place where you can get the stock at the lowest possible price. Hence if
they buy stocks in an IPO, they can sell it off at a higher price and make a profit.
XII. CONCLUSION
IPOs are attractive mainly because they may be undervalued. Initially, to make IPOs more attractive,
many companies will offer their initial public offering at a low rate. So investors are suggested to invest in
IPOs to make profit in short span of time. Before investing in Ipo investors must know about the
companys future plans, growth opportunities, market trend movement.
XIII. REFERENCES
i.
PANDEY.I.M, FINANCIAL MANAGEMENT, Eighth Edition, Vikas Publishing House Pvt. Ltd.
ii.
KHAN.M.Y. and JAIN.P.K, FINANCIAL MANAGEMENT, Text, Problems and cases, Sixth Edition,
Tata McGraw Hill Education Private Ltd.
iii.
NILADRI DAS and PATTANAYAK.J.K, Analysis of the fundamental factors affecting the market
price of shares constituting the Indian index, International Journal of Accounting and Finance, Volume
1, number 3/2009, pages 323-355.
iv.
DHATT, MANJEET S. KIM, YONG H.MUKHERJI and SANDIP, Relations between Stock Returns
and Fundamental Variables: Evidence from a Segmented Market, Asia Pacific Financial Markets,
Volume 6, number 3/1999, pages 221-233.
v.
M.RAJA, An empirical test of Indian stock market efficiency in respect of bonus announcement, Asia
Pacific Journal of Finance and Banking Research, Volume 4, number 4/2010.
vi.
Junming Hsu, Chia-yu Chang (2009), An investment strategy based on the long-run performance of
IPOs.

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