A Performance based Ranking of Initial Public Offerings (IPOs) in India

Abstract

In recent times, the Indian Stock Market (ISM) has been witnessing a surge in the number of IPOs listed on stock exchanges. However, on many occasions, it has been noticed that the post-listing performance of several IPOs is below par compared to the expectations of the investors. IPO performance has been one of the major concerns. In this context, the present paper endeavors to carry out a comparative performance assessment of a list of IPOs. We consider a period of three years after listing. Our sample consists of a list of IPOs with heterogeneous nature of business operations and introduced in 2018. We consider two aspects of performance, such as market-based indicators and fundamental efficiency in terms of profitability, liquidity, and risk. For comparison, LOgarithmic Percentage Change-driven Objective Weighting (LOPCOW) is used. The study period is considered as FY 2020-21. The results reflect that, for IPOs, market performance is not necessarily due to fundamental efficiency. Further, we notice that the nature of equity ownership does not influence market performance significantly. We surmise that, during the initial years, the performance of IPOs in the marketplace is more driven by speculation and short-term goals of investors. The result of the validation test indicates that the ranking using the LOPCOW method is comparable and consistent with a widely used model like Entropy.