Drivers of IPO Valuation: Explaining Under-pricing and Overpricing in Indian IPOs
Pavan Kumar Singh, MBA 2024-2026,Mittal school of Business, Lovely Professional University, pavansingh90064@gmail.com
Hridyansh Malik, MBA 2024–2026,Mittal School of Business, Lovely Professional University, hridyanshmalik78@gmail.com
Tejasv Bihani, MBA 2024-2026,Mittal School of Business, Lovely Professional University, tejasvbihani07@gmail.com
Ayush Kumar Dubey, MBA 2024-2026,Mittal School of Business, Lovely Professional University, ayush200208@gmail.com
Dr. Atul Sharma, Assistant professor, Lovely Professional University, Atulgandhoyta@gmail.com
1. ABSTRACT
The pricing of initial public offerings (IPOs) has been a long-debated issue in financial markets, especially in emerging economies where the level of investor participation and market sentiment may influence outcomes. In recent times, the IPO Market of Indian has seen significant growth along with strong retail investor participation along with increased listing. Do you think IPO offer prices are under-priced because of the demand-supply conditions of the market? Or do you think they reflect the true worth of the company?
The main aim of this study is to explore the price valuation drivers of IPOs in India and to investigate whether the recently listed IPOs show signs of under-pricing or overpricing during the initial days of trading. According to the research, between the years 2022 and 2025, 22 IPOs from selected sectors listed in India. Response must be 20 words. IPO performance is evaluated using listing day return, return on the tenth trading day after listing. These measures help the study distinguish the IPO performance from the market performance. Moreover, regressions will also be run to investigate the extent to which firm and issue characteristics, such as company age, issue price and issue size, explain abnormal returns.
The sample showed that most IPOs produced positive abnormal returns in the first ten days of trading. This implies some degree of under-pricing during the period under investigation. However, few IPOs were found to have negative abnormal returns indicating overpricing and the early correction of the same. The outcome of the regression indicates that the chosen firm and issue characteristics explain only limited variations in the abnormal returns. Thus, we can infer that factors like investor sentiment, demand intensity, and market expectations may be important for the IPO valuation.
According to the study, pricing of IPO in India depends not only on the structural characteristics of the issuing firms but also on demand-driven characteristics. The results are useful for investors, issuers and policymakers who are interested in gaining a better understanding of IPO valuation as well as pricing efficiency in the capital market.
