RBI Report: Why Some IPOs Give Solid Listing Gains and Some Don’t

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RBI Report: Why Some IPOs Give Solid Listing Gains and Some Don’t

By Aditya Raghunath

Investing.com -- The Reserve Bank of India (RBI) released a study where it analyzed IPOs listed between 2011-12 and 2020-21. It concluded that the more over-subscribed an IPO is, the more likely it is to deliver listing gains.

In FY21, 21 out of 29 IPOs delivered listing gains to investors. The average listing gain was 36% which is the highest in a decade. The average over-subscription on an IPO was 71.3 times.

“Intuitively, a higher oversubscription rate is a signal to the investors in the secondary market on the potential increase in share prices and expected returns. The results also show a positive and significant relationship between lagged Sensex returns and IPO returns, suggesting that IPOs issued during the boom period are relatively more under-priced, which is broadly in line with past studies,” the RBI study said.

Some IPOs that delivered stellar returns in FY21 include Route Mobile Ltd (NS: ROUT ), Happiest Minds Technologies Ltd (NS: HAPP ), Likhitha Infrastructure Ltd (NS: LIKI ), Rossari Biotech Ltd (NS: ROSB ) and Burger King India Ltd (NS: BURG ). It helped that market sentiment was also good that helped in IPO gains.

However, when IPOs listing gains are compared to the stock indices in the same period, the difference is brutal. The BSE Sensex delivered a gain of 70% compared to the IPOs’ gains of 36%.

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