Comparative Analysis of Listing Price Performance Between Different Graded IPOs in India

Indian capital market is characterized by information asymmetry, wherein the potential investors are mainly retail and have inferior knowledge about the company. Extant evidence exhibits that this information asymmetry creates an uncertainty about the value of firm amongst the investors and issuers and hence results in underpricing. With the intent to bridge this information asymmetry gap, SEBI introduced a globally unique concept of IPO grading. Using a sample of 50 graded IPOs listed on BSE from 2007 to 2010, the efficacy of IPO grading mechanism has been examined. It is expected that if grading mechanism is really effective then high graded IPOs should exhibit better listing price performance. But the results observed are contradictory to expectations and shows that IPO grading is not an effective mechanism in reducing information asymmetry and a huge level of underpricing still persists in Indian IPO market. Moreover the results of One Way ANOVA exhibit no significant difference in listing price performance of the different graded IPOs. Hence, listing price performance of different graded IPOs varies due to chance or due to some other factors such as subscription level, Issue size, age of company etc. but it is irrespective of level of grades obtained by IPOs.