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A Comparative Study on the Performance of select Initial Public Offerings (IPOs) in Indian Capital Market in the Pre-Covid and Covid
Period
Dr Baneswar Kapasi1 Sapna Shaw2
Abstract
Covid-19 pandemic has affected all the parts of the society across the globe in different ways and magnitude. During the lock down period, the trading, investing, and stock market participation among the investors have been increased among the people across the globe. To take the benefit of liquidity of the market, listing of the shares of companies in the recognized stock exchanges in India have increased during this pandemic. To assess the impact of Covid on the performance of IPOs, five listing of IPOs of the pre Covid period and five listing of IPOs of during the covid period of construction and engineering sector have been considered. The average listing gain of the prices of the IPOs of Covid period accounted higher as compared to the average listing gains of the prices of the IPOs listed in the market in pre-Covid period. The average listing day gain of the prices of the IPOs of Covid period accounted also higher as compared to the average listing day gains of the prices of the IPOs listed in the market in pre- Covid period. Average 30 days’ return of the prices of IPOs listed in pre Covid period recorded higher as compared to the average 30 days’ return of the prices the IPOs listed in Covid period. The result of pair t test indicates that there is no significant difference of the listing gain of the prices of the IPOs listed before covid and the covid period.
Keywords: Covid-19, Pandemic, Initial Public Offering (IPO), Stock market, Performance Introduction
Covid-19 pandemic has affected all the part of the society across the globe. Most of the sections of the society have been impacted negatively. For controlling the spreading the virus, different strategies like social distancing, lock down, work from, compulsory using of masks and using of sanitizers have been considered in different countries. Although it has been two years when first case of covid -19 was traced in India, still we are struggling to fit ourselves from Covid. Different variants of this virus are still affecting our common life. Corporate phenomenon has also been affected during this pandemic.
Demand of the products has been negatively impacted as the purchasing power of the consumers reduced for job cut. During this lock down period online activities have been increased. Trading and investing activities across the different stock exchanges have been positively affected. Few privately owned companies have taken the benefits of the over activities of the investors by lunching their equity in the market as initial public offering (IPO).
Initial public offering refers to the process of collecting money from investors in return to shares or it can also be termed as a conversion of a privately owned company into public company. Company launches their IPO for procurement of capital and to expand the business.
By gathering money from the public, the companies also allow outsiders to take part in the decision- making process of the company. After the outbreak of Covid-19 a boom in public offerings are seen in India specially in 2021. In this paper, an attempt has been made to assess the impact of Covid-19 on the performance of IPOs lunched before and during covid-19.
Review of Literature
1 Associate Professor, Department of Commerce , Kazi Nazrul University
2 Research Scholar, Department of Commerce, Kazi Nazrul University
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After two years of Covid-19, still we are passing through the danger. It is not the right time to assess the true impact of Covid-19 on different aspects of the society. A limited number of researches has been done in this area few of them are;
Surana (2021) conducted a study to understand the behavior of retail investors concerning IPOs in the Indian capital market. In her study, she has selected 242 such IPOs that were listed in the stock market during the last eleven years from 2010 to 2020. She further divided the listed IPOs into two categories, one that was listed before the covid outbreak and the other one was those which was listed after the covid outbreak. By applying descriptive statistics, the author found that in India most of the retail investors invest in the IPOs to earn quick money or short-term gain based on speculation rather than relying on the fundaments of the companies.
Manu K.S and Goyal (2021) investigated the effect of the covid-19 pandemic on the performance of the IPO market. For this, they have selected all the IPOs listed after the outbreak of covid. In study 26 such companies were selected and their daily closing price was tracked for the period of 10 months from January 1st to October 31st, 2020. To investigate the impact of the covid on the performance of IPOs panel data regression model was used where the daily return from the IPOs was kept as a dependent variable and new confirmed cases, confirmed deaths, total deaths, and total new cases were taken as independent variables. In the study, it was found that there was a negative trend found between total deaths and the return from IPOs but not to a very great extent.
Dhanda and Singh (2021) overview the fluctuations and the inherited inefficiencies that exist in the Indian IPO market and termed the market timing as hot and cold. To check the existence of cold and hot markets and their effect on the IPOs, three variables were used which were the number of IPOs, the premium per equity, and issue amount. IPOs listed during the period from April 2017 to December 2020 were selected and the data based on daily performance were collected. By applying the panel data regression model authors concluded that based on all the three variables, 2017-18 was considered the most favorable year to invest in IPOs.
Khan, Zeeshan, Ahmad, Alakkas, and Farooqi (2021) have conducted a study regarding the primary market of India. Their study was mainly based on the performance of the IPOs listed in the stock exchange for a short and long period. Short-term performance of the IPOs was measured by calculating the gain earned at the listing day on the other hand to evaluate the long-run performance stock price of all IPOs were tracked for the next three years. In the study, it was found that out of 26 IPOs 20 have performed well on a listing day and showed a short- term profit. Those IPOs which have performed well on a listing day also performed well in the long run.
Dr. Reddy (2018) has evaluated the performance of the IPOs listed in the Indian stock exchange in the year 2015. The price of all the selected IPOs was tracked for 2 months and then average return on daily basis, 15 days, 30 days, and 60 days were evaluated to understand whether the selected IPOs are performing well or not. In the study, it was found that on the listing days some IPOs were performed well but most of them were overvalued and this results in poor performance after 60 days. Based on the study the author suggested that the investors should rely on the fundamentals of the company and should search in detail about the background and previous financial performance of the companies before investing to earn a higher return in long run.
Ndirangu, Ouma, and Munyaka (2014) tried to analyze the behavior of individual investors, especially the retail investors who invest in the IPOs of the Kenyan equity market. Their findings revealed that sudden change was found in the behavior of the investors because a tremendous rush was found around the IPOs. Probably the reason behind this was a rise in the use of the internet which leads to more information and awareness about the IPOs. The Kenyan investors felt more aware of the working of any company and also were able to gather important information with a single click.
Ghosh (2012) studied the IPO performance of the Indian banking sector. In this study, the researcher made a comparison between the performances of public and private bank IPOs. The findings of the study showed an improvement in the performance of banks in the post-listing period. On the other
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hand, he had concluded that no differences were found in the performances of the IPOs of public and private sector banks.
Kumar (2015) studied the behavior of the retail investors and also evaluated the performances of the IPOs in Indian capital market. He used market adjusted abnormal return, buy and holds abnormal return, and wealth relative to measure the short-term performance of the IPOs on the listing day.
Besides this he also used various other variables to measure the long-term performance of the IPOs.
He collected secondary data for 36 months and from the study found that those investors who invested through direct subscription earned a profit while those who bought shares on the listing day earned negative return up to 12 months from listing day.
Research Gap
After extensive review of literature, it is found that a lot of studies have been taken in respect of IPOs performance evaluation of Indian capital market. Limited number of studies have been conducted to evaluate performance of IPOs in pre Covid and Post Covid period. No study has been conducted to evaluate the performance of IPOs in the construction and engineering sector in the Indian capital market for the pre Covid and during Covid period.
Objectives of the Study
On the basis of above-mentioned research gap, the researcher formulated following objectives:
1). To evaluate the performance of the selected IPOs belongs to construction and engineering sector, 2). To evaluate the performance of the IPOs introduced pre-covid and during-covid period.
Hypothesis of the Study
H0: there is no significant difference of listing gain between IPOs listed before and during covid-19 in the capital market India
H1: there is a significant difference of listing gain between IPOs listed before and during covid- 19 in the capital market India
Research Methodology
Empirical and descriptive analysis have been conducted considering listing gains, listing day gain and post listing thirty days’ gains of the selected IPOs. For calculating thirty days’ gain, daily returns have been calculated and converted into monthly return.
Sample of the study: Purposive sampling technique has been used for selecting the company for the study. The sample of the study comprises 10 construction and engineering IPOs which were launched in last 42 months. Among all the selected companies 5 were launched in first 21 months i.e., before covid period and rest 5 were launched in the covid period.
Study period: Company listed from September 26, 2018 to November 16, 2021 have been considered.
Tools and Techniques used: Descriptive and inferential statistics have been used in the study.
Descriptive statistics like mean, variance, correlation and inferential statistic pair t test have been used.
Listing Gain: Listing gain is the gain which can be earned by the investor once the listed price crosses the allotment price. It is calculated with the help of simple formula:
LG=(LC-IP)/IP*100 --- (1) Where, LG= listing Gain LC= listing close IP= issued price
Listing Day Return (LDR): Listing-day return is the difference between the closing price of the stock over opening price. This can be calculated with the help of the following formula.
LDR= (CP-OP)/OP*100 --- (2)
43 LDR=Listing-day return
CP= Closing price of the stock on listing day OP= Opening price on listing day
Daily return: To track the performance of the return on day-to-day basis daily return is calculated which is the comparison between today’s closing price and the previous day’s closing price. Daily return is calculated using following formula.
DR= (Pt-Pt-1)/Pt-1*100 --- (2)
Where, DR= daily return Pt= closing price on t day Pt-1= Closing price t-1 day
3o Days’ Return: 30 days’ average return is the simple average of daily return of 30 days. This return will help to measure whether the performance of the IPO is better during 30-day time period or not. To calculate the 30-day average return following formula is used.
30AR= (DR1+DR2---DRn)/ N --- (3)
Where, 30AR= 30 days average return DR1 n= daily return on different days
Correlation: Correlation is the statistical tool used to find the relationship among two or more the selected variables. To calculate correlation following formula has been used.
r= n (∑𝒙𝒚, −(∑𝒙)(∑𝒚) ∕ √𝒏∑𝒙𝟐 − (∑𝒚𝟐)][𝒏∑𝒚𝟐 − (𝜮𝒚)𝟐] --- (4) where, r= correlation n=sample size
x= value of the independent variable y= value of the dependent variable
Paired t test: A paired t-test is used to measure the difference between the mean of two different groups.
The formula for the same is mentioned below.
t= 𝜮𝒅
√𝒏(𝜮𝒅𝟐) − (𝜮𝒅)𝟐∕𝒏 − 𝟏 ---(5) Where, d= differences per paired value N= number of samples Results and Discussions
The performance of the IPOs is measured form the view point of investors. The investors are happy with high return with minimum risk. The performance of IPOs has been measured using different technical analysis like listing gain, listing day’s gain and average return of 30 days’ prices.
Table 2 depicts the listing gains of the prices of selected IPOs for the pre-Covid and Covid-19 period.
Table (2): Listing Gain of Selected IPOs Before Covid Period Covid Period
Company Listing
Gain (%)
Company Listing
Gain (%) Sterling and Wilson
Solar Ltd
-7.01 Suyog Gurbaxani Funicular Ropeway Ltd
0.22
Rail Vikash Nigam Ltd 0.26 Promax Power Ltd 15.5
BCPL Railways
Infrastructure Ltd
3.71 Markolines Ttraffic Control Ltd -16.28 Ircon International Ltd -12.28 G R Infrastructure Ltd 108.7 Ranjeet Mechatronics
Ltd
15.4 Likhitha Infrastructure Ltd 13.83 Source: Author’s calculation
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From the above table it is seen that out of the companies listed pre Covid period, Ranjeet Mechatronics recorded highest 15.4% listing gain. On the other hand, G R Infrastructure Ltd listed in the covid period accounted 108.7% highest listing gain.
Table (3): Descriptive Statistics of Listing Gain
Listing Gain Particular Before Covid Covid Period
Mean 0.016 24.394
Standard Deviation 10.61754 48.82868
Variance 112.7322 2384.24
Skewness 0.517092 1.846436
Kurtosis 0.015611 3.789253
Maximum 15.4 108.7
Minimum -12.28 -16.28
Source: Author’s calculation
Table (3) represents the performance in terms of descriptive statistics. It is seen that the average gain of the prices of selected IPOs during covid outbreak is higher than that of selected companies listed in pre covid period. The average SD of the prices of the selected companies during the covid times is higher than pre covid period. Which indicates that the return of the prices of the selected companies during pre-covid period are more clustered towards mean. Skewness which is a measure of symmetry indicates that for both the categories the data are positively skewed and skewed towards right. The calculated value of Kurtosis indicates that the data during the covid times have heavier tail than the pre Covid time.
Listing Day Return (LDR): Listing-day return gives us the idea how the company is performing on the first day of its listing.
Table (4): Listing Day return of the selected IPOs
Particular Before covid During covid Listing day
return (%)
Mean 0.008371 0.033926
Standard Deviation 0.026843 0.025211
Skewness 0.945757 -1.56231
Kurtosis 0.157363 1.904653
Maximum 0.049091 0.05
Minimum -0.01864 -0.0077
Source: Author’s calculation
Table (4) represents the listing day returns of the selected companies considered in the study. From the above table it is seen that the average of listing day gain of the prices of the selected five companies before Covid period is 0.008 and that of selected five companies in the Covid period is 0.003. The skewness value of the prices of the selected five companies in Covid period is negative which indicates that the data are skewed towards left. Kurtosis value of the prices of the selected IPOs during the covid time is higher as compared to the Kurtosis value of the prices of the selected IPOs listed in pre Covid period and which implies that the investors has earned more than usual return during Covid period as compared to the pre Covid period.
30-day’ Average Return:
Table (5): Descriptive Statistics of 30 Days Average Return
30 Days
Average
Particular Before covid Covid Period
Mean 50.76924 -0.17579
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Return (%) Standard Deviation 115.9733 0.736322
Variance 13449.81 0.54217
Skewness 2.234894 -0.93324
Kurtosis 4.995846 1.380917
maximum 258.2069 0.657586
Minimum -3.95069 -1.32
Source: Author’s calculation
Table (5) represents the 30 days average return of the prices of the IPOs selected for study. From the above table it is seen that the average return and deviation of the prices of selected IPOs are higher at pre covid time as compared to the average return and deviation of the prices of the IPOs listed in the Covid period.
Correlation:
Table (6): Correlation Matrix
SRBC SRDC LGBC LGDC
SRBC 1 -0.0693 0.7504 -0.00062
SRDC -0.0693 1 -0.5992 0.9783
LGBC 0.7504 -0.5992 1 -0.5698
LGDC -0.0006 0.9783 -0.5698 1
Source: Author’s calculation
Table (6) represents the correlation between the subscription rate before Covid (SRBC), subscription rate during Covid (SRDC), listing gain before Covid (LGBC) and listing gain during Covid (LGDC).
From the above table it is cleared that there is strong positive relation between SRBC and LGBC which indicates that companies earned higher listing gain with higher subscription rate. In the same way, strong relationship is found Between LGDC and SRDC which suggests that companies with higher subscription rate succeeded to earn higher gain during Covid times.
Testing of Hypothesis
To fulfil the objective of the study and to test the hypothesis paired t-test has been used. Normality test is done to check the normality of data. The p-value of the test is above 0.05 which suggests that the data taken in the study is totally normal.
Table (7): Result of Paired t-test (Listing Gain)
Particulars LGBC LGDC
Mean 0.016 24.394
Variance 112.7322 2384.24
Observations 5 5
Pearson Correlation -0.56984
Hypothesized Mean Difference 0
Df 4
t Stat -0.98097
P(T<=t) one-tail 0.191074
t Critical one-tail 2.131847
P(T<=t) two-tail 0.382148
t Critical two-tail 2.776445
Source: Author’s calculation
Since the calculated p-value is 0.382 which is more than 0.05 we accept the null hypothesis and we
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can conclude that there is no significant difference between the listing gain earned by the IPOs listed before covid and covid period.
Conclusion
Covid-19 has impacted all the parts of the society. The trading, investing, and stock market participation have been increased across the globe during Covid-19. To take the benefit of liquidity of the market, listing of shares in the recognized stock exchanges in India have increased during this pandemic. The Listing gains of the IPOs in Covid period accounted higher as compared to the listing gains of the IPOs listed in the market in pre-Covid period. Average 30 days’ return of the IPOs listed in pre Covid period recorded higher as compared to the 30 days’ return of the IPOs listed during Covid period. The result of pair t test indicates that there is no significant difference of listing gain earned by the IPOs listed before covid and during the covid period.
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