What's powered solid listing gain in recent IPOs | Economic Times

Mumbai: Gains from newly-listed stocks are mainly linked to high subscriptions, overriding other IPO characteristics such as age, share-sale size, leverage, growth, profitability and valuation indicators of the company.Last fiscal, 21 out of 29 IPOs generated positive returns for investors on listing. IPO listing returns of 36% in FY21 were the highest in a decade, fuelled by an average oversubscription rate of 71.3 times of IPO issue size, the central bank said in a study.The Reserve Bank of India (RBI) analysed IPOs listed between 2011-12 and 2020-21.It found that the coefficient of oversubscription to be positive and highly significant in explaining the IPOs’ initial returns.“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,” RBI said.The study was analysing the underpricing of IPOs which happens when a stock generates higher prices on the first day of listing.