Saturday, 26 February 2022, Bhatye

The surge Indian Equity Market has seen in listing of new companies (IPOs), which started in the 2nd half of 2020 and accelerated in 2021 was unseen for last 10 years since 2010. Many investors especially Retail Investors were hypnotized by Listing Gains seen in few early listings and the Strong Bull Market after March 2020 fall.

All this frenzy raises the question, Is IPO Listing Gain is reliable thing? (Statistically). To verify claims made by many, I gathered data for all such listings since 2010.

Below the description I have provided the Data that I’ve used.

Terminology Used and Logic behind Processing of Data -

Focus on Median Value (not on Average) – Since gain distribution is skewed i.e. max loss of 100% (-100%) to potential unlimited upside. Hence while reading this data of Gains, Median is better indicator than that of Average.

Probability adjusted Gain –

This is short term return calculated based on amount of capital that need to be invested at the time of IPO and Probability of Allotment. This is necessary while looking at Listing Gains because most of the times IPO is oversubscribed in the periods of Bull Market. And hence investor might not get allotment of get partial allotment.

Hence I calculated the Probability adjusted Listing Gain as follows:

Probability adjusted Listing Gain = Probability of Allotment x Listing Gains

where, Probability of Allotment = Minimum of {1, 1/(RII Subscription)}

Conclusion -

By looking at the data from 2011 to Feb 2022, it can be concluded that Big IPO Listing Gains are rare and occurs once in a while for short period at the peak of Bull Market Period. And considering past 10 Years data median values of both Listing Gains and Long Term Gains are negligible. Hence they are statistically UNRELIABLE.

Here is the Data that I have used: PDF