How Interest Rate Cycles Affect Small-Cap IPO Performance: A Quantitative Study of India’s Primary Markets (2018–2024)

Abstract

This paper explores the role of interest rate cycles in the dynamics of small-cap IPOs in India from 2018–2024, a time characterized by changing and volatile interest rates and significant participation of individual investors. Over time, as India’s main markets have matured in size and prominence, small-cap IPOs have become an important barometer of sentiment, speculation, and a liquidity-driven market in India. Loans that are sensitive to macroeconomic factors, primarily to changes in the sensitive to macroeconomic factors, particularly the benchmark repo rate set by the Reserve Bank of India (RBI), which influences the cost of borrowing and overall investor risk appetite. In this research, I measured the impact of variation in the RBI repo rate on IPOs listing-day returns and, 30 days post listing, performance through correlation analysis and linear regression models on a curated dataset of small-cap IPOs listed at NSE and BSE. These results indicate that the environment of lower interest rates has a systematic impact on the results of IPOs, with higher oversubscription rates and higher short-term returns. In contrast, a market debut is less gung-ho with rate hikes, suggests the bailiffs. This study extends the scant literature on emerging economy IPOs and shows the significance of monetary policy as a fundamental attribution of capital market development. The research provides tactical guidance for investors, policymakers and companies in India on its changing IPO paradigm.