Correlation Between Short-Term and Long-Term IPO Performance: Evidence from the Indian Market

Abstract

This study examines the correlation between short-term listing gains and long-term performance of Initial Public Offerings (IPOs) in the Indian stock market from 2010 to 2023. The research explores key determinants of IPO success, including underpricing, market sentiment, subscription rates, industry sector, and regulatory oversight. Empirical analysis of major IPOs, such as Zomato (2021), Paytm (2021), and LIC of India (2022), reveals that underpricing remains a dominant strategy, often leading to significant first day gains. However, these early returns do not always translate into long-term profitability, as several IPOs in high growth sectors underperform benchmark indices over time. While bullish markets and strong investor demand contribute to short-term listing surges, long-term IPO success is influenced by company fundamentals, industry stability, and market corrections. The findings suggest that financial services and consumer goods IPOs exhibit greater long-term stability, whereas technology and fintech IPOs are more volatile and prone to post listing declines. Additionally, regulatory mechanisms, such as SEBI's book building process, play a crucial role in ensuring IPO transparency but cannot entirely prevent mispricing. The study provides valuable insights for investors, issuers, and policymakers, emphasizing the need for realistic IPO pricing strategies that balance short-term attractiveness with sustainable long-term growth.