This article examines the initial and after-market performance of the initial public offerings (IPOs) listed on the recently launched platform for small and medium enterprises (SMEs) by the Bombay Stock Exchange (BSE), Mumbai and the National Stock Exchange (NSE). The study does find evidence of underpricing of IPOs by SMEs in line with other studies internationally. However, the level of underpricing is found to be lower than that of IPOs listed on the main board stock exchanges in India, reported by earlier studies. This may be partially due to the fact that the SME platform is at an infancy stage and has failed to attract investors’ fancy. This is reflected in a low level of oversubscription of SME IPOs at 1.35 times on average. The multivariate analysis identifies the type of offer, size of issue, promoter holding, extent of oversubscription, lead manager prestige and the stock exchange of listing as the key determinants of underpricing of SME IPOs. Post listing, these IPOs have significantly out-performed the benchmark index. The finding is inconsistent with the results of other studies on the main board exchanges where the IPOs, in general, are found to underperform the markets over a significant period of time post listing. This may partly be attributed to thin trading in these stocks and, therefore, to their lower level of liquidity. The findings have significant implications for stock-market regulators, issuers and investors.

The article examines the long-run performance of 377 initial public offerings (IPOs) made by Indian companies during the period 2005–2015. The objectives of the article are to analyze whether Indian IPOs underperform or outperform the broad market in the long run and to identify the key determinants of their long-run performance. The results show that the Indian IPOs outperform the broad market initially followed by significant underperformance in the long run. The IPOs listed on the main board during 2005–2015 yielded average initial excess returns (IERs) of about 22 per cent. However, 37 per cent of the IPOs provided negative IERs. The IPOs underperformed the broad market generating –57.33 per cent buy-and-hold abnormal return (BHAR) over 36 months after listing. Only 38 out of 377 IPOs (10 per cent) outperformed the benchmark index over a 36-month holding period. The important issue characteristics that influence the long-run performance of IPOs in India are the type of issuer (government-owned or private), lead manager prestige (LMP), promoter holding and the issue size.

The article examines the pattern of cash holdings of 266 Indian companies comprised in the S&P BSE 500 index for the period 2005–2015 to understand the factors that influence the level of cash balances, to estimate the amount of excess cash held by these companies and to analyse how these companies spend their excess cash. The sample companies hold approximately 12 per cent of their total assets as cash in 2015. The pattern of cash holdings of the sample companies is supported by the static trade-off and the financing hierarchy model. Consistent with earlier evidence, firms with large cash balances have strong growth opportunities, larger cash flows, higher cash flow volatility, higher leverage, higher level of promoter holding and belong to the government-owned sector. Companies that have more liquid assets other than cash have more tangible assets and pay more to their shareholders hold lower cash balances. However, contrary to earlier evidence, size of the firm is not related to the amount of cash holding. Further, firms with large cash balances have higher leverage. The study does not find association of cash holding with many other variables found to have association with cash holding in developed markets. A large number of the firms in the sample hold cash in excess of what is predicted on the basis of firm’s characteristics. These companies manage their cash balances in a manner that is not consistent with maximization of shareholders’ wealth.

This study investigates the trading behaviour of foreign institutional investors (FIIs) and domestic institutional investors (DIIs) in the Indian stock market and also the relation between stock returns and equity flows by FIIs and DIIs. The study uses a wider definition of DIIs that includes not only mutual funds (MFs) but also banks, domestic financial institutions and insurance companies. The results show that the trading pattern followed by FIIs and DIIs is opposite of each other. While FIIs act as positive feedback traders, DIIs act as contrarian investors and negative feedback traders. High lagged stock returns result in increased FII investment. The DIIs, on the other hand, appear to book profits when the market moves up and buy when it moves down. Contrary to findings of earlier studies that MF investment has no effect on future stock returns, the study finds that DII investment has a significant positive relation with future stock returns. The study also finds weak evidence of a negative relation between FII investment and future stock returns. Keywords Domestic institutional investors, foreign institutional investors, momentum investors, contrarian investors, positive feedback trading, negative feedback trading Global Business Review 17(3) 654-664

The study examines the impact of quality certification of initial public offerings (IPOs) arising out of lead manager’s reputation, grading by credit rating agencies, presence of anchor investors and the reputation of auditors on the level of IPO underpricing. The mean initial excess return that measures the level of IPO underpricing is 22 per cent based on a sample of 399 IPOs made by Indian companies during the period from April 2005 to March 2015. Contrary to expectations, nearly 37 per cent of the IPOs do not provide a positive initial excess return. Univariate analysis reveals that except for IPO grading, the other quality certification variables do not make a significant impact on the level of underpricing. Graded issues are more fairly priced compared to non-graded issues. The Securities and Exchange Board of India (SEBI), the capital market regulator, has recently done away with mandatory grading of IPOs. As graded issues have been observed to improve pricing efficiency, SEBI should reconsider its decision and reintroduce compulsory IPO grading. Multivariate analysis, that includes other variables, such as issue size, level of subscription and promoters holding, reveals that the two variables that have a significant influence on initial excess returns from IPOs are the issue size and the level of oversubscription of the IPO.