IPO Pricing : The Study of Efficient Pricing Mechanism, With Specific Reference to IPOs in India

The decision to go public through an Initial Public Offering (IPO) is one of the most critical decisions in the life cycle of a firm. Due to its presumed importance, it has become one of the most researched topics in the finance literature of the world, but very little work has been found done in our country. IPO goes under two type of pricing structure that is underpricing and overpricing. They both are simple market misvaluation between the offer price and first day listing price. When list price exceeds offer price tends to arise underpricing and when offer price exceeds list price overpricing exists. This current paper attempts to analyze the Indian IPO issue and their pricing mechanism. The study period was from 1st April' 2000- 31st March' 2009 and considered 379 IPOs. The average first day returns accounted to be 21.76% and the study reported the existence of underpricing in short period