IPO Underpricing and Long-Term Wealth Creation in Indian IPOs: Evidence from 2016–2025

Abstract

Initial Public Offerings (IPOs) provide companies with access to public capital markets, while offering investors an opportunity to participate in the growth of newly listed firms. However, IPOs are characterised by pricing uncertainty and substantial variation in post-listing performance. IPO underpricing, reflected in a positive listing-day return, provides an immediate measure of investor gain, but it does not necessarily indicate sustained wealth creation. The present study examines IPO underpricing and long-term wealth creation in the Indian IPO market using a quantitative and empirical research design based entirely on secondary data. For IPO underpricing, 491 Indian IPOs listed during 2016–2025 were analysed using initial returns calculated from issue price and listing-day closing price. Long-term wealth creation was examined using one-year and three-year returns, three-year CAGR, and positive/negative return classifications for IPOs listed during 2016–2022. The findings show that 353 of 491 IPOs (71.89%) recorded positive initial returns, with an overall mean initial return of 20.81%. Long-term performance was highly heterogeneous: mean returns increased from 20.29% over one year to 49.03% over three years, while positive and negative outcomes remained almost evenly distributed. The three-year CAGR had a mean of approximately 4% and a median of approximately 1%, further indicating that exceptionally successful IPOs influenced the overall average. Overall, the study shows that underpricing was prevalent during the selected period, but higher average returns over a longer horizon did not translate into uniformly positive wealth creation for individual IPOs.