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B.Sc. (Applied Statistics & Analytics)�

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Analysis of Initial Public Offerings

GROUP MEMBERS

ROLL NUMBERS

Naman Gandhi

A006

Aryan Nisar

A011

Diya Unarker

A020

Mokshaa Agnihotri

A024

Paridhi Sinha

A040

Mentor:

Prof. Piyush Shaha

Subject: Sampling Distribution and Application

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Index

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Acknowledgement

We are grateful for the opportunity given to us by our prestige university NSOMASA, NMIMS, Mumbai to work on this project.

We would like to express our gratitude to our Mentor, Prof. Piyush Shaha , who was a continual source of inspiration. He pushed us to think imaginatively. His vast knowledge, extensive experience, and professional competence in SDA enabled us to successfully accomplish this project

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Thanking You

Group 4

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Introduction

WHAT IS AN IPO

  • An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance for the first time. An IPO allows a company to raise equity capital from public investors.
  • Companies must meet requirements by exchanges and the Securities and Exchange Commission (SEC) to hold an IPO
  • Companies hire investment banks to market, gauge demand, set the IPO price and date, and more.
  • An IPO can be seen as an exit strategy for the company’s founders and early investors, realizing the full profit from their private investment.

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Introduction

NEED FOR AN IPO

  • Easy access to huge capital is the foremost reason companies choose to offer shares through IPO. There’s no money quite like money from the masses.
  • Getting listed in a stock exchange adds credibility to a company. The company is expected to be accountable to its hundreds (and thousands) of shareholders, and is therefore perceived as responsible.
  • It offers an exit route for private investors who can now sell off their shares at huge profits or just see their net worth rise manifold as the shares gain in value.
  • It gives the company valuable leverage while negotiating loan terms, interest rates on loans, mergers or acquisitions.

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BACKGROUND

  1. The companies that are traded on the stock exchanges can be categorized into three broad categories:
  2. Large-cap companies are businesses that are well-established and have a significant market share. Large-cap companies have market caps of Rs 20,000 crore or more.
  3. Mid-cap companies are companies whose market cap is above Rs 5,000 crore but less than Rs 20,000 crore. Investing in these companies can be riskier than investing in large-cap market companies
  4. Small-cap companies are those that have a market capitalization of less than Rs 5,000 crore. These companies are relatively smaller in size and have significant growth potential.

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  1. Listing gains refer to the gains enjoyed by the investors as soon as the shares of the business are listed on the stock market.

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  • Promoter shareholding is the percentage of shares owned by the company's promoters. The promoters are the company's founders, who hold a majority stake in the company's capital

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Definition of Variables

  • Initial Returns: Initial return of the IPO is defined as the percentage change of the ,stock price from its offering price to the first trading day closing price.

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  • Opening price return (OPR) is defined as the percentage change of the stock price from offering price to first day opening price.

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  • Intraday return (INTRA) is the return gained from the IPO in its first trading day that is the percentage change from the first trading day opening price to the first trading day closing price.

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Literature Review

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Research Objectives

  • Listing gains (FILL)
      • INI
      • OPR
      • INTRA
  • Comparison between Large cap, Mid cap and Small cap IPOs’ performance
  • Checking the dependency of IPO’s performance on age of firm Pre-IPO
  • Seeing how the IPO’s performance depends on the profitability of the company 1 year before IPO
  • Seeing how the stocks tend to perform 3 months after the IPO

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Data

  • We have used secondary data for our research

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Data

Variables used to find required values:

    • Issue Size(in crores)
    • Listing Open (price) (in cr.)
    • Listing Close (price) (in cr.)
    • Listing Gains(%)
    • Age of firm pre IPO
    • Profit (1-3 year(s) before IPO)
    • First & second quarter price
    • Debt-Equity, Current, Asset Turnover, Inventory Turnover Ratios

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Data

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Methodology

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Assumptions

Two sample Z test:

  • The sample from each population must be independent of one another.
  • S₁,S₂>30 where S₁ and S₂ are the sample sizes of both populations respectively.
  • The sampling means distribution of dependent variables must be normally distributed

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One sample t-test and two sample t-test:

  • The dependent variables must be continuous
  • The sample from each population must be independent.
  • The sampling means distribution of dependent variable must be normally distributed
  • There are no outliers in data.
  • The population variances must be equal.

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Assumptions

Pearson’s correlation test:

  • The two variables shall be measured at interval or ratio level.
  • There is a linear relationship between two variables.
  • There shall be no significant outliers.
  • The variables shall be approximately normally distributed.

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Test-Statistics:

  1. Z-test
  2. T- test 2 sample test
  3. T-test 1-sample test
  4. Correlation test

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Data Analysis

Criteria

Test

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Data Analysis-1

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Data Analysis-1

(B): post and during covid listing gains

H̥̥ : μ_1=μ_2

Hˌ: μ_1≠μ_2

Level of significance=α=5%

(x_2 ) ̅=61.050

x ̅_3=3.384

t=3.0152

p-value=0.009485

Since p-value is significantly less that α =0.05 we reject our null hypothesis in favour of alternative hypothesis.

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Data Analysis-1

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Data Analysis-2

We will now compare large cap, mid cap and small cap IPOs on the following basis:

  • Listing gains
    • Large-Cap vs Mid-cap
    • Mid-Cap vs small-cap
    • Small-cap vs Large cap
  • Initial returns
    • Large-Cap vs Mid-cap
    • Mid-Cap vs small-cap
    • Small-cap vs Large cap
  • Intraday
    • Large-Cap vs Mid-cap
    • Mid-Cap vs small-cap
    • Small-cap vs Large cap
  • Raw aftermarket
    • Large-Cap vs Mid-cap
    • Mid-Cap vs small-cap
    • Small-cap vs Large cap

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Data Analysis-2

 

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Data Analysis-2

(A)Listing gains

Case 1: We compare the means of listing gains of large and mid cap IPOs. Our null hypothesis H̥̥ is that the means are equal is being tested against alternative hypothesis that they are unequal.

H̥̥ : μ 1=μ 2

Hˌ: μ 1≠μ 2

Level of significance=α=5%

(x 1 ) =-0.2744182

x 2=0.2550422

t=-0.074644

p-value=0.941

Since p-value is greater that α=0.05 we have insufficient proof to reject our null hypothesis in favour of alternative hypothesis.

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Data Analysis-2

(A)Listing gains

Case 2: We compare the means of listing gains of large and small cap IPOs. Our null hypothesis H̥̥ is that the means are equal is being tested against alternative hypothesis that they are unequal.

H̥̥ : μ_1=μ_2

Hˌ: μ_1≠μ_2

Level of significance=α=5%

(x_1 ) ̅=0.2313383

x ̅_3=0.3036931

t=-0.40052

p-value=0.6918

Since p-value is greater that α=0.05 we have insufficient proof to reject our null hypothesis in favour of alternative hypothesis.

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Data Analysis-2

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Data Analysis-2

 

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

 

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Data Analysis-2

 

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

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Data Analysis-2

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Data Analysis-3

We will now compare and find the correlation between following parameters:

  • Initial return and OPR
  • Initial returns and Intra day return
  • Intraday return and OPR
  • 3month and 6month

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Data Analysis-4

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Conclusion

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Limitations

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Future Scope

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References

  • Websites:
  • Research Papers
    • Pricing and performance of IPOs: Evidence from Indian stock market
      • Published in January 2018
      • Authors : Iqbal Hawaldar, Naveen Kumar , Mallikarjunappa
    • Short Run performance Analysis of IPOs in Indian Market
      • Published in November 2018
      • Authors: Pradeepta Kumar Samanta, Shikhar Dam, Rishi S Saluja, Shubham Bansal and Nimit Chhabra
    • The relationship between IPO returns and factors influencing IPO performance: Case of Istanbul Stock Exchange
      • Published in Feb 2002
      • Author: M.Banu Durukan

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