Do Investors’ Appetite Influence Under Pricing: Evidence from the Indian Capital Market

Indian capital market regulator, Security Exchange Board of India(SEBI) introduced many path breaking rules and regulations in the Indian equity market in last two decades. Book building of Initial Public Offers (IPO) and IPO Grading are two such things. In the Indian context, book built IPOs, provide different quotas for different types of investors. Thus, it is possible to capture the appetite of the retail as well as the institutional investors, separately. Gain in any script at the close of first day's trading compared its issue price, adjusted for market movement is called under pricing. In this research paper, it is investigated, whether under pricing in any company's IPO has any relationship with the retail and also the institutional investors’ subscription level. All the IPOs in the time frame, when IPO Grading was mandatory, are chosen for the study. The analysis shows that only retail investor's subscription level affect under pricing.