“IPO subscription dynamics: A comprehensive inquiry into the Indian stock market”

The Indian IPO market showcased resilience during the global stock market downturn in 2022, emerging as a notable bright spot in regions such as Europe, the Middle East, India, and Africa. As the bullish rally of 2022 persists, Indian stock markets remain enticing for foreign institutional investors in 2023. A resurgence in IPO activity is anticipated, driven by increasing momentum and larger deals that are poised to overcome the constraints of subdued global sentiments and liquidity pressures, addressing the challenges posed by these factors. The study offers insights into factors influencing IPO subscriptions, capitalizing on the context of heightened stock market volatility and optimistic trends in the Indian stock market. A total of 132 IPOs listed on the Indian stock market between April 2019 and March 2023 were analyzed in this study. Multiple Linear Regression was used to assess the strength of the association between several factors outlined in the literature, and the overall subscription. Among the ten variables investigated in the study, it was observed that three variables under the external factors, specifically Grey Market Premium, IPO Rating, and Broker Recommendations, exerted a significant influence on the overall subscription. While other factors such as allocation proportion and issue attributes, were found to have no discernible influence on the overall subscription. The results indicate that the Indian IPO market demonstrates a prevalence of speculative behavior and a stronger reliance on expert recommendations, rather than being primarily driven by IPO characteristics.


INTRODUCTION
IPOs stand out as the key corporate strategy to mobilize substantial funding for initiating business ventures or expanding operations, enticing investors with attractive opportunities and prompting a shift from low-return to high-return opportunities.The Indian IPO market has experienced significant growth in recent years, primarily driven by the dominance of retail investors.It is crucial to understand the complexities of this market, as it not only addresses broader corporate finance inquiries but also becomes increasingly important with the surge in the number of IPOs in the Indian landscape and the growing influence of the Indian economy on the global stage.
The performance of a company's IPO is influenced by the extent of subscriptions it garners, as emphasized in prior research.At the prelisting stage, gauging the full subscription, oversubscription, and under-subscription levels provides an initial estimate of demand across various investor categories.Against the backdrop of inflationary stress, economic growth risks, geopolitical tensions, and interest rate increases, the Indian stock market displayed notable volatility in the year 2022.However, the PRIME Database report indicated a positive momentum in the year 2023 with 87 companies lined up to raise over Rs 1,40,000 crores through IPO issues.The above context provides an ideal platform for examining the critical factors influencing IPO subscriptions in the Indian primary market.

LITERATURE REVIEW
The new issues market is often characterized by extreme uncertainty and information asymmetry, prompting many researchers to expound the mystical relationships, among which IPO overall subscription is one key dimension.IPO subscription dynamics in India are influenced by a complex interplay of market sentiment, regulatory changes, and investor preferences.Effective IPO investments necessitate a thorough comprehension of key factors, encompassing allocation proportions, issue attributes, and external factors.

Overall subscription
A subscription rate reveals how eager investors are for a new IPO (Sahoo & Rajib, 2010).Generally referred to as the oversubscription rate, it is estimated as the ratio of the number of applications to the issue size (Rahim et al., 2013).The subscription rate is calculated across all investor groups, including QIBs, NIIs, and retail investors (Sahoo, 2017).The literature on subscription rate has been broadly divided into two categories; studies (Agarwal et  The Securities and Exchange Board of India (SEBI) regulates and prescribes allocation norms for each investor category via the book-building process for every IPO issued.During the IPO issue, 50% of the shares are reserved for qualified institutional bidders (QIB), 35% for retail individual investors (RII), and the remaining 15% for non-institutional investors (NII).The subscription rate against each investor category is estimated by dividing the number of bids received by the number of shares allotted per investor category (Sandhu & Guhathakurta, 2020).Often, at the pre-listing phase, full subscriptions, oversubscriptions, and under-subscriptions provide an initial indication of investor demand.(Sahoo, 2017).It appears that most of the studies have overlooked the interaction between allocation norms and over or under-subscription.

Issue attributes
The characteristics of companies undergoing IPOs hold significant interest due to their pivotal role as a primary reservoir of fresh investment prospects within the securities market.These characteristics encompass variations in factors such as the issue size, post-issue paid-up capital reflecting the issuer's size, the issuer's evolutionary stage, issue pricing, the proportion of issuer shares made available for public ownership, the specific industry or business sector the issuer operates in, and the stock exchanges where their shares are listed (Sabarinathan, 2010).This study explores the impact on overall subscriptions by considering issue size, issue price, and projected P/E ratio.
Issue size indicates the amount raised by an IPO and the success of the offering (Chhabra et al., 2017).Earlier studies have reported contrasting results on the influence of issue size on oversubscription.Some studies (Arora & Singh, 2020 Singh & Gupta, 2018).Given the varying opinions regarding the association between issue size and overall subscription, this study believes that further investigation would enhance the literature by providing a better understanding of the relationship.
At the pre-and post-listing stages of an IPO, the offer price is an important variable in estimating participation levels among various investor categories (Low & Yong, 2011;Sandhu & Guhathakurta, 2020).The issue price of an IPO is a potential factor in explaining oversubscription (Aluvaala, 2019;Tajuddin et al., 2017).Agarwal et al. (2008) observed a positive relationship between IPO underpricing and investor demand.As evidenced by Datar and Mao (2006), issuers deliberately underprice their IPOs to enhance subscriptions.Conversely, Sandhu and Guhathakurta (2020) discovered that IPOs with the lowest price ranges are less likely to attract full subscriptions or oversubscriptions.Retail and non-institutional investors moreover take cues on the quality of IPO issues based on institutional investors' subscription patterns, when they bid for shares (Khurshed et al., 2011;Ong et al., 2020).Following the above arguments, it is apparent that the issue price should be considered in conjunction with the allocation proportion and subscription times among investor categories to better explain the latter's impact on overall subscriptions.The Price-Earnings (P/E) ratio stands as one of the widely embraced methods for assessing the value of a stock.A high P/E ratio suggests optimism among investors regarding future earnings growth, but it may also be viewed as overvalued if growth prospects are limited.Conversely, a low P/E ratio could indicate that stocks are undervalued, potentially due to short-term disruptions stemming from various factors such as company-specific issues, promoter-related concerns, industry challenges, or market conditions (Nair, 2023).According to Kim and Ritter (1999), P/E multiples based on projected earnings yield more precise valuations compared to those relying on historical earnings.IPO pricing is influenced by investor expectations, which in turn are impacted by factors such as the industry average P/E ratio and earnings per share (Chen, 2015).When the price exceeds this average P/E ratio, individual investors tend to exercise caution and may choose to participate conservatively, potentially resulting in lower fundraising outcomes (Chen, 2023).The above arguments underscore the significance of factoring in the projected P/E ratio when assessing the overall subscription of an IPO.

External factors
An oversubscribed IPO, which signifies a heightened demand for its shares, often results in a premium listing price.However, it is possible that, apart from demand, several external factors could significantly influence investor decisions in the context of Initial Public Offerings (IPOs).Factors such as Grey Market Premium (GMP), IPO evaluations, broker advice, and the performance of stock market benchmarks may exert considerable influence on the overall subscription.Understanding how these variables interplay in the IPO subscription process is vital for investors and market analysts alike.This study investigates the influence on the overall subscription by considering factors such as GMP (Grey Market Premium), IPO Ratings, broker recommendations, and index returns as key metrics for measurement.
A Grey market is an unofficial market where listing premiums are known before the IPO list (Pinki & Sharma, 2022).Grey markets are used by issuers and underwriters to assess the demand for new IPO offerings.An oversubscribed IPO encourages investors to create a buzz around the issue, persuading a higher grey market premium.India has a very active grey market for IPOs, which provides insight into market sentiments (Krishnamurti et al., 2011).Although institutional investors' subscriptions do not seem to be influenced by a low grey market premium, retail investors' participation reflects investor sentiment through the grey market premium (Neupane et al., 2014) focused primarily on the impact of grey market premium on listing price rather than overall subscription.
Analysts play a dual role in the IPO market by providing valuable information to enhance market efficiency while also having the potential to fuel stock hype and mislead the public regarding IPO valuations due to the relatively lesser-known nature of these offerings (Ellikkal et al., 2022).When an IPO is unveiled in the Indian market, evaluations and feedback are often recorded on two websites, namely, ipowatch.inand chittorgarh.com.The prominent IPO review platform, chittorgarh.com,features an IPO Rating system that relies on user-generated feedback.As per the website's description, the user rating of an Initial Public Offering (IPO) generally pertains to the evaluations and assessments furnished by a range of financial institutions, independent brokers, and analysts who are registered with SEBI (Securities and Exchange Board of India) ("www.chittorgarh.com,"2023).The list comprises notable participants in this field in India like Capital Market, ICICI Securities, Nirmal Bang, Motilal Oswal, HEM Securities, Ventura, Reliance Securities, Angel One, Aditya Birla Money, along with analysts such as Mr. S. P. Tulsian and Mr. Dilip Davda.The benefits of user ratings for IPOs, including information sharing, peer perspectives, risk assessment, reflecting market sentiment, and serving as community insights, facilitate a comprehensive comparison of different IPOs.Nonetheless, it is crucial to acknowledge that these ratings rely on individual subjective viewpoints.It would be intriguing to ascertain whether these user ratings exert any influence on IPO subscription trends.
Stock brokerage firms play a pivotal role in sustaining the vitality of the stock market by serving as intermediaries connecting investors with the market, facilitating new investor participation, and imparting knowledge on stock market investments (Jami, 2022).The main sources of analyst recommendations typically originate from two channels: brokerage firms, financial columnists and journalists (Jayadev & Chetak, 2015).Rajan and Servaes (1997) conducted pioneering research into the correlation between analyst coverage and IPO premiums, dis-covering a positive impact of IPO premiums on analyst following.But Bradley et al. (2008) discovered no discernible connection between the IPO premium and the level of analyst following.Mcnichols et al. (2006) found that affiliated recommendations do not distinguish between strong and weak IPO stocks, while unaffiliated recommendations tend to be untimely in offering valuable trading guidance.The precision and variance in pricing predictions by securities analysts play a substantial role in influencing the premium associated with IPOs (Jiani & Liu, 2014).When a larger group of analysts offer favorable recommendations, it boosts the confidence of prospective investors, thereby increasing the probability of IPOs experiencing oversubscription (Sahoo, 2014;Singh & Vishwanath, 2013).Given the vital role that stock brokerage firms play in connecting investors with the market and the significant influence of analyst recommendations on IPO premiums, it is important to investigate how broker recommendations impact the overall subscription to initial public offerings (IPOs).
A stock market index represents all major deviations in the stock market and is compiled using stocks selected based on their market capitalization, type of industry, and market size (Mani, 2023).According to the PRIME database released in January 2023, the average IPO listing gain, dropped to 10% in 2022, as compared to 32.19% in 2021 and 43.82% in 2020 (Agarwal, 2023a).Several empirical studies in the past (Bandi & Suresh, 2018;Howton et al., 2002; Duraipandian & Suresh, 2012; Sahoo & Rajib, 2010) have compared IPO returns to index returns and attempted to guide investors with information about the choice of the stock exchange, underpricing, and strong QIB subscriptions affecting IPO returns.In a report by ET Market (2022), the S&P BSE IPO index was negative 34% in 2022 and hence cautioned investors about considering the IPOs as a quick cash grab.This denotes the decisive role of index returns in determining the IPO listing prices regardless of subscription levels.
The critical review of the extant literature on IPO subscriptions and their determinants essentially enabled the vivid identification of study variables.The initial reviews focused on IPO subscriptions and the factors influencing the quantum of overall subscriptions.Further, an in-depth review facilitated the identification of issue attributes and external fac-tors as potential determinants.Several studies have examined the factors influencing the level of subscriptions during IPOs around the world.Analysts' recommendations and financial position at issue, Retail and Non-institutional investors following the subscription patterns of the Qualified Institutional Buyers (QIBs), pre-offering information about IPO prospects, IPO offer price and pre-listing demand among the different categories of investors in the Indian stock market (Agarwal et

METHODS
The literature points to several factors influencing the IPO overall subscription rate.However, for the current study, the overall subscription is regarded as a dependent variable affected by three sets of independent variables viz., Allotment JMP Pro software was deployed for data analysis, and Multiple Linear Regression was run to quantify the influence of the identified independent variables on the overall subscription of IPOs.

RESULTS
Given that all the variables in the study are continuous, correlation estimates were generated as a prerequisite to the multiple regression.The analysis of variance in Table 2 indicates, a statistically significant relationship between the model and the observed data (F (10, 120) = 11.1803,p < 0.0001).The model accounts for a substantial portion of the variability in the data, with a model sum of squares of 252463.03.In contrast, the error term, with a sum of squares of 270972.91,represents random variability within the data.This ANOVA table, with a total of 130 degrees of freedom, suggests that the model's predictors collectively have been strongly influencing the dependent variable under investigation.
Table 3 displays the results of the multiple regression analysis.It examines the relationship between the independent variable and the dependent variable (overall subscription).The statistical significance of the intercept term in the regression equa-   A more detailed examination of the predictor profiler graphs (see Figure 3) reveals a vivid understanding of the dependencies between the predictor variables and the dependent variable, overall subscription.Statistically significant predictor variables are depicted with an upward pointed dangler on the charts of GMP, IPO Rating and Broker Recommendations.A small dangler is evident in the index returns chart, suggesting the impact of index returns on overall subscription; nevertheless, this relation lacks statistical significance.In summary, external factors such as GMP,  IPO Ratings, and Broker Recommendations exert a statistically significant influence on overall subscription, while the market's performance, as indicated by Index Returns, appears to have a less significant impact.
To examine the impact of predictor variables on the overall subscription rate within the entire population, parameter estimates were generated.The analysis presented in Table 4 revealed intriguing insights, with statistically significant findings for issue attributes such as issue size and issue price, in addition to the previously identified predictor variables: GMP, IPO Rating, and Broker recommendation.
A Normal plot was generated to identify the active predictor variables and inactive predictor variables.Figure 4 depicts the Normal plot for the data analyzed.The above line in the normal plot indicates absolute normality as it has a slope equal to 1 and the below line indicates the dependency model with key predictor variables with a slope equal to the t-Test Scale Lenth PSE (2.1711354).
These graphs are plotted fundamentally on the principle of effect sparsity, which reflects the idea that relatively fewer effects are active.Those effects that are inactive represent random noise.The plots are based on a pseudo-standard error (PSE), where the PSE is an approximation of variance (σ2) and ascertained using the order statistics of the parameter estimates that are smallest in magnitude.On a normal probability plot, estimates representing inactive effects fall close to a line with slope σ.

DISCUSSION
This study has necessitated out of the identified gap in the extant literature on IPO and their subscription dynamics.The present work examines multiple factors extracted from existing literature, including allocation proportion, issue attributes, and external factors, to gauge their influence on initial public offering (IPO) subscription levels.It can be inferred from the findings that the allocation proportion, which encompasses three primary investor categories, namely QIB, NII, and Retail, does not substantially influence the dynamics of IPO subscription, owing to multiple factors.Firstly, prevailing market sentiment can strongly shape investor responses to allocation proportions, specifically when the market momentum is exhibiting reversals.Additionally, investor preferences reflect their risk appetite predominantly and ability to comprehend the issuing company's fundamentals over allocation.Furthermore, regulatory changes in the IPO process can alter the significance of allocation proportions, while comprehensive information availability can reduce their impact.
The issue attributes, encompassing company-specific variables like issue size, issue price, and P/E ratio, also exhibited a statistically significant impact on the subscription rates.A notable finding from the analysis has been the inverse behavior of Grey Market Premium against issue price, suggesting IPOs with a lower issue price might attract speculative investors who anticipate swift profits.Such investors may tend to offer higher prices in the Grey market in anticipation of a premium price immediately after the IPO listing.Moreover, low-priced IPOs prove to be more accessible to a broader spectrum of investors, including retail investors.This enhanced accessibility can result in augmented trading volumes in the Grey market.Furthermore, a lower IPO issue price may imply that the company is undervalued or that it intentionally reserves potential upside for investors, a sentiment that can translate into demand in Grey markets.However, Sandhu and Guhathakurta (2020) discovered that across all investor categories, there was a reduced propensity for full subor oversubscription of IPO issues when the initial offer prices were at their lowest range.
The third factor, denoted as 'External factors', comprises four subcomponents: GMP, IPO Ratings, broker recommendations, and index returns.It is worth stating that all of these factors, except for index returns, exerted a prominent influence on IPO subscriptions.GMP, IPO Ratings, and broker recommendations tend to be more pertinent to prospective investors, offering direct insights into an IPO's perceived potential to prove profitable for the investors.This observation is consistent with the perspective presented by Khatri (2017), indicating that a significant proportion of investors seek guidance from brokers when making investment decisions in IPOs.In contrast, index returns reflect overall market movement and need not be closely evaluated in specific IPO evaluation.Apart from the accuracy and availability, the relevance of GMP, IPO Ratings, and broker recommendations often surpass that of index returns, which are generally available to the public and less tailored to individual IPOs.Positive GMP, favorable IPO Ratings, and strong broker recommendations can bolster investor sentiment positively thereby boosting subscription rates irrespective of overall market momentum.Beierlein et al. (2016) observed that IPOs with a significant GMP tend to exhibit stronger explanatory capability.Nevertheless, their study did not delve into its influence on the overall subscription rate.Lastly, bear market conditions during the IPO period can significantly influence subscription decisions, implying a bearish trend induces investors to outweigh GMP, IPO Ratings, and broker recommendations as they seek lucrative opportunities.
The parameter estimation analysis has emphasised the statistical significance of distinct issue attributes such as issue size and issue price, in addition to GMP, IPO Rating, and Broker recommendation.The findings significantly enhance the comprehension of the factors underpinning overall subscription rates within the broader context of this study.

CONCLUSION
This study aimed to analyze factors influencing IPO subscription.It found that allocation proportions (QIB, NII, Retail) had a limited impact, with market sentiment and regulatory framework playing pivotal roles.Issue attributes like size, price and P/E ratio were not significant drivers, but lower issue prices correlated with increased Grey Market Premium, appealing to speculative investors.External factors, including GMP, IPO Ratings, and broker recommendations, emerged as influential determinants, offering valuable insights for academic research and practical decision-making in the IPO market.This investigation also poses certain challenges due to its inherent limitations.The includes all IPOs, regardless of size, leading to dispersed data and potential errors.Additionally, it excludes factors like IPO marketing and investor perceptions, which can impact subscription rates.The study period encompassed the COVID-19 pandemic and the Ukraine War, inducing market volatility.Certain predictor variables may become significant as circumstances evolve.
Future studies could explore incorporating IPO marketing metrics and investor perception factors to assess their impact on overall subscriptions.Investigating the interdependencies between predictor variables and their impact on both subscription rates and listing prices is a valuable avenue for future research, especially when categorizing companies based on issue size to reduce data dispersion and offer distinct insights.
H 10 : The index returns influence the overall subscription of the IPO.
Table1summarises the outcomes derived from the Multiple Linear Regression analysis.The modified RSquare score of 0.4392 in Table1suggests Figure 1.Conceptual framework

Table 1 .
Summary of model fit

Table 2 .
Analysis of variance