IMPACT OF ECONOMIC VARIABLES ON IPOs IN INDIA - AN ANALYTICAL STUDY

Abstract

This article aims to examine the hypothesis that local macroeconomic factors affect the volume of initial public offerings (IPOs) in a rising market, India, between 2015 and 2022. Initial public offerings (IPOs) are shown to have a positive correlation with industrial output and a negative correlation with interest rates. Using co-integration and Vector Error Correction models, we find a long-run equilibrium link between interest rates, industrial output, and initial public offerings (IPOs). Using a Markov regime-switching regression model, we also find that the effect of interest rates on IPO numbers is much more significant in the cold IPO regime than in the IPO hot regime. The empirical result seems to detect the IPO market's trend with a fair amount of accuracy. The findings demonstrate that a hot IPO market regime develops when investors start seeing extraordinarily high early returns, and their expectations about the future interest rate indicate the eagerness of entrepreneurs and managers to enter the IPO market. Conversely, a government's pursuit of monetary tightening causes investors to shy away from the IPO markets because they anticipate future profits will fall owing to rising interest rates and the price of shares will be harmed due to reduced dividend yield. JEL: O10, O16  Article visualizations: