The study of investor behaviour in and around tail events is important as these impact market returns. Since the onset of the COVID-19 pandemic, financial markets worldwide have seen enormous falls amid widespread uncertainty initially and then bounced back strongly with greater momentum. This article investigates the short-term performance of public issues which had their debut on the Indian Stock exchanges during the time of the COVID-19 pandemic. It also analyses the impact of fear of the pandemic on underpricing, if any and the factors impacting their performance.

It compares the pre-COVID and post-COVID initial public offerings (IPOs) in Indian Capital Market with a sample of 158 listings across nine years from 2013 to 2021 on the main board segment of the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). With the help of the t-test and multivariate regression applied on subscription data, listing data, listing gains, issue size, return on net worth, age and other factors, a more active retail investor group emerges with a statistically significant increase in underpricing during the COVID-19 era.

The study provides strong evidence that the pandemic contributed towards increase in number of firms getting listed and higher levels of underpricing. It also suggests that the impact was particularly on the investors’ sentiment with increase in retail subscription four folds. Desire to synthesize short term benefits and over optimism among the retail investors, has led to such increase. We summarize that in the post pandemic era, higher than usual listing gains and larger than usual issue sizes are affected by a radical shift in Indian retail investor behaviour. Tail events like COVID-19 have changed the way Indian investors behave and invest in IPO’s causing them to base their decisions on speculative metrics rather than the actual fundamentals of the issue.

This article is a first-of-its-kind study to examine the impact of the pandemic on the equity market practices in India, namely, the anomaly of underpricing of IPOs or new listings on the main board segment.