Underpricing

Underpricing in the context of IPOs refers to the phenomenon where the issue price of a new stock offering is set below its true market value, resulting in a significant price jump on the day of listing. This listing gain benefits investors who received allotments in the IPO but represents a cost to the issuing company, which could have raised more capital at a higher price. Underpricing may be intentional—to generate investor excitement and ensure full subscription—or unintentional, resulting from conservative pricing assumptions. In India, the degree of IPO underpricing has historically varied widely, with some issues delivering listing gains exceeding 50–100%.