IPO grading assesses the fundamentals of the Initial Public Offerings (IPOs) and is reflected on a five-point point scale (1-5) with a higher score indicating stronger fundamentals of the IPO issuing firm. SEBI (India's capital market regulator) introduced the IPO grading as a mandatory requirement for all IPOs, and the requirement seems to have been borne by the fact that, in India, where institutions are less developed and retail participation in IPOs is significant, quality signal represented by an IPO grade yields discernible benefits to the market. We note that while SEBI and the rating agencies advocate the benefit of the IPO grade, not everyone in the industry and academia is convinced of the grade's merits.
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Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number
2008-12-08.