A New York based investment bank wanted to identify undervalued IPOs in the Indian market.
The challenge was to identify stocks in the IPO segment that are intrinsically good but are trading cheaply and identify underwriters whose deals perform badly on the market.
The solution developed by Tata Strategic was a GARCH model for the identification of under-valued IPOs derived from historical data on key stock fundamental ratios collected on a daily basis. A definition of stock profitability was developed and various linear & non-linear models were evaluated for fitting the data. Model back testing for bull and bear phases was performed to assess the model accuracy. The process used various filters in stock selection based on returns, risk, liquidity and movement within the market.
A dynamic user application was developed to provide a range of stock descriptives which helped the client in the acquisition of profitable stocks.
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