Report on Project Training

STUDY AND ANALYSIS OF INVESTMENT IN INITIAL PUBLIC OFFER (I.P.O)

Submitted To Symbiosis Centre for Distance Learning

In partial fulfillment of the Requirements for the award of Certificate of Post Graduate Diploma in Business Administration

Submitted by: Rajesh Kumar Registration No.200604946 Mob No. +91-9810665772 E-mail- raj.k.singh@hotmail.com DIRECTORATRE OF DISTANCE EDUCATION SYMBIOSIS CENTRE FOR DISTANCE LEARNING (2010)

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled STUDY AND ANALYSIS OF INVESTMENT IN IPO (INITIAL PUBLIC OFFER). carried out by Mr. Rajesh Kumar S/O Sri Uma Shankar Jha has been accomplished under my guidance & supervision as a duly registered PGDBA student of the Symbiosis Centre for Distance Learning, Pune. This project is being submitted by him in the partial fulfillment of the requirements for the award of the Post Graduate Diploma in Business Administration from Symbiosis Centre For Distance Learning. His dissertation represents his original work and is worthy of consideration for the award of the Certificate of PGDBA.

CA. DEVI PRASAD AGARAWAL (Chartered Accountant) Member Ship No Date: 28th May 2010

DECLARATION

I, "RAJESH KUMAR, hereby declare that the work presented herein is genuine work done originally by me and has not been published or submitted elsewhere for the requirement of a degree programme. Any literature, data or works done by others and cited within this dissertation has been given due acknowledgement and listed in the reference section.

RAJESH KUMAR Registration No.-200604946 (Student's name & Signature) Date: 28th May 2010

ACKNOWLEDGEMENT
This project comes out to be a great source of learning and experience. Lot of efforts has been put by various people to make this project a success. This has greatly enhanced my knowledge about the vast field of Investments in Initial Public Offering. I would like to thank Mr. Devi Prasad Agarwal (Chartered Accountantl) for providing me an in depth knowledge about the IPO investments and helping me devise various investments strategies. And at last I would like to extend my gratitude towards my project guide Ms Astha Chaudhari (MBA) and Mr. Rakesh Pratap Singh (Sub-Broker, Angel Securities Ltd), whose valuable inputs had helped me a lot for successfully completing the project without her co-operation and guidance this project would not have been possible. Needless to say, errors and omissions are mine. Last but not the least, no one is forgotten but all may not be mentioned. To concluded, we thank our mind and heart for going hand in hand.

EXECUTIVE SUMMARY
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 A good system must be able to cope with an extremely complex and dynamic environment. This project gave me a great insight about the IPO and its Process. The purpose of this Project was to understand the IPOs that were issued in the last 2-3 months; buyback of shares; IPO Grading and Reforms in IPO Process. The IPO was an extensive learning experience in which I involved myself with the live issues hitting the market. I began my study by going through the SEBI guidelines regarding eligibility norms, pricing structure, requirements of the promoters and their obligations, post issue obligations, book building guidelines etc. I enhanced my understanding over IPO issues of various companies by going through their Bid-cum application forms and the Red-Herring prospectus, which contained all the information regarding the issue, purpose of the issue, all the financials and results for the past 3-5 years and many other details which are required by an investor for a sound analysis. The Project report starts with defining the various public issues with the need for the company to take out an IPO. It goes on further to explain the advantages of an IPO. It analyses in detail the Indian IPO Scenario. It explains the evolution of the IPO in India and explains how the scene has changed dramatically after liberalization esp. after the introduction of book building process. All over the world, IPO is one of the most popular instruments for investment. Its popularity with consumer has dramatically increased over the last couple of worldwide; the IPO has a long and successful history. The popularity of IPO has increased manifold. The project Study And Analysis Of Investment In IPO is undertaken as a part of learning process during the training with DPA & Co(Chartered Accountants) and a short period association with Ms. Astha chaudhary(Assistant Manager-Investments), HDFC Securities Ltd and Mr. Rakesh Pratap Singh(Sub-Broker, Angel Securities Ltd).

For our study, we collected the data related to Ludhiana Stock Exchange. The research was done by taking the response from respondents through a structured questionnaire which covers aspects like individual and corporate customers intentions, factors which play an important role in customer investment decision etc. I found out from the research that IPO are not as popular in India as in other countries because returns are not assured. People in India are very averse towards risk taking. They do not want to take any type of risk. Other most important reason for the non-popularity is that the consumers lack awareness of it. Very few customers knew properly what IPOs are and how they work. The key learning from the project was the knowledge of IPO of different companies and the psychology of the investors. It is most important to deal with an established and reputed online trading agency.

SCOPE OF THE STUDY

The scope of my study lies within the organization itself. This Concept is relatively new in the Indian market. During the course of my study I found many difficulties. The main difficulty was the people are not aware about IPOs. It is very difficult to convience the general public according to age and profession. To add to the problem it is very difficult to approach the investors. Even if I was successful in approaching them they were hesitant in giving appointments especially in the case of professional people. The persons who was ready for investments was quite hesitant in producing the documents required for formalities from investors. The most difficult work is to deal with the business man because they dont have enough time to understand this. And also it is a risky investment so they dont want to invest easily .During the course I met some investors who wanted returns in less time which is a very unwise act. Also it was very difficult to follow up with investors from the database .And the most important thing that I found was that investors are very unwilling to take risks even though a scheme may yield very good returns provided they are willing to take risk. This project assist those persons who are either ignorant about the market and also those who would like to strike a fair deal on investments at a low cost in the share market. 6

OBJECTIVES OF THE STUDY

To know the awareness of IPO among people. To ascertain the percentage of income the investors invest in IPO To know the different attitudes of people regarding risk, rate of return, period of

investment To study the procedure of IPO

DESCRIPTIVE RESEARCH
The study falls under the category of Descriptive research. Descriptive research includes survey and fact finding inquiries of different kind. It is the description of the state of affair as it exists at present. The main characteristics of this method are that the researcher has no control over the variables; he can only report what has happened or what is happening. The method of research used in this research was survey method.

METHOD
In the present study investors are included and questionnaire distributed to them. Every person has equal probability of being selected. Thus the sample become a SIMPLE RANDOM SAMPLE. The present research was conducted on the investors and persons who invest in IPO .In both cases the samples of fifty persons were considered who filled the questionnaire

LIST OF FIGURES

Figure No.

Name

Page No.

1. 2. 3. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8

Classification of issues Book building process Trading Mechanism Knowledge about IPO %age of income objectives of investing in IPO factors you consider while investing in IPO returns in IPO investment D-mat & Trading account present broking company problems you facing while investing in IPO

13 25 57 69 70 71 72 73 74 75 76

LIST OF TABLES
Table No. Name Page No.

1 2

List of gainers List of losers 8

20 21

3 4 5 6. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8

Bids for prices

29

IPO grades 34 Major Stock exchanges 48-49 Mile stones n 58 69 70

achievements of LSE Knowledge about IPO %age of income

objectives of investing 71 in IPO factors you consider 72 while investing in IPO returns in investment D-mat account present company problems you facing 76 while investing in IPO broking 75 & IPO 73 Trading 74

CONTENTS
1. Introduction to the subject Theoretical Foundation Review of Literature 2. Introduction to Stock Market and Ludhiana Stock Exchange 1-35 36-42

 Overview of stock market Major stock exchange Role of stock exchange LSE Operations of LSE Swot analysis Recent IPOS 3. Research Methodology 4. Data analysis and Interpretation 5. Summary , Findings, Recommendations and Limitations 6. References 7. Appendices 8. Abbreviations 88

43-45 46-49 50-52 53-54 55-57 59-60 60-63 65-67 68-77 78-80 81-84 85-87

CHAPTER 1: INTRODUCTION
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1.1 THEORETICAL FOUNDATION

1.1 Initial Public Offer 1.1.1 Introduction

Initial Public Offer (IPO), also referred to simply as a "public offering", is when a company issues common stock or shares to the public for the first time. They are often

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issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value. IPO is New shares Offered to the public in the Primary Market .The first time the company is traded on the stock exchange. A prospectus is issued to read about its risk before investing. IPO is A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. Sometimes, Just before the IPO is launched, Existing share Holders get a very liberal bonus issues as a reward for their faith in risking money when the project was new A company can raise capital through issue of shares or debentures. The various types of issues are: Public Issue, Rights Issue, Bonus Issue, Private Placement. 1.1.2 There can be two kinds of public issues, namely: Initial Public Offer (IPO) Further Public Offer (FPO)

IPO
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing

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and trading of issuers securities. The sale of securities can be through book building or normal public issue.

FPO
Further Public Offers are issued by companies or corporate bodies whose shares are already being traded in the capital market and they are issuing fresh shares either to fund the expansion of their existing business or to invest into other business activities.

Fig. 1 classification of issues

1.1.3 How to apply to a public issue ?

When a company floats a public issue or IPO, it prints forms for application to be filled by the investors. Public issues are open for a few days only. As per law, any public issue should be kept open for a minimum of 3days and a maximum of 21 days. For issues, which are underwritten by financial institutions, the offer should be kept open for a minimum of 3 days and a maximum of 21 days. For issues, which are underwritten by all 13

India financial institutions, the offer should be kept open for a maximum of 10 days. Generally, issues are kept open for only 3 to 4 days. The duly complete application from, accompanied by cash, cheque, DD or stock invest should be deposited before the closing date as per the instruction on the from. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers.

1.1.3.1 Prerequisites before applying for any IPO :

1. Who are the Promoters ? What is their credibility and track record ? 2. What is the company manufacturing or providing services - Product, its potential 3. Does the Company have any Technology tie-up ? if yes , What is the reputation of the collaborators? 4. What has been the past performance of the Company offering the IPO ? 5. What is the Project cost, What are the means of financing and profitability projections ? 6. Who has appraised the Project ? In India Projects apprised by IDBI and ICICI have more credibility than small Merchant Bankers?

1.1.3.2 How to make payments for IPOs:

The payment terms of any IPO or Public issue is fixed by the company keeping in view its fund requirements and the statutory regulations. In general, companies stipulate that either the entire money should be paid along with the application or 50 percent of the entire amount be paid along with the application and rest on allotment. However, if the funds requirements is staggered, the company may ask for the money in calls, that is, the company demands for the money after allotment as and when the cash flow demands. As per the statutory requirements, for public issue large than Rs. 250 crore, the money is to be collected as under: 14

Y 25 per cent on application 25 per cent on allotment 50 per cent in two or more calls As market regulators move towards more disclosure-based regimes, one of the biggest risks to a successful public listing is the lack of full disclosure because of the availability of reliable information .The collection of reliable information about an issuer for the offering document can be particularly difficult for financial and other advisors who have not conducted a full investigative due diligence.

1.1.4 Risk Factors

While every industry, geography, enterprise and IPO offering is different, over the many years International Risk has been involved in providing Investigative Due Diligence services, we have identified a number of common risk factors which, historically, can be problematic to the IPO process: Principal management of companies to be listed being, in fact, other than the Non-disclosure of related party transactions Acceptance by accountants, acting for sponsors, as to the valuation of properties Potential conflicts of interest arising from the involvement of the candidates senior Previous or current brushes with the law, both civil and criminal, being omitted or Issues over the intended use of the IPO proceeds - especially in relation to

professional management disclosed in the draft prospectus

involved in inter-company, paper transactions, prior to the IPO exercise management in other competing but not openly disclosed businesses insufficiently described in the prospectus companies with a complicated structure 15

Inaccurate statements of academic qualifications and technical expertise when Undisclosed tax liabilities a significant problem Undisclosed environmental problems or fines Undisclosed industrial labor disputes in outlying areas Undisclosed previous or current organized crime connections Other omissions of important facts, such as previous un-discharged or current Insufficient separation of the accounting functions in inter-group transactions Many variations on these themes

describing senior management background and experience

pension obligations of state-owned enterprises

1.1.5 Reasons for Going Public

Raising funds to finance capital expenditure programs like expansion, diversification, modernization, etc. Financing of increased working capital requirements Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers for shares of another firm, etc. Debt Refinancing Exit Route for Existing Investors

1.1.6 Advantages of Going Public

Facilitates future funding by means of subsequent public offerings Enables valuation of company Provides liquidity to existing shares Increases the visibility and reputation of the company Commands better pricing than placement with few investors Enables the company to offer its shares as purchase consideration or as an exchange for the shares of another company

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1.1.7 Disadvantages of Going Public

Dilution of Stake makes co vulnerable to future takeovers Involves substantial Expenses Need to make continuous disclosures Increased regulatory monitoring Listing fees and Documentations Cost of maintaining Investor relations Takes substantial amount of management time and efforts 1.1.8 EVOLUTION AND GROWTH OF INDIAN PRIMARY MARKET. Early Liberalization Phase: 1992-1995 (Fixed Pricing) The initiation of the process of reform in India also would not have been possible without changes in the regulatory framework. The New Economic policy (1991) led to a major change in the regulatory framework of the capital market in India. The Capital Issues (Control) Act 1947 was repealed and the Office of the Controller of Capital Issues (CCI) was abolished. The Securities and Exchange Board of India (SEBI), established in 1988 and armed with statutory powers in 1992, came to be established as the regulatory body with the necessary authority and powers to regulate and reform the capital market. SEBI came to be recognized as a regulatory body for the capital market after the abolition of the CCI. The control on pricing of capital issue has been abolished and easy access is provided to the capital market. Initial Public Issue caught the attention of general public only after the success of Reliance, when millions of small investors made huge returns which were unheard of till then. Dhirubhai Ambani was the first promoter who raised huge amounts through the public issue route to finance large facilities. The offer was always at a fixed price, whether premium or par. The companies had to appoint intermediaries like merchant bankers, registrars, bankers etc. Merchant bankers had the responsibility of fixing the prices, in consultation with the company, carrying out

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with due diligence, preparing the prospectus (offer documents) etc. The prospectus had to be submitted to SEBI for getting scrutiny. The trend continued in the early nineties as many large projects were launched after the economy was liberalized. Many of these companies came out with public issues and the retail participation increased dramatically. But many of the companies which raised money during this period just disappeared without a trace.

Late Liberalization Period: 1996-2005 (Book Building)

The late nineties and the first few years of the current decade did not see much activity in the primary market. The bad experiences of retail investors kept them away from the market and made it difficult for companies to launch successful issues. The corporate sector was recovering from the damage caused by large capacity expansions and new projects set up in the nineties. .The issue of Maruti Udyog, through which the government sold part of its stake in the company. The issue was made at a very reasonable price and investors made very good returns immediately.The year 2004 saw the primary market activity at its historic peak as some large private companies also came out with issues. Further divestment by the government; including the largest ever issue by an Indian company from ONGC, attracted more retail investors into the market. The IPO market continues to buzz in the current year as well. Taking advantage of the strength in the secondary market, many high profle companies are lining up to raise money from the market.

2006 onwards scenario:

India's IPO market emerged as the eighth largest with $7.23 billion (Rs 30,000 crore) in net proceeds through 78 public issues, global research and consultancy firm Ernst & Young said in its Global IPO report. Across the world, the companies raised $246 billion, up from $167 billion in 2005, through a total of 1,729 IPOs, led by Chinese companies at the top with net proceeds of $56.6 billion. However, the biggest number of IPOs came from the United States with 187 offerings, followed by Japan with 185 and China with 18

175 IPOs. The localisation trend in India is evidenced by several billion-dollar IPOs hosted by Indian exchanges. In 2006, India's largest IPO, Reliance Petroleum raised $1.8 billion, followed by the oil production and exploration company, Cairn Energy, which raised $1.3 billion with both companies listing on domestic exchanges. The private equity rush into India is creating the potential for many IPO exits. In 2006, private equity firms invested more than $7 billion in India. Top global private equity funds as well as local funds, have been key drivers of Indian IPO markets.

List of Gainers since 2009

Listed on BSE Company Refex Refrigerants SEL Manufacturing Company Price Issue 65.00 90.00 Current 280.30 380.00 331.23 322.22 Check NSE Prices %Gain/loss

19

Redington (India) Religare Enterprises Glory Polyfilms Koutons Retail India ICRA Power Grid Corporation of India

113.00 185.00 48.00 415.00 330.00 52.00

303.75 389.65 100.00 808.00 634.00 97.35

168.81 110.62 108.33 94.70 92.12 87.21

Table 1 List of gainers

List of Losers since 2009

Listed on BSE Company Evinix Accessories * Motilal Services Vijayeswari Textiles AMD Industries Broadcast Initiatives Empee Distilleries 100.00 75.00 120.00 400.00 20.10 21.10 35.20 119.50 -79.90 -71.87 -70.67 -70.13 Oswal Financial Price Issue 120.00 825.00 Current 8.90 113.80 -92.58 -86.21 Check NSE Prices %Gain/loss

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Abhishek Corporation Reliance Power *

100.00 450.00

38.10 171.65

-61.90 -61.86

Table 2 List of losers

1.1.9 REGULATORY FRAMEWORK FOR IPOS

1.1.9.1 Eligibility Conditions for Companies Issuing Securities The companies issuing securities offered through an offer document shall satisfy the following at the time of filing the draft offer document with SEBI and also at the time of filing the final offer document with the Registrar of Companies/ Designated Stock Exchange: Filing of offer document No issuer company shall make any public issue of securities, unless a draft Prospectus has been filed with the Board through a Merchant Banker, at least 30 days prior to the filing of the Prospectus with the Registrar of Companies (ROC): Provided that if the Board specifies changes or issues observations on the draft Prospectus (without being under any obligation to do so), the issuer company or the Lead Manager to the Issue shall carry out such changes in the draft Prospectus or comply with the observation issued by the Board before filing the Prospectus with ROC. Companies barred not to issue security No company shall make an issue of securities if the company has been prohibited from accessing the capital market under any order or direction passed by the Board.

Application for listing No company shall make any public issue of securities unless it has made an application for listing of those securities in the stock exchange Issue of securities in dematerialized form No company shall make public or rights issue or an offer for sale of securities, unless:

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a. The company enters into an agreement with a depository for dematerialization of securities already issued or proposed to be issued to the public or existing shareholders; and b. The company gives an option to subscribers/ shareholders/ investors to receive the security certificates or hold securities in dematerialized form with a depository.

IPO Grading No unlisted company shall make an IPO of equity shares unless the following conditions are satisfied as on the date of filing of Prospectus with ROC: a. the unlisted company has obtained grading for the IPO from at least one credit rating agency b. Disclosures of all the grades obtained, along with the rationale/ description furnished by the credit rating agency(ies) for each of the grades obtained. 1.1.10 Eligibility Norms for IPO An unlisted company may make an initial public offering (IPO) of equity shares only if : The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. The company has a track record of distributable profits in terms of Section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years. The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of 12 months each). In case the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name. The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e., offer through offer document + firm allotment + promoters contribution through the offer document), does not exceed five (5) times its pre-issue networth as per the audited balance sheet of the last financial year. 1.1.11 PROCEDURE FOR IPOS 22

2.3.1 Fixed Pricing versus True Pricing (Book- Building) The traditional method of doing IPOs is the fixed price offering. Here, the issuer and the merchant banker agree on an issue price. Then the investor has a choice of filling in an application form at this price and subscribing to the issue. Extensive research has revealed that the fixed price offering is a poor way of doing IPOs. Fixed price offerings, all over the world, suffer from `IPO underpricing'. In India, on average, the fixed-price seems to be around 50% below the price at first listing; i.e. the issuer obtains 50% lower issue proceeds as compared to what might have been the case. This average masks a steady stream of dubious IPOs who get an issue price which is much higher than the price at first listing. Hence fixed price offerings are weak in two directions: dubious issues get overpriced and Good issues get under priced.

1.1.11.1 BOOK-BUILDING A mechanism where, during period for which the IPO is open, bids are collected from investors at various prices which are above or equal to the floor price (the minimum price). The final price of the share is determined after the bid closing date, based on certain evaluation criteria. The SEBI (Disclosure and Investor Protection) Guidelines, 2000, define the term `bookbuilding' in a rather complex language as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document.'' Book building process is a common practice used in most developed countries for marketing a public offer of equity shares of a company. The method helps to make a correct evaluation of a companys potential and the price of its shares.

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The Book-Building Process ISSUER

BOOK RUNNING LEAD MANAGERS

MUTUAL FUNDS

UNDERWRITERS MERCHANT BANKERS

STOCK BROKERS

INVESTORS

MFs

Financial Institutions

Foreign Financial Institutions

NRIs

Corporations HNIs Retail Investors

Fig. 2 Book building process

In simple terms, book-building is a mechanism by which the issue price is discovered on the basis of bids received from syndicate members/brokers and not by the issuers/merchant bankers. An Issuer Company can issue capital through book building in following two ways: 75% Book Building process

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Under this type of public offer, the issue of securities has to be categorized into: Placement portion category Net offer to the public

The option of 75% Book Building is available to all body corporate that are otherwise eligible to make an issue of capital to the public. The securities issued through the book building process are indicated as 'placement portion category' and securities available to public are identified as 'net offer to public'. In this option, underwriting is mandatory to the extent of the net offer to the public. The issue price for the placement portion and offers to public are required to be same 100% of the net offer to the public through Book Building process - In the 100% of the net offer to the public, entire issue is made through Book Building process. However, there can be a reservation or firm allotment to a maximum of 5% of the issue size for the permanent employees, shareholders of the company or group companies, persons who, on the date of filing of the draft offer document with the Board, have business association, as depositors, bondholders and subscribers to services, with the issuer making an initial public offering. The number of bidding centres, in case of 75% book building process should not be less than the number of mandatory collection centres specified by SEBI. In case of 100% book building process, the bidding centres should be at all the places where the recognised stock exchanges are situated. 1.1.11.2 Book Building Process in India The steps which are usually followed in the book building process can be summarized below: The issuer company proposing an IPO appoints a lead merchant banker as a BRLM. Initially, the issuer company consults with the BRLM in drawing up a draft prospectus (i.e. offer document) which does not mention the price of the issues, but includes other details about the size of the issue, past history of the company, and a price band. The securities available to the public are separately identified as net offer to the public. The draft prospectus is filed with SEBI which gives it a legal standing. A definite period is fixed as the bid period and BRLM conducts awareness campaigns like advertisement, road shows etc. 25

 The BRLM appoints a syndicate member, a SEBI registered intermediary to underwrite the issues to the extent of net offer to the public. The BRLM is entitled to remuneration for conducting the Book Building process. The copy of the draft prospectus may be circulated by the BRLM to the institutional investors as well as to the syndicate members. The syndicate members create demand and ask each investor for the number of shares and the offer price. The BRLM receives the feedback about the investors bids through syndicate members. The prospective investors may revise their bids at any time during the bid period. The BRLM on receipts of the feedback from the syndicate members about the bid price and the quantity of shares applied has to build up an order book showing the demand for the shares of the company at various prices. The syndicate members must also maintain a record book for orders received from institutional investors for subscribing to the issue out of the placement portion. On receipts of the above information, the BRLM and the issuer company determine the issue price. This is known as the market-clearing price. The BRLM then closes the book in consultation with the issuer company and determine the issue size of (a) placement portion and (b) public offer portion. Once the final price is determined, the allocation of securities should be made by the BRLM based on prior commitment, investors quality, price aggression, earliness of bids etc. The bid of an institutional bidder, even if he has paid full amount may be rejected without being assigned any reason as the Book Building portion of institutional investors is left entirely at the discretion of the issuer company and the BRLM. The Final prospectus is filed with the registrar of companies within 2 days of determination of issue price and receipts of acknowledgement card from SEBI. Two different accounts for collection of application money, one for the private placement portion and the other for the public subscription should be opened by the issuer company.

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 The placement portion is closed a day before the opening of the public issue through fixed price method. The BRLM is required to have the application forms along with the application money from the institutional buyers and the underwriters to the private placement portion. The allotment for the private placement portion shall be made on the 2nd day from the closure of the issue and the private placement portion is ready to be listed. The allotment and listing of issues under the public portion (i.e. fixed price portion) must be as per the existing statutory requirements. Finally, the SEBI has the right to inspect such records and books which are maintained by the BRLM and other intermediaries involved in the Book Building process 1.1.12 Pricing Before establishment of SEBI in 1992, the quality of disclosures in the offer documents was very poor. The main drawback of free pricing was the process of pricing of issues. The issue price was determined around 60-70 days before the opening of the issue and the issuer had no clear idea about the market perception of the price determined. In Book Building the price is determined on the basis of demand received or at price above or equal to the floor price. Allotment Process through Book-building: Step1-The Company will 'discover' its price Earlier, the company determined a fixed price for the stock issue. The issue was marketed to the general public through advertisements and a media campaign. Today, companies prefer a book building process. Book building is the process of price discovery. That means there is no fixed price for the share. Instead, the company issuing the shares comes up with a price band. The lowest price is referred to as the floor and the highest, the cap. Bids are then invited for the shares. Each investor states how many shares s/he wants and what s/he is willing to pay for those shares (depending on the price band). The actual price is then discovered based on these bids. Step2-Players of the game Three classes of investors can bid for the shares:

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 Qualified Institutional Buyers: QIBs include mutual funds and Foreign Institutional Investors. At least 50% of the shares are reserved for this category. Retail investors: Anyone who bids for shares under Rs 50,000 is a retail investor. At least 25% is reserved for this category. The balance bids are offered to high networth individuals and employees of the company. Individuals who apply for the IPO put in their bids. The process is transparent. One can check on the issue subscription at the BSE and NSE Web sites. After evaluating the bid prices, the company will accept the lowest price that will allow it to dispose the entire block of shares. That is called the cut-off price.

The process can be illustrated with an example: Number of shares issued by the company = 100. Price band = Rs 30 - Rs 40. If individuals have bid for prices as follows: Bid 1 2 3 4 5 6 7 Number of shares 20 10 20 30 20 20 20 Price per share

Rs 40 Rs 38 Rs 37 Rs 36 Rs 35 Rs 33 Rs 30 Table 3 Bid for prices

The shares will be sold at the Bid 5 price of 20 shares for Rs 35.Why?
Because Bidders

1 to 5 are willing to pay at least Rs 35 per share. The total bids from Bidders 1 to 5 ensure all 100 shares will be sold (20 + 10 + 20 + 30 + 20).

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The cut-off price is therefore Bid 5's price = Rs 35. Bidders 1 to 5 get allotments at that price. Bidders 6 and 7 don't get an allotment because their bids are below the cut-off price. The bids are first allotted to the different categories and the over-subscription (more shares applied for than the shares available) in each category is determined.

1.1.13 ROLE OF VARIOUS INTERMEDIARIES IN IPO Intermediarys help corporations design securities that will be attractive to investors, buy these securities from the corporations, and then resell them to savers in the primary markets. Merchant Bankers/ Lead Manager Merchant bankers play an important role in issue management process. Lead managers have to ensure correctness of the information furnished in the offer document. They have to ensure compliance with SEBI rules and regulations as also Guidelines for Disclosures and Investor Protection. To this effect, they are required to submit to SEBI a due diligence certificate confirming that the disclosures made in the draft prospectus or letter of offer are true, fair and adequate to enable the prospective investors to make a well informed investment decision. The role of merchant bankers in performing their due diligence functions has become even more important with the strengthening of disclosure requirements and with SEBI giving up the vetting of prospectuses. Their functions are: To act as intermediaries between the company seeking to raise money and the investors. They must possess a valid registration from SEBI enabling them to do this job. They are responsible for complying with the formalities of an issue, like drawing up the prospectus and marketing the issue. If it is a book building process, the lead manager is also in charge of it. In such a case, they are also called Book Running Lead Managers. 29

 Post issue activities, like intimation of allotments and refunds, are their responsibility as well.

Underwriters Underwriters are required to register with SEBI in terms of the SEBI (Underwriters) Rules and Regulations, 1993. In addition to underwriters registered with SEBI in terms of these regulations, all registered merchant bankers in categories I, II and III and stockbrokers and mutual funds registered with SEBI can function as underwriters. In 1996-97, the SEBI (Underwriters) Regulations, 1993 were amended mainly pertaining to some procedural matters. Bankers to an Issue Scheduled banks acting as bankers to an issue are required to be registered with SEBI in terms of the SEBI (Bankers to the Issue) Rules and Regulations, 1994. These regulations lay down eligibility criteria for bankers to an issue and require registrants to meet periodic reporting requirements. Portfolio managers Portfolio managers are required to register with SEBI in terms of the SEBI (Portfolio Managers) Rules and Regulations, 1993. The registered portfolio managers exclusively carry on portfolio management activities. In addition all merchant bankers in categories I and II can act as portfolio managers with prior permission from SEBI. Registrars to an Issue and Share Transfer Agents

30

Registrars to an issue (RTI) and share transfer agents (STA) are registered with SEBI in terms of the SEBI (Registrar to the Issue and Share Transfer Agent) Rules and Regulations, 1993. Under these regulations, registration commenced in 1993-94 and is granted under two categories: category I - to act as both registrar to the issue and share transfer agent and category II - to act as either registrar to an issue or share transfer agent. With the setting up of the depository and the expansion of the network of depositories, the traditional work of registrars is likely to undergo a change.

1.1.14 IPO Grading IPO grading (initial public offering grading) is a service aimed at facilitating the assessment of equity issues offered to public. The grade assigned to any individual issue represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. IPO grading is positioned as a service that provides an independent assessment of fundamentals to aid comparative assessment that would prove useful as an information and investment tool for investors. Moreover, such a service would be particularly useful for assessing the offerings of companies accessing the equity markets for the first time where there is no track record of their market performance. IPO grade assigned to any issue represents a relative assessment of the fundamentals of that issue in relation to the universe of other listed equity securities in India. This grading can be used by the investor as tool to make investment decision. The IPO grading will help the investor better appreciate the meaning of the disclosures in the issue documents to the extent that they affect the issues fundamentals. Thus, IPO grading is an additional investor information and investment guidance tool. Credit Rating agencies (CRAs) like ICRA, CRISIL, and Fitch Ratings who are registered with SEBI will carry out IPO grading. SEBI does not play any role in the assessment made by the grading agency. The grading is intended to be an independent and unbiased opinion of that agency. IPO grading is not mandatory but is optional and the assigned grade would be a one time assessment done at the time of the IPO and meant to aid 31

investors who are interested in investing in the IPO. The grade will not have any ongoing validity. 1.1.14.1 Sebi Guidelines on IPO Grading No unlisted company shall make an IPO of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, unless the following conditions are satisfied as on the date of filing of Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of book built issue) with ROC: The unlisted company has obtained grading for the IPO from at least one credit rating agency; Disclosures of all the grades obtained, along with the rationale/description furnished by the credit rating agency(ies) for each of the grades obtained, have been made in the Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of book built issue); and The expenses incurred for grading IPO have been borne by the unlisted company obtaining grading for IPO. 1.1.14.2 FEATURES OF IPO GRADING IPO grading covers both internal and external aspects of a company seeking to make an IPO in general. The internal factors include competence and effectiveness of the management, profile of promoters, marketing strategies, size and growth of revenues, competitive edge, technology, operating efficiency, liquidity and financial flexibility, asset quality, accounting quality, profitability and hedging of risks. Among external factors, the key one is the industry and economic/business environment for the issuer. Here, it is important to note that internationally, the global rating agencies such as Standard & Poors and Moodys do not perform grading of IPOs at all. While Standard & Poors is the majority stakeholder in CRISIL Ltd, Moodys is the single biggest stakeholder in ICRA Ltd. Similarly, the third global player Fitch IBCA (which acquired another rating agency Dun & Bradstreet in 2000) also does not grade IPOs as yet. The IPO grading is indicated on a five point scale and a higher score indicating stronger fundamentals. 1.1.14.3 An IPO grading Scale
IPO grade 5/5 4/5 Assessment Strong fundamentals Above average fundamentals

32

3/5 2/5 1/5

Average fundamentals Below average fundamentals Poor fundamentals

Table 4 IPO grades

1.1.14.4 BENEFITS OF IPO GRADING There are various positive sides of an IPO grading. The most significant factors that go in favor of IPO grading are: Professional and Independent Appraisal: IPO grading will create awareness about the fundamentals of the companys IPO and will provide focused company information as a key input to prospective investors that will be helpful in taking an investment decision, in a manner similar to what a credit rating is for debt investors. Removal of Information Burden: Where disclosures of issues are large and complex, a service analyzing and interpreting these disclosures independently and quickly will be extremely useful in cutting through the clutter. Thus, the usefulness of IPO grading would be particularly high for small investors as it will serve as a guide about the company coming out with the issue. Impediment for Weak Companies: While fundamentally sound companies will gain from the market, companies whose fundamentals are not very strong will be impeded in building up speculative demand among investors. Such weak companies will need to offer pricing, which will adequately compensate investors for the risks they take. Therefore, IPO grading provides disincentives for weak companies planning to come to the market to raise easy capital. Improved Investors Sophistication: It is perceived that an independent and informed opinion on the fundamental quality of the company will bring about greater level of investor sophistication in a scientific manner. In fact, investors may take investment decisions in a better way on the basis of opinion of CRAs regarding IPO grading. However, the assessment is not a recommendation to buy or not buy a stock. It is, instead, a powerful tool to assist the investors in making up their mind about the quality of a company proposing to offer an IPO investment option.

33

CHAPTER 1 1.2 REVIEW OF LITERATURE

34

1.2.1 Jaemin Kim, Kuntara Pukthuanthong-Le, Thomas Walker (2008) describes a high degree of pre-IPO leverage serves as a positive signal of firm quality as it forces a firm's managers to adhere to tough budget constraints. The purpose of this paper is to question the validity of this assumption when it is indiscriminately applied to all firms, while other potentially important determinants of a firm's optimal capital structure are ignored. High-tech versus low-tech firms are specifically focused on. debt only serves as a signal of better firm quality for low-tech IPOs, as reflected in smaller price revisions and lower under-pricing. For high-tech IPOs, the effect of leverage is reversed: for these firms, higher leverage is associated with increased risk and uncertainty as reflected by higher price revisions and greater under-pricing 1.2.2 Dimitris F. Kenourgios, Spyros Papathanasiou, Emmanouil Rafail Melas (2007) provide additional international evidence on the initial public offerings (IPOs) by examining the initial performance and two main determinants of short-run underpricing of 169 IPOs listed on the Athens Stock Exchange (ASE) over the period 1997-2002. In the first stage, the initial performance of the IPOs is measured by two calculated formulas: the raw returns and the excess or adjusted returns of the first, fifth and 21st day, respectively. In the second stage, a proxy is used to rank the underwriters' prestige along with the times of oversubscription, which are introduced as explanatory variables in the model. The results of the analysis on the initial performance of the IPOs provide evidence of significant underpricing. Furthermore, the cross-sectional analysis on the determinants of the IPOs shows that both the underwriters' prestige and the times of oversubscription significantly affect the underpricing level of the IPOs. 1.2.3 Stefano Paleari and Silvio Vismara (2007) investigates whether the analysts make systematic errors when forecasting the performance of the firm undergoing the IPO by comparing analysts ex-ante expectations to actual ex-post figures. Using a sample of preIPO analysts reports, the paper performs a regression analysis using the forecast errors (FE) of post-issue sales as dependent variable in order to find out the determinants of mis35

valuation.Nuovo Mercato has been essentially a market for projects in which young enterprises endowed with a few tangible assets sold their business plans to the market exploiting high-growth opportunities. In the aftermarket, stock and operating performances are found to be declining, falling short of initial expectations. The extent of the actual postissue growth was lower than the ex-ante estimations by financial analysts, whose valuations were systematically upwardly biased. Affiliated analysts are found not to be more overoptimistic than the unaffiliated. FE appear to be primarily driven by the extent of forecasted growth, by market sentiment and (inversely) by the size of the firm. this study contributes to the understanding of the helpfulness and limits of the analysts forecasts in investment decisions and, more generally, of the determinants of over-optimism. This study addresses the issue of over-optimism and provides empirical evidence of it. This paper also contributes to the literature on the rise and fall of the new European stock markets. 1.2.4 Jay R. Ritter (2006) demonstrate that there is a monotone relation between the (expected) underpricing of an initial public offering and the uncertainty of investors regarding its value. We also argue that the resulting underpricing equilibrium is enforced by investment bankers, who have reputation capital at stake. An investment banker who "cheats" on this underpricing equilibrium will lose either potential investors (if it doesn't underprice enough) or issuers (if it underprices too much), and thus forfeit the value of its reputation capital. Empirical. 1.2.5 Alexander liungqvist (2004 ) We model underpricing as being endogenous to the wealth loss minimization problem encountered in a stock market flotation. The benefits of reducing underpricing depend on the entrepreneur's participation in the offering, via the secondary shares he sells, as well as the magnitude of the dilution he suffers on his retained shares, which increases in the number of newly issued shares. However, reducing underpricing is costly. Therefore, it is not surprising that there is positive underpricing in equilibrium, as entrepreneurs trade off the costs and benefits of lower underpricing. Using two large data sets of US IPOs, we find support for the comparative statics predictions of our model, in particular those which distinguish our model from existing work. We also find support for the prediction that equilibrium wealth losses are unrelated to the level of underpricing-reduction costs and the quality of underwriter, which indicates that 36

entrepreneurs choose such variables optimally. Non-monetary considerations such as private benefits of control appear not to be taken into account by the entrepreneur. Our empirical results are robust to a number of economic and econometric considerations. 1.2.6 Nancy Beneda (2004) examines the pricing of Initial Public Offerings (IPOs) in the secondary market on the first day of aftermarket trading. The focus of this study is on shifts in average returns over time, and does not necessarily address the cross-sectional implications of a risk/return relation. The focus of the study is to examine the reasonableness of first day trading prices of IPOs. Initial returns of IPOs, issued during the period, January 1, 1999 to June 30, 2000, reached as much as 800 per cent, and the average initial return for the study sample was of 76 per cent. An important question is whether the high initial returns, observed during this time period, are appropriate for the level of risk associated with these new issues. Related to this question is the pricing of these securities by investment bankers (i.e. the offer price) and the pricing of the securities in aftermarket trading (i.e the secondary market). The results of this study indicate the presence of speculative excesses in the initial pricing of IPOs in aftermarket trading during 1999 and part of 2000. Further there is no indication that IPOs are excessively underpriced by investment bankers during the study period, January 1, 1997 through June 30, 2000. The results of this study may be useful to investors in making decisions about purchasing new public securities in the secondary market. 1.2.7 Bijesh Tolia and Yew Mun Yip (2003) IPO lockup is defined as the restricted

period during which certain insiders are prohibited from selling their holdings in the open market. Usually, the lead underwriter imposes the restriction, and the customary restriction period lasts for about 6 months. Different theories have been extended to predict the stock price behavior around the expiration day of IPO-lockup. In this study, we will investigate whether the stock price behavior around the expiration day of IPO lockup is different for Hot and Cold IPOs. We hypothesize that the stock prices of Hot IPOs, in terms of average returns, are less affected by the unlocking of a large volume of shares. On the other hand, for Cold IPOs, investors, in particular, venture capitalists will have a tendency to dispose of their shares in order to preempt further decline in their wealth, and as a result we anticipate a significant decline in stock prices for Cold IPOs. Our initial results show that 37

on the lockup expiration day, the market adjusted returns for all four categories of IPOs decline by more 1 percent however, only the decline for Hot IPOS is statistically significant. The results are robust even after controlling for various specifications of the market index. 1.2.8 A.H. van der Zwaan and J.H. von Eije (2002) looked for the organizational and human resource changes that accompany the transformation from a private into a public firm. We observed a growing efficiency climate and accountability drives, as well as a relationship between financial participation and performance, as recent literature seems to imply. This suggests that HR and IPO are related to each other, under the transparency and accountability imperatives that accompany IPOs. In contrast to most other IPO studies, the average Dutch case featured over- instead of under-performance during the first few years after quotation. 1.2.9 Chandrasekhar and Pradeep (2002) Describes the environment for making initial public offerings (IPOs) in India and the process itself; and discusses the applicability of various research explanations for underpricing to the Indian Market. Suggests that it will be greater for new firms and issues managed by reputable merchant bankers; and analyses 1992-1994 data on 386 IPOs to assess their performance. Shows that issues with high risk and/or smaller offer prices are more underpriced; and that returns are strongly correlated with subscription levels. Discusses the underlying reasons for this and the implications for public policy. 1.2.10 M. Banu Durukan (2002) Reviews previous research on initial public offering (IPO) pricing and performance, classifying it by six hypotheses which are not mutually exclusive. Uses 1990-1997 data on IPOs on the Istanbul Stock Exchange to test these hypohteses, explains the methodology and presents the results, which show initial abnormal returns (realized by investors), but no long run underperformance of the market. Analyses the factors affecting short and long run IPO returns, considers consistency with other research and supports the winners curse and the fads hypotheses. Concludes that initial abnormal returns are due to both deliberate underpricing and overvaluation by investors and that factors which decrease uncertainty lead to lower returns.

38

1.2.11 Jarrod Johnston and Jeff Madura (2002) Roll-up initial public offerings (IPOs) create a company to consolidate a number of smaller companies in a fragmented industry. The company that results has limited operational experience and must combine several small and diverse companies. These characteristics may increase the uncertainty of the offer. We find that roll-up IPOs have higher initial returns than traditional IPOs, implying additional uncertainty. Additionally, roll-up IPOs do not perform as poorly as other IPOs over the long run. This may be due to benefits from economies of scale and a higher degree of monopoly power. 1.2.12 Craig S. Galbraith and Gregory B. Merrill (2001) Outlines previous research on the pricing of initial public offerings (IPOs), the particular characteristics of e-commerce firms and the ways in which internet operations differ from traditional business contexts. Uses data from a sample of 28 US business-to-business, internet-based e-commerce firms to explore the links between industry-specific and firm-specific variables, IPO price and subsequent share price performance. Shows generally very high initial returns (115.2 per cent for the run-up on the first days trading!) but negative long-term returns; and the pricing is significantly positively affected by firm size, commercial strategies and management experience. Finds firms with the highest first day run-ups were not necessarily the ones with long term underperformance and concludes that investors do actually use information on firm strategy. 1.2.13 Winston Sahi, Stephen L. Lee (2001) Presents empirical evidence for a sample of 48 UK property company initial public offerings over the period 1986 to 1995. Several conclusions can be drawn. First, property companies in general show a significantly positive average first day return. Second, property investment companies average first day return is not significantly different from zero. Third, property trading companies average first day return is significantly positive. Fourth, the higher average first day return of property trading companies over property investment companies is significant. 1.2.14 Karen B. Clark (2000) One current and long-term blip on the Securities and Exchange Commission's (SEC) radar screen is trade allocation, including the allocation of initial public offerings (IPOs). In the May 1, 2000 Dear Registered Investment Adviser Letter, the SEC's Office of Compliance Inspections and Examinations (OCIE) summarized 39

select areas reviewed, and violations of the Investment Advisers Act of 1940 (Advisers Act) found during compliance examinations of investment advisers. Item II of the letter addressed trade allocations and more specifically, allocations of IPOs. 1.2.15 Tim Jenkinson and Alexander liungqvist (2000) By 1999, close to 80% of nonU.S. IPOs were marketed using bookbuilding methods. We study whether the recent introduction of this technology by U.S. banks and their inclusion in non-U.S. IPO syndicates has promoted efficiency in primary equity markets. We analyze both direct and indirect costs (associated with underpricing) using a unique dataset containing information on 2,051 initial public offerings in 61 non-U.S. markets during the period 1992-1999. The direct costs of bookbuilding are typically twice as large as direct costs for fixed-price offers. However, bookbuilding leads to substantially less underpricing. This benefit is more pronounced when the target market includes U.S. investors, when U.S. listing is sought and when U.S. banks are part of the syndicate. 1.2.16 Lon W. Taylor (1988) Going public with a new stock issue is a satisfying, perplexing, and complicated process, with an aura of mystery and potential for pitfalls. As a method for capital infusion, however, initial public offerings (IPOs) have emerged as a significant force in allowing small, vigorous companies the growth momentum to become primary players in their marketplaces 1.2.17 Allen D. Morton (1998) uses a multifactor logit model to analyze the aftermarket performance of randomly chosen IPO's in hot and cold markets. The theories of risk aversion and utility maximization, in conjunction with the paper's empirical results, suggest that cold market investors are more risk averse than are hot market investors. 1.2.18 Marcus Gerbich and Mario Levis (1995 ) Summarizes the regulatory

environment and practices for providing a property company with a public listing. Furthermore, reports evidence of the direct and implied costs of undertaking a property initial public offering. The results indicate that choice of issue method and timing are key decisions to be made by property company financial managers.

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CHAPTER -2 2.1 Introduction of the Industry and Organisation

2.1.1 STOCK MARKET

41

Bulls make money, Bears make money, and Pigs get slaughter
A market with a trading floor where securities are bought and sold is called a stock exchange. The market or place, where securities, viz. shares are exchanged / traded or simply where buying and selling takes place, is called stock exchange or stock market. A stock exchange, share market or bourse is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities. Financial market consists of : Money market Capital market. Money market provides short-term capital to borrowers for meeting there short term working capital requirements.

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 Capital market is a market for long term funds. The major borrowers in this market are corporate, agriculture sector and the govt. the corporate sector needs funds for capital investment purpose like expansion, diversification, integration, mergers and acquisitions. The govt. needs funds for its various programs for infrastructure development like roads, highways, power, sanitation, water supply etc. The supply of funds for the capital market comes from individual households, corporate banks, insurance companies, specialized financial agencies and the govt. Capital market is divided into debt market and equity market. Though in common parlance, when we talk of market, it is to imply equity market or stock market. Capital market is further sub-divided into;

2.1.2 STOCK MARKET SEGMENTS

Broadly speaking, the stock market can be divided into two independent and inseparable segments viz. Primary segment market (New issue market) Secondary Segment (Stock market) Primary segment market - The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Methods of issuing securities in the primary market are: Initial public offering; Rights issue (for existing companies); Preferential issue.

43

Secondary segment market- The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold. The secondary market for a variety of assets can vary from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets. Most bonds and structured products trade over the counter, or by phoning the bond desk of ones broker-dealer.

2.1.3 STOCK EXCHANGES IN INDIA

Presently, the stock market in India consists of twenty one regional stock exchanges, one Bombay stock exchange and two national exchanges, namely 1. National Stock Exchange of India (NSE) 2. Over the Counter Exchange of India (OTC) The Bombay Stock Exchange (BSE) is the largest Stock Exchange, in the country, where maximum transactions, in terms of money and shares take place. Bombay Stock Exchange Limited is the oldest stock exchange in Asia. Popularly known as BSE it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in India to obtain permanent recognition from the Government of India under the Securities Contracts (Regulation) Act, 1956. Bombay Stock Exchange The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives.

National stock exchange limited (NSE), is a Mumbai-based stock exchange. It is the largest stock exchange in India in terms of daily turnover and number of trades, for both

44

equities and derivative trading. The NSE's key index is the S&P CNX Nifty, known as the Nifty, an index of fifty major stocks weighted by market capitalisation. NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities. There are at least 2 foreign investors NYSE Euro next and Goldman Sachs who have taken a stake in the NSE. As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. In October 2007, the equity market capitalization of the companies listed on the NSE was US$ 1.46 trillion, making it the second largest stock exchange in South Asia. NSE is the third largest Stock Exchange in the world in terms of the number of trades in equities. It is the second fastest growing stock exchange in the world with a recorded growth of 16.6%.

FEATURES OF THE STOCK EXCHANGE

It provides the trading platform where buyers and sellers meet to transact in securities. The stock exchange in India is under the supervision of the regulatory authority, the Securities and Exchange Board of India It is the place where sale and purchase of existing securities is done. It enables an investor to adjust his holdings of securities in response to changes in assessment about risk and return. It enables to meet the liquidity needs by providing market for sale of securities. Stock exchange is an association of individual members called member brokers. Stock exchanges are formed for the purpose of regulating and facilitating the buying and selling of securities.

2.1.4
Sr.no.

LIST OF VARIOUS STOCK EXCHANGES IN INDIA

Name of stock exchange Year of establishment 45 Type of organization

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Bombay stock exchange Ahmadabad stock exchange Calcutta stock exchange M.P. stock exchange, Indore Madras stock exchange Hyderabad stock exchange Delhi stock exchange Bangalore stock exchange Cochin stock exchange U.P. stock exchange Kanpur Pune stock exchange Ludhiana stock exchange Jaipur stock exchange Guahati stock exchange Kannaar stock exchange

1875 1897 1908 1930 1937 1943 1947 1957 1978 1982 1982 1983 1983 1984 1985

Voluntary organization Voluntary organization Public company Voluntary organization Co. Co. Public company Pvt. Public company Public company Co. Public company Public company Public company Public company

non-profit non-profit limited non-profit by by limited

limited limited

guarantee guarantee

Converted

into

public ltd. Co. limited limited limited by limited limited limited limited

guarantee

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16 17 18 19 20 21 22 23 24

Magadh stock exchange Bhuveneshwar exchange

1986 stock 1989

Co. Co. Co. N.D. N.D.

limited limited limited

by by by

guarantee guarantee guarantee 1990 1991

Saurashtra stock exchange 1989 ,Kutch Vadora stock exchange Meerut stock exchange

O.T.C.I (over the counter 1993 exchange of India),Mumbai National stock exchange Coimbtoor stock exchange Sikkam stock exchange 1995 1996 1997

Pure demutualised Pure demutualised N.D. N.D.

Table 5 List Of Stock Exachanges

2.1.5 Role of stock exchanges

Stock exchanges have multiple roles in the economy, this may include the following:

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.

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Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity levels and firms.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.

Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privatelyheld companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public 48

companies (Pets.com (2000), Enron Corporation (2001), One.Tel (2001), [[Sunbeam Products|Sunbeam]] (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), or Parmalat (2003), are among the most widely scrutinized by the media).

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large an small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

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50

2.1.6 Profile
The Ludhiana Stock Exchange Limited was established in 1981, by Sh. S.P. Oswal and Sh. B.M. Munjal, leading industrial luminaries, to fulfil a vital need of having a Stock Exchange in this region. Since its inception, the Stock Exchange has grown phenomenally. The Stock Exchange has played an important role in channelizing savings into capital for the various industrial and commercial units of the State of Punjab and other parts of the country. The Ludhiana Stock Exchange is a technology savvy, forward looking and modern Regional stock exchange. The stock exchange has introduced latest technological developments in the capital markets to keep itself in pace with the changes sweeping across the stock exchanges through out the country. The Ludhiana Stock exchange was incorporated in the year 1983. It was granted recognition in the year 1993. Exchanges among the Regional Stock Exchanges of the country, and has been providing trading platform for the investors situated in Punjab, J&k, Himachal Pradesh & Chandigarh. At present, it has 380 listed companies and among them, 249 are listed as regional companies.

OBJECTIVES

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1. To channelize the saving into investment in capital market there by providing funds for growth & expansion. 2. To provide liquidity to the investors of the region by providing them with a secondary market network. 3. Disseminating information among investors thereby saving their interests. 4. To maintain high standard of commercial honor & integrity. 5. To promote and inculcate honorable practice and just & equitable principle of trade & business. 6. To discourage and to suppress malpractice detrimental to the interest of investors at large,

FEATURES
1. First regional stock exchange to give proposal of making subsidiary as broker of NSE & BSE for survival of stock exchange and second to start operations like broker of NSE & BSE 2. First regional stock exchange to start trading in commodities market. 3. First regional stock exchange to start courses on capital market, only BSE is performing this sort of activities and NSE is also performing courses on capital market only for members but LSE have started for outsiders also.

2.1.7 OPERATIONS OF LSE TURNOVER

Ludhiana Stock Exchange is one of the leading Stock Exchanges among the Regional Stock Exchanges of the country, and has been providing trading platform for the investors 52

situated in Punjab, J&k, Himachal Pradesh & Chandigarh. At present, it has 380 listed companies and among them, 249 are listed as regional companies. It had been generating significant amount of the business in the secondary market. It recorded a peak turnover of Rs.9154 crores during the year 2000-2001. The structural changes that took place in the recent past in the Capital Market of the country had a negative impact on the trading volume of the Regional Stock Exchanges. There has been a significant reduction of turnover during the financial year 2001-2002, but the reduction in the turnover of the Exchange has been more than adequately compensated by substantial rise in the turnover of LSE Securities Limited, a subsidiary of Ludhiana Stock Exchange.

LISTING
Listing is one of the major functions of a Stock Exchange wherein the securities of the Companies are enlisted for trading purpose. Any Company incorporated under Companies Act, 1956, coming out with an IPO, has to mandatorily list its shares on a Stock Exchange. The Listing Department of Ludhiana Stock Exchange deals with listing of securities, further listing of issues like bonus and rights issues, post listing compliance of the companies which is already listed with Ludhiana Stock Exchange. The Companies desirous of listing its securities on the Exchange have to sign a Listing Agreement with the Stock Exchange. After getting the listing approval, the Company has to ensure and report compliance of the post listing requirements. The listing section of the LSE monitors the post-listing compliance of all the listed companies and follows up with the companies, which are found deficient in compliance.

SETTLEMENT GUARANTEE FUND (SGF)

The Stock Exchange established a Settlement Guarantee Fund (SGF) on April 6, 1998. It provides guarantee of all the genuine trades made through the Screen Based Trading System of the Stock Exchange.

53

 END OF AN ERA
The management of the Stock Exchange apprehended that the smaller regional Stock Exchanges would not be able to meet the challenges imposed by expansion of bigger Stock Exchanges like NSE and BSE and might end up loosing their entire business to VSAT counters of the bigger Stock Exchanges. In order to prepare for such an eventuality, Stock Exchange set up a broking arm in the name of LSE Securities Limited (a Subsidiary Company of the Stock Exchange) in January 2000 and built infrastructure and IT based sophisticated systems to enable its members and investors to trade on NSE and BSE through the subsidiary route. The Stock Exchange was thus able to convert the "threat" it faced from expansion of NSE and BSE into an opportunity for its members and investors. As expected, there was a marked shift in the trading volumes from the Stock Exchange to the NSE and BSE through the Subsidiary Company. This shift became more prominent when SEBI introduced compulsory Rolling Settlement and banned the deferral products like Badla, MCFS and ALBM w.e.f. July 2, 2001 causing thereby an end to arbitrage opportunities between the Stock Exchange and NSE/BSE. Ultimately, there was complete shift of trading from the Stock Exchange to the LSE Securities Limited in January 2002.

2.1.8 TRADING MECHANISM

To do trading of LSESL, an investor must identify a registered broker who is willing to deal on his behalf. The transaction is made at level where the bidding is at the highest and

54

offering is at the lowest and is acceptable to both buying and brokers. The operations of sale and purchase of scripes is as follows: Walk to any broker/sub broker See the prices of shares

Scan the counter at LSESL It will display the three best bidding Offer for all the scripes listed/traded

Decide to buy or sell, ask your broker to deal on your behalf Make the payment/margin money/shares Certificate be for the pay-in-day Collect the confirmation slip Visit the same counter on pay Out day to collect delivery/payment

MILESTONES OR ACHIEVEMENTS OF LUDHIANA STOCK EXCHANGE

Date Oct 19811 Aug 1983 Achievements Incorporation of stock exchange Commencement of operations 55

Aug 1983 Nov 1996 April 1998 Nov 1998 Sep 1999 Jan 2000 Aug 2000 Dec 2000 Sep 2000 July 2001 January 2002 Feb 2002 April 2002 April 2003 Oct 2003 March 2004

Shifting of operations to own building Online screen based trading Modified carry forward system (MCTS) and settlement guarantee fund Trading and settlement in demat scrips Trading at remote sites through VSAT counters Introduction of rolling settlement Commencement of online real time depository services Trading on NSE in CM segment (through LSE securities limited) Trading on BSE in CM segment (through LSE securities limited) Introduction of compulsory rolling settlement Complete shift of trading in CM segment from LSE to LSESL . Trading in F&O segment of NSE Rolling settlement cycle prevailing at LSE on T+3 basis Rolling settlement cycle prevailing at LSE on T+2 cycle Incorporation of LSE COMMODITIES TRADING SERVICES LTD., a subsidiary of LSE. Securities ltd. Introduction of MCX (multi commodity exchange of India) MCX offers 14 different commodities such as steel, kapas, rubber, blackpepper,oil soil seeds,precios metal etc. Sensex touches all time high of 6954 Opening of DP branch at SIRSA Haryana Table 6 Mile Stones Of LSE

March 2005 March 2007

2.1.9 SWOT ANALYSIS OF LUDHIANA STOCK EXCHANGE STRENGTHS OF LSE

It has an ultra modern infrastructure. It possesses dedicated manpower The management is fair at LSE It is one of the premier stock exchanges in India It is a high technology drive exchange It is air-conditioned and fully computerized. It has in house depository participants.

56

Weaknesses of LSE
It has no different products and services from other stock exchanges. At LSE there is no trading of regional and non- regional companies. Investors and traders are not interested to trade at LSE because of lack of depth. LSE is not able to compete NSE and BSE. The value of LSEs ticket is Rs. 4 lac, which were Rs. 50 lacs in 1992. This is because of no trading at LSE.

Opportunities for LSE

LSE can introduce new products and services, which can benefit the exchange. The merger with another stock exchange can improve it. It can better utilize its assets by leasing. The subsidiary of LSE has a bright future at NSE and BSE.

Threats for LSE

NSE and BSE both are biggest threats for LSE. Ban and Badla systems have shattered the LSE. Competition from other stock exchanges. SEBIs rules and regulations

RECENT IPOS NHPC (National Hydroelectric Power Corporation )

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Issue Details Issue Opens Issue Closes Price Band Face Value Issue size Lot size Listing Lead manager Registrar Aug 7,2010 Aug 12,2010 Rs 30-36 Rs. 10 167.73 crore 175 shares NSE , BSE SBI caps , kotak mahindra karvy

SBI Caps, Enam Financial and Kotak Mahindra are book runners and lead managers of the issue, for which Karvy will be the registrar. This IPO is likely to be in the first week of August said NHPC CMD SK Garg. The proposed issue involves NHPC infusing 10% fresh equity through this public offer to raise Rs 1,680 crore while the government will divest its 5% stake in the company. The public offer is likely to remain open for usubscription for a period of six days. However, the duration and pricing of the issue would be decided after July 27 when the company would file its Draft Red Herring Prospectus (DRHP) with the registrar of companies (ROC). NHPC had earlier filed the Draft Red Herring Prospectus (DRHP) in April 2007, but it was turned down by SEBI, as the company did not have the 58

required strength of independent directors on its board then. Later, the company re-filed on August 6, 2008, but could not launch the IPO due to poor market conditions. NHPC issue has become important, as the company is going in for large-scale expansion in coming years. The company was not in a rush for market offering as its funds situation was adequate to finance expansion till 2011. After the Eleventh Five-Year Plan, the company plans to invest Rs 35,000 crore for further expansion and development of hydro power.

Raj Oil Mills

Issue Details Issue Open Issue Closes Price Band Face Value Issue size Subscribed Listing July 20 ,2010 July 23,2010 Rs 100- 120 Rs. 10 114 crore 4 times NSE , BSE

Raj Oil Mills is going public with an initial public offering of 95,00,000 equity shares of Rs 10 each with a price band of Rs 100 to Rs 120 per equity share. The issue size will be Rs 95 crore at the lower end of the price band and Rs 114 crore at the upper end of the price band. The issue would constitute 26.38% of the fully diluted post-issue paid-up capital of the company. The issue will open on July 20, 2010, and will close on July 23, 2010. The book running lead manager is Karvy Investor Services Limited. The co-book running lead managers are India Capital Markets Private Limited and PL Capital Markets Private Limited. The equity shares offered through the Red Herring Prospectus of the company are proposed to be listed on Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE). 59

Raj Oil Mills is engaged in the business of Crushing and Oil Filtration with a capacity of 5,000 TPA and 30,000 TPA respectively. It markets products under the following brands: Cocoraj (Coconut Oil), Cocoraj Cool (Ayurvedic Oil), Guinea Groundnut Oil (Double Filtered Oil), Guinea Lite Groundnut Oil (Refined Oil), Guinea Lite Sunflower Oil (Refined Oil), Guinea Lite Cottonseed Oil (Refined Oil), Guinea Lite Soyabean Oil(Refined Oil), Tilraj Til Oil, Mustraj Mustard Oil and Cocoraj Jasmine. The aforementioned products are sold under three umbrella brands --- Cocoraj, Guinea and Raj. These brands are in existence for more than 5 decades. Due to its vast experience in the edible oils business, the company has strong in-house manufacturing capabilities, wide product portfolio and brand presence. The companys business strategy is to maintain versatile manufacturing capabilities, produce high quality products and market a wide product range. The companys networth comprising share capital, reserves and surplus as on December 31, 2008, is at Rs 100.33 crore. Its total assets are at Rs 162.47 crore.

ADANI Power Ltd.

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Issue Details Issue Opens Issue Closes Price Band Face Value Issue size Subscibed Listing July 28,2010 July 31,2010 Rs 90-100 Rs. 100 3000 crore 21.64 times NSE , BSE

Adani Power initial public offering (IPO) witnessed huge investors' interest and was subscribed 21.64 times. The issue received bids for more than 538 crore shares as against the issue size of 30,16,52,031 shares.Qualified institutional investors have given strong response to the issue and their reserved portion was subscribed 39.5 times. Noninstitutional and retail investors' portion subscribed 8.62 times and 2.97 times, respectively. Amit Desai, Director of Adani Power said almost all bids were at upper end of the band, Rs 100 a share. The company, he said, was likely to list its shares around August 20, 2010.The price band was fixed between Rs 90 and Rs 100 per equity share. The net issue would constitute 13.47% of the post-issue paid-up equity share capital of the company. The company intends to utilize the net proceeds of the issue to part finance the construction and development of Mundra Phase IV Power project for 1,980 MW and fund equity contribution in its subsidiary.

61

CHAPTER 3 RESEARCH METHODOLOGY

3.1 OBJECTIVES OF THE RESEARCH

62

 To know the awareness of Initial Public Offering among people. To study the interest of people in investing in ipos. To know the attitudes of general pulic regarding risk, rate of return, period of Investment.

3.2 RESEARCH METHODOLOGY The investment practices of individuals are dynamic in nature. They change due to changes in market conditions, expectations of return on investments, availability of funds for investments and required rate of return from the investment. This holds true for investments in mutual funds also. So, it is exceedingly essential to ascertain the current investment practices in order to place different products before the client.

3.2.1 Methodology The methodology includes the research design of the study, sampling technique and data collection methods. 3.2.2 Descriptive Research The study falls under the category of Descriptive research. Descriptive research includes survey and fact finding inquiries of different kind. It is the description of the state of affair as it exists at present. The main characteristics of this method are that the researcher has no control over the variables; he can only report what has happened or what is happening. The method of research used in this research was survey method. The research assignment under focus is aimed at gathering some vital information of the investors investment pattern which could be through a structured questionnaire which covers aspects like individual role in customer investment decisions etc. 3.2.3 Sampling Design 63

The relation of the sampling technique must be efficiently handled so as to get sample appropriate to the design under study and to keep the effect of factors to the minimum. In the present study investors and general public is included and questionnaire distributed to all of them. Every person has equal probability of being selected. Thus the sample become a SIMPLE RANDOM SAMPLE. The present research was conducted on the investors and persons who want to invest. 3.2.4 Data Collection Utmost care must be energized while collecting data because data constitute the foundation on which the superstructure of statistical analysis is built. The result obtained from the analysis are properly interpreted and policy decisions are taken. Data may be obtained either from the primary source or the secondary source. Primary Data: Primary data are obtained by a study specifically designed to fulfill the data needs of the problem at hand. Such data are original in character and are generated in large number of surveys conducted mostly by government and also by some individuals, institutions and research bodies. Secondary Data: Data which are not originally collected but rather obtained from published or unpublished sources are known as secondary data. The secondary data constitute the chief material on the basis of which statistical work is carried out in many investigations. 3.2.5 Research Instruments The main research instrument in collection the primary data is "The Questionnaire". This is by for the most common instrument in collection primary data which has been used for fulfilling our objectives for obtaining further information. Secondary information has been obtained from websites, magazines, bulletins, books etc. 3.2.6 Sampling Design Where secondary data is not available for the problem under study or decision may be taken to collect primary data. The required information may be obtained by following the sample methods.

64

3.2.7 Sampling Plan Sampling is an effective step in collection primary data and has a great influence on the quality of results. The sampling plan includes the population, sample size, sample unit and sampling technique. 3.2.8 Population Population is our study is all the investors. 3.2.9 Sample size Sample size for research is 100 investors. 3.2.10 Sample Unit The sample unit or research is taken as the single individual investor.

3.2.11 Area of study The study is limited to LSE only. The main reason behind this is convenience in conducting the research. 3.2.12 Limitations The study comprises of the following limitations: Unwillingness on the part of investors to spare time for the survey. Reluctance to share information regarding income, investments and future plans Due to lack of interest on the part of respondents might be unauthentic Because the area relating to study was very w ide so we were not able to Collect the data from all the investors

65

CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

66

4.1 How much do you know about IPO?

Awareness Basic Well total

Total 15 35 50

% age 30 70 100

awareness
40 35 30 25 20 15 10 5 0 basic well basic, 15 Series1 well, 35

Analysis: mostly the investors are well aware about the IPOs as in our figure shows that 70% investors have good knowledge about it.

67

4.2 What %age of income you invest in IPO ?

percentage 5-10 % 10-15 % 15-20 % 20 % above total

Total 8 20 17 5 50

% age 16 40 34 10 100

percentage of income
20 18 16 14 12 10 8 6 4 2 0 10-15 %, 20 15-20 %, 17

5-10 %, 8 20 % above, 5

Series1

5-10 %

10-15 %

15-20 %

20 % above

% income

Above table and fig shows that many investors invest 10 -15 % of their income in IPO

68

4.3 What are the objectives of investing in IPO ?

Objectives Quick returns Capital appreciation liquidity future secure total

Total 20 10 7 13 50

%AGE 40 20 14 26 100

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Quick returns are the main objective of investors in investing in ipo so 40 % investors invest in IPO because of quick returns.

4.4 What factors you consider while investing in IPO of any company ?

Factors Goodwill profitability Growth returns total

total 14 15 10 24 50

% age 28 30 20 48 100

factors considering investing in ipo

returns 38%

Goodwill 22% Goodwill profitability Growth Growth 16% profitability 24% returns

Maximum investors considering the returns to invest in any IPO so according to this fig and table 48 % investors considers returns 70

4.5 Are you satisfied with the returns in IPO investment ? options Yes N0 total total 40 10 50 % age 80 20 100

80 % investors are satisfied in IPOs it gives good and quick returns and only 20% are not satisfied because of other reasons

71

4.6 In which company you have D-mat & Trading account? companies Sharekhan Ltd Indiainfoline (5 paisa) Indiabulls Religare Reliance money Icici direct Total 12 5 4 5 6 7 2 Hdfc Securities Kotak Securities others total 4 5 50 % age 24 10 8 10 12 14 4 8 10 100

72

demat account
Sharekhan Ltd Indiainfoline (5 paisa) others 10% Kotak Securities Hdfc Securities 8% 0% 4% 0% Icici direct 14% Reliance money 0% 12% Sharekhan Ltd 24% Indiabulls Religare Reliance money Indiainfoline (5 paisa) 10% Indiabulls Religare 8% 10% Icici direct

Hdfc Securities Kotak Securities others

The investors are preferring sharekhan ltd because of its facilities and company consultancy support 4.7 Are you satisfied with your present broking company?

Options Yes N0 Total

total 35 15 50

% age 70 30 100

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returns in ipo

N0 30% Yes N0 Yes 70%

70% investors are satisfied and only 30% are not satisfied

4.8 What are the problems you facing while investing in IPO ? Problems Lacking knowledge Pricing Insecurity Inaccessibility information Total total 18 15 8 of 9 50 % age 36 30 16 18 100

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Lacking knowledge & pricing are the major problems that are faced by the investors while investing in IPO

75

CHAPTER 5

SUMMARY,FINDINGS, RECOMMENDATIONS AND LIMITATIONS

76

5. SUMMARY
All over the world, IPO is one of the most popular instruments for investment. Its popularity with consumer has dramatically increased over the last couple of years worldwide; the IPO has a long and successful history. The popularity of IPO has increased manifold. But IPO are not as popular in India as in other countries because returns are not assured. People in India are very averse towards risk taking. They do not want to take any type of risk. Other most important reason for the non-popularity is that the consumers lack awareness of it. Very few customers knew properly what ipos are and how they work. For investing in any IPO investor need a good broking company . The main factors which persuade people to invest in IPO are comfort & convenience & the facility which attracts them most is quality & quantity of information and the most important is companies consultancy support and services.

FINDINGS

Main purpose of investment is returns & liquidity. Investors take risk as well as returns into their mind while making the investment. Businessmen are more interested in the stock market than the others. Commodity market is less preferred by the investors. People want to invest their money in the security market but they havent the proper knowledge. People pay more emphasis on brokerage than service provided by brokerage houses.

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RECOMMENDATIONS

Improvement in the opening of Demat account & contract notice procedure is required. There should be a limited number of clients under the relationship manger. So that he can handle new as well as old customer properly. Some promotional activities are required for awareness of the customer. Seminars should be held for providing informing people to prospective and present customers It should also reduce the brokerage .

LIMITATIONS As only LUDHIANA dealt in survey so it does not represent the view of the total Indian market. Size of the research may not be substantial. There was lack of time on the part of respondents The survey was carried through questionnaire and the questions were based on perception. There may be biased ness in information by market participant. Data was not available due to company privacy and secrecy.

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CHAPTER 6 REFERENCES

79

6.1 References

6.1.1 Kim, Jaemin, Pukthuanthong-Le, Kuntara, Walker, Thomas (2008) Leverage and IPO under-pricing: high-tech versus low-tech IPOs, Journal: management decision, vol. 46, pp 106-130. 6.1.2 Kenourgios, Dimitris F, Papathanasiou, Spyros Emmanouil Rafail Melas (2007) Initial performance of Greek IPOs, underwriter's reputation and oversubscription journal managerial finance vol. 33,pp 332-343 6.1.3 Paleari, Stefano and Vismara, Silvio (2007) Over-optimism when pricing IPOs journal managerial finance finance vol. 33,pp 346-354 6.1.4 Ritter, Jay R. (2006) Investment Banking, Reputation and the Underpricing of Initial Public Offerings journal of business strategy vol. 4, pp. 53-59 6.1.5 Liungqvist, Alexander (2004 ) Underpricing and Entrepreneurial Wealth Losses in IPOs: Theory and Evidence International Journal of Service Industry Management, Vol. 18, No. 3, pp: 246-268 6.1.6 Beneda, Nancy (2004) Speculative excesses in inital pricing of IPOS in the

secondary market ,journal management research news, vol. 27, pp 94-114. 6.1.7 Tolia,Bijesh and Yew Mun Yip(2003) HOT IPOS AND LOCKUP EXPIRATION AN ANOMA LY? Journal of Global Competitiveness vol.13 , pp 53-59, ISSN: 1059-5422 6.1.8 Zwaan, van der A.H, Eije von J.H., Witte M.C. de (2002) HRM consequences of going public Available at SSRN: http://ssrn.com/abstract=265789

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6.1.9 Krishnamurti ,Chandrasekhar, Kumar Pradeep (2002) The initial listing performance of Indian IPOs journal managerial finance vol. 28, pp 39-51, ISSN: 0307-4358 6.1.10 Durukan, M. Banu (2002) The relationship between IPO returns and factors influencing IPO performance: case of Istanbul Stock Exchange journal managerial finance ,vol. 28, pp 38-48 6.1.11 Johnston, Jarrod and Madura, Jeff (2002) The Performance of Roll-Up Initial Public Offerings Journal: Studies in Economics and Finance, vol. 20 , pp 1-11. 6.1.12 Galbraith, Craig S. and Gregory B, Merrill (2001) IPO performance in business to business B2B e-commerce firms: effects of strategy and industry journal managerial finance , vol. 23, pp 1-27, issue 7 6.1.13 Winston Sahi, Stephen L. Lee (2001) issue 6 6.1.14 Clark, Karen B. (2000) Trade Aggregation, Allocation and IPOS on the SECS Radar Screen Journal of Investment Compliance vol. 1, pp 41-44. 6.1.15 Jenkinson, Tim and Ljungqvist , Alexander (2000) and Finance, vol. 24 , pp 3-11. 6.1.16 Taylor, Lon W (1988) Raising Capital Through IPOs journal of business strategy vol. 9, pp. 53-56 6.1.17 Morton, Allen D. (1998) Factors and the pricing of ipo aftermarket Has the introduction of The initial return performance of UK

property company IPOs Journal of Property Investment & Finance, vol. 19, pp 127-139,

bookbuilding increased the efficiency of international IPOs? Journal: Studies in Economics

returns ,Studies in Economics and Finance, vol. 18 , pp 17-102 6.1.18 Gerbich, Marcus and Levis, Mario (1995 ) Property initial public offerings: regulations, costs and price reactions, Journal of Property Finance, vol. 6, issue 1, pp 3854.

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6.2 Websites
1http://www.emeraldinsight.com/Insight/advancedSearch.do? searchTerm1=online+trading+of+shares&oDiscard=&searchFields1=All+fields&fo rm_button=Search (viewed on July 10, 2008 July 20, 2008) http://www.geojit.com/profiles/board.asp?index=0&pageOpt=3&code=28650&a=3 (viewed on July 23-24, 2008) http://www.geojit.com/profiles/Geojitfin.asp? index=1&a=13&pageOpt=4&Opt=B&Code=28650 (viewed on July 23-24, 2008) http://papers.ssrn.com/sol3/papers.cfm? ( viewed on July 15, 2008 July 20, 2008) http://www.lse.com/onlineservices/ (viewed on July 5-6, 2008) http://www.lselearning.com/mod/resource/view.php?id=110vopening(viewed July 28, 2008) http://www.experiencefestival.com/ipo/index http://www.highbeam.com/doc/1G1-18159213.html on

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CHAPTER 7 APPENDICES

83

QUESTIONNAIRE
Name: Age: Phone: Q1) How many years have you been investing in the stock market? Below 1 year 1 year 2 years Q2) How much do you know about IPO? basic awareness well aware Q2) What %age of income you invest in IPO ? 5-10 % 10-15 % 15-20 % 20 % above 3 years 5 years 5years and above

Q3.) What are the objectives of investing in IPO ? Quick returns liquidity

84

Capital appreciation

future secure

Q4) What factors you consider while investing in IPO of any company ? Growth Profitability goodwill returns

Q5) Are you satisfied with the returns in ipo investment ? Yes no

Q6) In which company you have D-mat & Trading account? a.) Sharekhan Ltd c.) Indiainfoline (5 paisa) e.) Indiabulls g) Religare i) others Q7.) Are you satisfied with your present broking company ? yes No b.) Reliance money d.) Icici direct f) Hdfc Securities h) Kotak Securities

Q8.) What are the problems you facing while investing in IPO ? Lacking knowledge Insecurity of data

85

Pricing

Inaccessibility of information

Q9.) Are you satisfied with the facilities provided by LSE ? yes No

Q10.) Rate your broking company on the basis of following factors using scale 1-5 where 1 is dissatisfied and 5 is satisfied

FACTORS brokerage Consultancy support Quality quantity data

1 8 10

2 9 12 14

3 27 40 13

4 13 24 18

5 25 39 24

and 6 of

Security of 7 information

19

36

27

43

Q11.) Any suggestion regarding improvement of services regarding IPO ? _______________________________________________________ _______________________________________________________

THANX FOR YOUR COOPERATION

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ABBREVIATIONS
IPO Initial Public Offer BSE Bombay Stock Exchange HDFC Housing Development Finance Corporation ICICI Industrial Credit and Investment Corporation of India NSE National Stock Exchange SEBI Securities and Exchange Board of India SEC Securities and Exchange Commission FPO - Further Public Offering CCI Controller of Capital Issues MFs Mutual Funds QIB Qualified Instituitional Buyers BSE Bombay Stock Exchange RTI Registrar to an issue STA Share Transfer Agents CRA Credit Rating Agency FI Financial Instituations WDM Wholesale Debt Market SBI State Bank of India ROC RTA - Registrar of Companies - Registrar & Transfer Agent

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TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled STUDY AND ANALYSIS OF INVESTMENT IN IPO (INITIAL PUBLIC OFFER). carried out by Mr. Rajesh Kumar S/O Sri Uma Shankar Jha has been accomplished under my guidance & supervision as a duly registered PGDBA student of the Symbiosis Centre For Distance Learning, Pune. This project is being submitted by him in the partial fulfillment of the requirements for the award of the Post Graduate Diploma in Business Administration from Symbiosis Centre For Distance Learning. His dissertation represents his original work and is worthy of consideration for the award of the Certificate of PGDBA.

Ms Astha Chaudhary (MBA) (Assistant Manager- Investments) HDFC Securities Ltd. Date: 28th May 2010

88

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled STUDY AND ANALYSIS OF INVESTMENT IN IPO (INITIAL PUBLIC OFFER). carried out by Mr. Rajesh Kumar S/O Sri Uma Shankar Jha has been accomplished under my guidance & supervision as a duly registered PGDBA student of the Symbiosis Centre For Distance Learning, Pune. This project is being submitted by him in the partial fulfillment of the requirements for the award of the Post Graduate Diploma in Business Administration from Symbiosis Centre For Distance Learning. His dissertation represents his original work and is worthy of consideration for the award of the Certificate of PGDBA.

Mr. Rakesh Pratap Singh (MBA) (Sub-Broker) Angel Securities Ltd. Date: 28th May 2010

89