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I hereby declare that the project entitled The Effect of the Secondary Market on the Pricing of Initial Public Offerings in India is submitted as a part of my summer internship at Standard Chartered Securities (India) Ltd. in partial fulfilment of requirements of PGDM Program at Jaipuria Institute of Management, Jaipur. The project has been done under the guidance of Mr. Krishan Deep Singhal, City Manager, North Region, Distribution (company mentor) and Dr. Shailesh Rastogi (faculty mentor). This report is not submitted anywhere else for completion of any degree or award. The source of detailed study material which is used for reference to prepare this report is mentioned in references and bibliography.
Acknowledgements
I wish to express my deep gratitude to my mentor, Mr. Krishan Deep Singhal, City Manager, North Region, Distribution (Standard Chartered Securities (India) Ltd.) for giving me this esteemed opportunity of interning in an organization where I learned a lot from everyday experiences. I am especially thankful to my faculty mentor, Dr. Shailesh Rastogi for building the confidence in me to believe in the task that I am doing and for always being there to help me cross hurdles. I would like to convey my special thanks to Mr. Sayed Haider Abbas, Business Development Manager, Standard Chartered Securities (India) Ltd. for allowing me to learn from practical, on-field experiences. I would like to thank Standard Chartered Securities (India) Ltd. for making my summer internship a delightful, learning event.
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Executive Summary
Title - The Effect of the Secondary Market on the Pricing of Initial Public Offerings in India By - Anusha Bansal, PGDM (2011-13), Jaipuria Institute of Management, Jaipur Internship - Standard Chartered Securities (India) Limited Period - 60 days (April 16, 2012 to June 15, 2012) This project provides an empirical investigation of the role of the secondary market in the pricing of initial public offerings. The objective was to study the factors leading to underpricing and their prominence in various industries. Empirical tests conducted on a sample of IPOs provide insights about this phenomenon. Exploratory Research has been done using secondary data, and regression analysis using dummy variables. On the basis of study, this project argues that incomplete spanning of the primary issues in the secondary market and limited investor access play an important role in the pricing of initial public offerings.
The work in the Distribution Department of the company as a summer trainee involves contacting brokers and telling them about new IPOs in the market, especially the ones in which Standard Chartered Securities is the lead manager. The distribution team at the Barakhamba office of Standard Chartered Securities comprises of two people. Reporting is done to Mr. Krishan Deep Singhal, City Manager, North Region, Distribution. Learning from the internship was that it is very crucial for a company to provide after-deal services to its customers and to follow-up with them from time-to-time. It is only then that the customers remain loyal to the brand.
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References
Allen, F., and G. R. Faulhaber. Signalling by Underpricing in the IPO Market. Journal of Financial Economics, 23 (Aug. 1989), 303-323. Benveniste, L. M., and P. A. Spindt. How Investment Bankers Determine the Offer Price and Allocation of New Issues. Journal of Financial Economics, 24 (Oct. 1989), 343-361. Chemmanur, T. The Pricing of Initial Public Offerings: A Dynamic Model with Information Production. Working Paper, Columbia Univ. (1989). Grinblatt, M., and C. Y. Hwang. Signalling and the Pricing of New Issues. Journal of Finance, 44 (June 1989), 393-420. Guenther, A. E. The Pricing of Best Efforts New Issues. Journal of Finance (1992). Ibbotson. R. G. Price Performance of Common Stock New Issues. Journal of Financial Economics, 2 (Sept. 1975), 235-272. Ibbotson. R. G., and J. F. Jaffe. Hot Issue Markets. Journal of Finance, 30 (Sept. 1975), 1027-1042. Ibbotson. R. G.; J. L. Sindelar; and J. R. Ritter. Initial Public Offerings. Journal of Applied Corporate Finance, 1 (Summer 1988), 37-45. Ritter, J. R. The Hot Issue Market of 1980. Journal of Business, 57 (April 1984), 215-239. Schipper, K., and A. Smith. A Comparison of Equity Carve-Outs and Seasoned Equity Offerings: Share Price Effects and Corporate Restructuring. Journal of Financial Economics, 15 (Jan./Feb. 1986), 153-186. Tinic, S. M. Anatomy of Initial Public Offerings of Common Stock. Journal of Finance, 43 (Sept. 1988), 789-822. Welch, I. Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings. Journal of Finance, 44 (June 1989), 421-449.
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Bibliography
Subscription patterns, offer prices and the underpricing of IPOs: Evidence from India Arif Khurshed, Alok Pande and Ajai K. Singh. Initial Returns, Long Run Performance and Characteristics of Issuers: Differences in Indian IPOs Following Fixed Price and Book Building Processes Ajay Pandey. After Market Pricing Performance of Initial Public Offerings (IPOs): Indian IPO Market (2002-2006) Seshadev Sahoo and Prabina Rajib. The Effect of the Secondary Market on the Pricing of Initial Public Offerings: Theory and Evidence David C. Mauer and Lemma W. Senbet NSE (National Stock Exchange) website www.nseindia.com BSE (Bombay Stock Exchange) website www.bseindia.com Standard Chartered website www.standardchartered.co.in www.chittorgarh.com