INTRODUCTION

IPO stands for Initial Public Offering and means the new offer of shares from a company which was previously unlisted. This is done by offering those shares to the public, which were held by the promoters or the private investors prior to the IPO. In the case when other investors or Promoter held the shares the stake holding comes down to the extent their shares are offered to the public. In other cases new shares are issued to the public and the shares, which are with the promoters stay with them. In both cases the share of the promoters in the total capital comes down. For example say there are 100 shares in a company and 50 of these are offered to the public in an IPO then in such a case the promoters stake in the company comes down from 100% to 50%. In another case the company issues 50 additional shares to the public and the stake of the promoter comes down from 100% to 67%. Normally in an IPO the shares are issued at a discount to what is considered their intrinsic value and thats why investors keenly await IPOs and make money on most of them. IPO are generally priced at a discount, which means that if the intrinsic value of a share is perceived to be Rs.100 the shares will be offered at a price, which is lesser than Rs.100 say Rs.80 during the IPO. When the stock actually lists in the market it will list closer to Rs.100. The difference between the two prices is known as Listing Gains, which an investor makes when investing in IPO and making money at the listing of the IPO. A Bullish Market gives IPO investors a clear opportunity to achieve long term targets in a short term phase.

LITERATURE SURVEY
TITLE: Book-Building Mechanism in India: The Built-in Inefficiencies AUTHOR INFO: Banerjee Rachna (rachna.banerjee@fortune.edu.in) (Fortune Institute of International Business, Plot no. 6, Vasant Gaon, Nr. RR hospital, New Delhi, 110010, INDIA) ABSTRACT The price of any scrip depends upon investors perceptions about the company. To overcome the problem of high pricing, SEBI, in its series of measures to streamline the capital market, introduced the book-building concept in 1995, which was widely followed in markets in developed nations When book-building was introduced in India, the main objective was that book-building would help discover the right price for a public issue which in turn would eliminate unreasonable issue pricing by greedy promoters. This article analyzes the efficiency of the book building mechanism which is adopted by issuers for pricing of IPOs in India. There are reasons to believe that the current book-building system is not really efficient. An analysis of IPO issue prices and their market prices shows that there is a considerable difference between them. Further, in most of the IPOs, the market prices are trading way below their issue prices which indicate that book building is not an efficient mechanism of price discovery. Besides, in the current system, investors have an illusion of discovering the price. That is not true because the underwriting entities have already estimated a price band for the stock in consultation with other stakeholders to the issue. The investors options are severely circumscribed. The book building method is heavily tilted against the retail investors right from the run-up to determine the pricing to the allocation quota. Our observation is that the current system of book building is neither realistic nor reflects investor sentiment towards an IPO. TITLE: The Indian IPO Market: Empirical Facts AUTHOR INFO: Ajay Shah ABSTRACT This article studies India's vibrant IPO market, via a dataset of the 2056 IPOs which took place in the last 4.5 years. We study the overall under pricing, the delay between issue date and listing date, the time- series of monthly volume of IPO issues and average under pricing in a given month, the cross-section of under pricing across companies, the post-listing trading

frequency, the long-run returns to new listings, and price discovery by the market shortly after first listing. TITLE: IPO Pricing and Allocation: A Survey of the Views of Institutional Investors AUTHOR INFO: Tim Jenkinson, Howard Jones ABSTRACT Despite the central importance of investors to all initial public offering (IPO) theories, relatively little is known about their role in practice. This article is based on a survey of how institutional investors assess IPOs, what information they provide to the investment banking syndicate, and the factors they believe influence allocations. We find that investor characteristics, in particular brokerage relationships with the book runner, are perceived to be the most important factors influencing allocations, which supports the view that IPO allocations are part of implicit quid pro quo deals with investment banks. The survey raises doubts as to the extent of information production or revelation.

OBJECTIVES OF THE STUDY

To get an overview of Initial Public Offering To study the significance of IPO To know the kinds of issues and procedure of sale of IPO To study the intermediaries involved in IPO To study the IPO investment strategies

SCOPE OF THE STUDY

The study limited to IPO, and for the purpose of the study data collected only through secondary sources, no primary data was collected.

RESEARCH METHODOLOGY
COLLECTION OF DATA Research design or research methodology is the procedure of collecting, analyzing and interpreting the data to diagnose the problem. Data can be collected on two types 1. Primary Data 2. Secondary Data PRIMARY DATA Primary data are collected through the unstructured questionnaire. No Primary data collected for the study SECONDARY DATA Secondary data are those which have already been collected by some one else and which have already been passed through the statistical process. The data collected from the Books Websites and Articles

ORGANISATION An organization is a social arrangement which pursues collective goals, which controls its own performance, and which has a boundary separating it from its environment. Groups of people work together in organizations to make a product or provide a service. Organizations vary greatly in size from local businesses employing a small number of people to large multinational corporations that operate globally. TYPES OF ORGANIZATION OR COMPANIES On the basis of incorporation Statutory companies Registered companies On the basis of liability Companies with limited liability Companies with unlimited liability On the basis of number of members Private company Public company On the basis of control Holding companies Subsidiary companies On the basis of ownership Government companies

Non-government companies

DIFFERENT TYPES OF ORGANIZATION Multinational commercial companies: Multinational companies trade globally. They

may be organized with subsidiary or partner companies trading in different countries or regions of the world

Utility companies: These are the companies which works in order to meet the necessary Public service organizations: Public service organizations provide the services and Retail outlets: Retail outlets are the places we use to buy goods. They include Local Financial service providers: These are organizations that provide financial services to

utility for the people and business support we need in our everyday lives. They are financed through national and local taxes. shops ,High Street shops and Supermarkets their customers. They include: Banks, Insurance Companies. FUND RAISING METHODS

Large corporations could not have grown to their present size without being able to find

innovative ways to raise capital to finance expansion. Corporations have five primary methods for obtaining that money.

IPO: Initial public offering also referred to simply as a "public offering," is the first sale of

stock by a private company to the public. IPOs are often issued by smaller, younger companies

seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded

Issuing Bonds: A bond is a written promise to pay back a specific amount of money at a

certain date or dates in the future. In the interim, bondholders receive interest payments at fixed rates on specified dates. Holders can sell bonds to someone else before they are due.

Issuing Preferred Stock. A company may choose to issue new "preferred" stock to raise

capital. Buyers of these shares have special status in the event the underlying company encounters financial trouble. If profits are limited, preferred-stock owners will be paid their dividends after bondholders receive their guaranteed interest payments but before any common stock dividends are paid.

Selling Common Stock. If a company is in good financial health, it can raise capital by

issuing common stock. Typically, investment banks help companies issue stock, agreeing to buy any new shares issued at a set price if the public refuses to buy the stock at a certain minimum price

Borrowing. Companies can also raise short-term capital -- usually to finance inventories -Using profits. As noted, companies also can finance their operations by retaining their

by getting loans from banks or other lenders.

earnings. Strategies concerning retained earnings vary. INITIAL PUBLIC OFFERING The first public offering of equity shares or convertible securities by a company, which is followed by the listing of a companys shares on a stock exchange, is known as an Initial Public Offering. In other words, it refers to the first sale of a companys common shares to investors on a public stock exchange, with an intention to raise new capital. The most important objective of an IPO is to raise capital for the company. It helps a company to tap a wide range of investors who would provide large volumes of capital to the company for future growth and development. A company going for an IPO stands to make a lot of money from the sale of its shares which it tries to anticipate how to use for further expansion and development. The company is not required to repay the capital and the new shareholders get a right to future profits distributed by the company. WHY IPO?

When a privately held corporation needs to raise additional capital, it can either take on debt or sell partial ownership. If the corporation chooses to sell ownership to the public, it engages in an IPO. Corporations choose to "go public" instead of issuing debt securities for several reasons. The most common reason is that capital raised through an IPO does not have to be repaid, whereas debt securities such as bonds must be repaid with interest. Despite this apparent benefit, there are also many drawbacks to an IPO. A large drawback to going public is that the current owners of the privately held corporation lose a part of their ownership. Corporations weigh the costs and benefits of an IPO carefully before performing an IPO. SIGNIFICANCE OF IPO Investing in IPO has its own set of advantages and disadvantages. Where on one hand, high element of risk is involved, if successful, it can even result in a higher rate of return. The rule is: Higher the risk, higher the returns. The company issues an IPO with its own set of management objectives and the investor looks for investment keeping in mind his own objectives. Both have a lot of risk involved. But then investment also comes with an advantage for both the company and the investors. The significance of investing in IPO can be studied from 2 viewpoints for the company and for the investors. This is discussed in detail as follows:

SIGNIFICANCE TO THE COMPANY

When a privately held corporation needs additional capital, it can borrow cash or sell stock to raise needed funds. Or else, it may decide to go public. "Going Public" is the best choice for a growing business for the following reasons.

The costs of an initial public offering are small as compared to the costs of borrowing large sums of money for ten years or more,

The capital raised never has to be repaid.

When a company sells its stock publicly, there is also the possibility for appreciation of the share price due to market factors not directly related to the company.

It allows a company to tap a wide pool of investors to provide it with large volumes of capital for future growth.

SIGNIFICANCE TO THE SHAREHOLDERS The investors often see IPO as an easy way to make money. One of the most attractive features of an IPO is that the shares offered are usually priced very low and the companys stock prices can increase significantly during the day the shares are offered. This is seen as a good opportunity by speculative investors looking to notch out some short-term profit. The speculative investors are interested only in the short-term potential rather than long-term gains. KINDS OF ISSUES Primarily, issues can be classified as a Public, Rights or preferential issues (also known as private placements). While public and rights issues involve a detailed procedure, private placements or preferential issues are relatively simpler. The classification of issues is illustrated below:

Figure-1 Public issues can be further classified into Initial Public offerings and further public offerings. In a public offering, the issuer makes an offer for new investors to enter its shareholding family. The issuer company makes detailed disclosures as per the DIP guidelines in its offer document and offers it for subscription. The significant features are illustrated below: INITIAL PUBLIC OFFERING (IPO) 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 and trading of the issuers securities. FURTHER PUBLIC OFFERING (FPO)

It is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations. RIGHTS ISSUE (RI) It is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements. PRIVATE PLACEMENT It is an issue of shares or of convertible securities by a company to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. A private placement of shares or of convertible securities by a listed company is generally known by name of preferential allotment. A listed company going for preferential allotment has to comply with the requirements contained in Chapter XIII of SEBI (DIP) Guidelines pertaining to preferential allotment in SEBI (DIP) guidelines include pricing, disclosures in notice etc, in addition to the requirements specified in the Companies Act. PROCEDURE OF SALE OF IPO IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares. The sale (that is, the allocation and pricing) of shares in an IPO may take several forms. Common methods include:

Dutch auction Firm commitment Best efforts Bought deal

Self Distribution of Stock

DUTCH AUCTION Dutch auction is a type of auction where the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price (the seller's minimum acceptable price) is reached. The winning participant pays the last announced price. This type of auction is convenient when it is important to auction goods quickly, since a sale never requires more than one bid. Theoretically, the bidding strategy and results of this auction are equivalent to those in a sealed first-price auction. A sealed first-price auction is a form of auction where bidders submit one bid in a concealed fashion. The submitted bids are then compared and the person with the highest bid wins the award, and pays the amount of his bid to the seller. FIRM COMMITEMENT A lending institution's promise to enter into a loan agreement with a specific entity within a certain period of time is called firm commitment. An underwriter's agreement to assume all inventory risk and purchase all securities directly from the issuer for sale to the public at the price specified.

BEST EFFORT An agreement an underwriter makes to act as an agent between an issuing company and investors. In a best efforts agreement, the underwriter agrees to use all efforts to sell as much of an issue as possible to the public. The underwriter can purchase only the amount required to

fulfill its client's demand or the entire issue. However, if the underwriter is unable to sell all securities, it is not responsible for any unsold inventory. Best effort agreements are used mainly for securities with higher risk, such as unseasoned offerings. BOUGHT DEAL A bought deal occurs when an underwriter, such as an investment bank or a syndicate, purchases securities from an issuer before selling them to the public. The investment bank (or underwriter) acts as principal rather than agent and thus actually "goes long" in the security. The bank negotiates a price with the issuer (usually at a discount to the current market price, if applicable). The advantage of the bought deal from the issuer's perspective is that they do not have to worry about financing risk (the risk that the financing can only be done at a discount too steep to market price.) This is in contrast to a fully-marketed offering, where the underwriters have to "market" the offering to prospective buyers, only after which the price is set. The advantages of the bought deal from the underwriter's perspective include: Bought deals are usually priced at a larger discount to market than fully marketed deals, and thus may be easier to sell; and The issuer/client may only be willing to do a deal if it is bought (as it eliminates execution or market risk.) The disadvantage of the bought deal from the underwriter's perspective is that if it cannot sell the securities, it must hold them. This is usually the result of the market price falling below the issue price, which means the underwriter loses money. The underwriter also uses up its capital, which would probably otherwise be put to better use (given sell-side investment banks are not usually in the business of buying new issues of securities.) SELF DISTRIBUTION OF STOCK Self distribution of stock is a type of IPO, or initial public offering. In this offering, the company selling stocks will offer its shares directly to the public and cut out the need for an

underwriter. These types of IPOs save the company money because it doesn't have to sell stock at a discounted price to the underwriters. This can be a difficult way to purchase shares in IPOs. INTERMEDIARIES INVOLVED IN IPO Merchant Bankers Registrar and Share Transfer Agents Bankers to the Issue Underwriters Stock Brokers and Sub Brokers Depositories

MERCHANT BANKERS They play the most vital role amongst all intermediaries. They assist the company right from preparing prospectus to the listing of securities at the stock exchanges. Merchant Bankers have to satisfy themselves about the correctness and propriety of all the information provided in the prospectus. It is mandatory for them to carry due diligence for all the information provided in the prospectus and they must issue a certificate to this effect to SEBI.A Company may appoint more than one Merchant Banker provided Inter-Se Allocation of Responsibilities between the Merchant Bankers are properly structured. UNDERWRITERS Underwriters are those intermediaries who underwrite the securities offered to the public. In case there is under subscription (in short, the company does not receive good response from public and amount received from is less than the issue size), underwriters subscribe to the unsubscribed amount so that the issue is successful. REGISTRAR & SHARE TRANSFER AGENTS

They are the person who processes and prepares the basis of allotment of shares to public based on the applications received from the public. They are the persons who handle dispatches of shares certificates and refund orders to the public. BANKERS TO THE ISSUE They are bank who accept application and application money from the public on behalf of the company and transfer it the registrar and share transfer agent. Any refund that has to be made is done through this bank only. STOCK BROKERS & SUB-BROKERS Brokers are the intermediaries who use their contact / sources to invite the public to subscribe for shares issued by the company. These brokers get a commission for inviting the public. DEPOSITORIES Depositories are persons who hold the share in the dematerialized form for the public. This makes it easier for the share holder to trade in the secondary market. It also reduces the burden of carrying to deliver it after every transaction. SPECIALISED FINANCIAL INSTITUTIONS INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) The World Bank, the Government of India and representatives of Indian industry formed ICICI Limited as a development finance institution to provide medium-term and long-term project financing to Indian businesses in 1955.1994 ICICI establishes ICICI Banking Corporation as a banking subsidiary. ICICI Banking Corporation is renamed as 'ICICI Bank Limited. 1999 ICICI becomes the first Indian company and the first bank or financial institution from non-Japan Asia to list on the NYSE. INDUSTRIAL DEVELOPMENT BANK OF INDIA LIMITED (IDBI)

The Industrial Development Bank of India (IDBI) was established on July 1, 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In February 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country. Although Government shareholding in the Bank came down below 100% following IDBIs public issue in July 1995, the former continues to be the major shareholder (current shareholding: 58.47%). During the four decades of its existence, IDBI has been instrumental not only in establishing a well-developed, diversified and efficient industrial and institutional structure but also adding a qualitative dimension to the process of industrial development in the country. IDBI has played a pioneering role in fulfilling its mission of promoting industrial growth through financing of medium and long-term projects, in consonance with national plans and priorities. Over the years, IDBI has enlarged its basket of products and services, covering almost the entire spectrum of industrial activities, including manufacturing and services. IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernization and diversification purposes. In the wake of financial sector reforms unveiled by the Government since 1992, IDBI evolved an array of fund and fee-based services with a view to providing an integrated solution to meet the entire demand of financial and corporate advisory requirements of its clients. IDBI also provides indirect financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms. INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) IFCI Venture Capital Funds Ltd. (IVCF) was originally set up by IFCI as a Society by the name of Risk Capital Foundation (RCF) in 1975 to provide institutional support to first generation professionals and technocrats setting up their own ventures in the medium scale sector, under the Risk Capital Scheme. In 1988, RCF was converted into a company, Risk Capital and Technology Finance Corporation Ltd. (RCTC), when it also introduced the Technology Finance and Development Scheme for financing development and commercialization of indigenous technology. To reflect the shift in the companys activities, the name of RCTC was changed to IFCI Venture Capital Funds Ltd. (IVCF) in February 2000.

Over the years, IVCF has provided financial assistance to new ventures, supported commercialization of new technologies, helped in widening entrepreneurial base in the country. It is IVCF who has catalyzed introduction of concept of venture capital activity in India. INDUSTRIAL INVESTMENT BANK OF INDIA (IIBI) The "Industrial Investment Bank of India Ltd ", is Indias only all-India public financial institution headquartered in Kolkata. They acquire and/or trade in varied financial instruments from term loans, equity or debentures and bonds, structured products besides providing various services like deferred payment guarantee, Loan Syndication, Merchant Banking services such as Issue management, underwriting and guarantees, Project / reconstruction / one-time-settlement consultancy/appraisal. They have a track record of profitability since inception in 1997 till 200203.However we have serviced our outstanding debt till date. SMALL INDUSTRIES DEVELOPMENT BANK (SIDBI) SIDBI Venture Capital Limited (SVCL) is a wholly owned subsidiary of SIDBI, incorporated in July 1999 to act as an umbrella organization to oversee the Venture Capital operation of SIDBI. SVCL will manage the various Venture Capital Funds launched/ being launched by SIDBI. Current fund managed by SVCL is: National Venture Fund for Software and Information Technology (NFSIT) NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) National Bank for Agriculture and Rural Development is established as a Development Bank for providing and regulating credit and other facilities for the promotion and development of agriculture, small industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas and for matters connected therewith or incidental thereto. HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC)

HDFC Securities, a trusted financial service provider promoted by HDFC Bank and JP Morgan Partners and their associates, is a leading stock broking company in the country, serving a diverse customer base of institutional and retail investors. ANALYZING AN IPO INVESTMENT POTENTIAL INVESTORS AND THEIR OBJECTIVES Initial Public Offering is a cheap way of raising capital, but all the same it is not considered as the best way of investing for the investor. Before investing, the investor must do a proper analysis of the risks to be taken and the returns expected. He must be clear about the benefits he hope to derive from the investment. The investor must be clear about the objective he has for investing, whether it is long-term capital growth or short-term capital gains. The potential investors and their objectives could be categorized as: INCOME INVESTOR An income investor is the one who is looking for steadily rising profits that will be distributed to shareholders regularly. For this, he needs to examine the company's potential for profits and its dividend policy.

GROWTH INVESTOR A growth investor is the one who is looking for potential steady increase in profits

that are reinvested for further expansion. For this he needs to evaluate the company's growth plan, earnings and potential for retained earnings.

SPECULATOR

A speculator looks for short-term capital gains. For this he needs to look for potential of an early market breakthrough or discovery that will send the price up quickly with little care about a rapid decline. INVESTOR RESEARCH It is imperative to properly analyze the IPO the investor is planning to invest into. He needs to do a thorough research at his end and try to figure out if the objective of the company match his own personal objectives or not. The unpredictable nature of IPOs and volatility of the stock market adds greatly to the risk factor. So, it is advisable that the investor does his homework, before investing. The investor should know about the following:

BUSINESS OPERATIONS What are the objectives of the business? What are its management policies? What is the scope for growth? What is the turnover of the labour force? Would the company have long-term stability?

FINANCIAL OPERATIONS What is the companys credit history? What is the companys liquidity position? Are there any defaults on debts? Companys expenditure in comparison to competitors. Companys ability to pay-off its debts.

What are the projected earnings of the company

MARKETING OPERATIONS Who are the potential investors? What is the scope for success of the IPO? What is the appeal of the IPO for the other investors? What are the products and services offered by the company?

IPO INVESTMENT STRATEGIES Investing in IPOs is much different than investing in seasoned stocks. This is because there is limited information and research on IPOs, prior to the offering. And immediately following the offering, research opinions emanating from the underwriters are invariably positive. There are some of the strategies that can be considered before investing in the IPO:

UNDERSTAND THE WORKING OF IPO The first and foremost step is to understand the working of an IPO and the basics of

an investment process. Other investment options could also be considered depending upon the objective of the investor. GATHER KNOWLEDGE It would be beneficial to gather as much knowledge as possible about the IPO market, the company offering it, the demand for it and any offer being planned by a competitor. INVESTIGATE BEFORE INVESTING

The prospectus of the company can serve as a good option for finding all the details of the company. It gives out the objectives and principles of the management and will also cover the risks.

KNOW YOUR BROKER This is a crucial step as the broker would be the one who would majorly handle your

money. IPO allocations are controlled by underwriters. The first step to getting IPO allocations is getting a broker who underwrites a lot of deals. MEASURE THE RISK INVOLVED IPO investments have a high degree of risk involved. It is therefore, essential to measure the risks and take the decision accordingly. INVEST AT YOUR OWN RISK Finally, after the homework is done, and the big step needs to be taken. All that can be suggested is to invest at your own risk. Do not take a risk greater than your capacity. PRINCIPAL STEPS IN AN IPO Approval of BOD: Approval of BOD is required for raising capital from the public. Appointment of lead managers: the lead manager is the merchant banker who orchestrates the issue in consultation of the company. Appointment of other intermediaries: Co-managers and advisors Underwriters Bankers Brokers and principal brokers Registrars

Filing the prospectus with SEBI: The prospectus or the offer document communicates information about the company and the proposed security issue to the investing public. All the companies seeking to make a public issue have to file their offer document with

SEBI. If SEBI or public does not communicate its observations within 21 days from the filing of the offer document, the company can proceed with its public issue. Filing of the prospectus with the registrar of the companies: once the prospectus have been approved by the concerned stock exchanges and the consent obtained from the bankers, auditors, registrar, underwriters and others, the prospectus signed by the directors, must be filed with the registrar of companies, with the required documents as per the companies act 1956. Printing and dispatch of prospectus: After the prospectus is filed with the registrar of companies, the company should print the prospectus. The quantity in which prospectus is printed should be sufficient to meet requirements. They should be send to the stock exchanges and brokers so they receive them at least 21 days before the first announcement is made in the news papers. Filing of initial listing application: Within 10 days of filing the prospectus, the initial listing application must be made to the concerned stock exchanges with the listing fees. Promotion of the issue: The promotional campaign typically commences with the filing of the prospectus with the registrar of the companies and ends with the release of the statutory announcement of the issue. Statutory announcement: The issue must be made after seeking approval of the stock exchange. This must be published at least 10 days before the opening of the subscription list. Collections of applications: The Statutory announcement specifies when the subscription would open, when it would close, and the banks where the applications can be made. During the period the subscription is kept open, the bankers will collect the applications on behalf of the company. Processing of applications: Scrutinizing of the applications is done. Establishing the liability of the underwriters: If the issue is undersubscribed, the liability of the underwriters has to be established. Allotment of shares: Proportionate system of allotment is to be followed. Listing of the issue: The detail listing application should be submitted to the concerned stock exchange along with the listing agreement and the listing fee. The allotment formalities should be completed within 30 days.

IPO METODS OF PRICING Once the registration gets approved by the regulator and the completion of meetings with potential investors the company and investment bank together decide on issue date, issue price and the minimum lot quantity that an investor should subscribe to. The maximum quantity (amount) that an investor can subscribe to depends on the category (eg; retail investor, Mutual Fund etc) that the investor falls into. This limit and categorization are provided by the regulator.

However the exact price is decided by one of the following methods. Fixed Price Method Book Building method

FIXED PRICE METHOD: In this method of pricing the investment bank in consultation with the firm fixes the price at which an investor can subscribe to. This price could be at par value or at a premium above the par value. Book Building Method: In this method of pricing a price band is fixed instead of a fixed price. The lowest price in the price band is called as floor price and the highest price is called as cap price. Investors can subscribe at a price anywhere in the price band. An investor who wants to subscribe at any price can mention the cut-off price. This cut-off price is decided once the bid period is over. Once the issue is closed a book with descending order of prices is prepared. Cutoff price is the price at which the entire issue gets subscribed. This is the most commonly used method. BOOK BUILDING PROCESS Book Building is basically a capital issuance process used in Initial Public Offer (IPO) which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to

the floor price. The process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria.

BOOK BUILDING PROCESS

Figure-2 THE PROCESS The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.

The Issuer specifies the number of securities to be issued and the price band for orders.

The Issuer also appoints syndicate members with whom orders can be placed by the investors.

Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. This process is called 'bidding' and is similar to open auction.

A Book should remain open for a minimum of 5 days.

Bids cannot be entered less than the floor price.

Bids can be revised by the bidder before the issue closes.

On the close of the book building period the 'book runner evaluates the bids on the basis of the evaluation criteria which may include Price Aggression Investor quality Earliness of bids

The book runner the company concludes the final price at which it is willing to issue the stock and allocation of securities.

Generally, the numbers of shares are fixed; the issue size gets frozen based on the price per share discovered through the book building process.

Allocation of securities is made to the successful bidders. Book Building is a good concept and represents a capital market which is in the process of maturing. Book-building is all about letting the company know the price at which you are willing to

buy the stock and getting an allotment at a price that a majority of the investors are willing to pay. The price discovery is made depending on the demand for the stock. The price that you can suggest is subject to a certain minimum price level, called the floor price. For instance, the floor price fixed for the Maruti's initial public offering was Rs 115, which means that the price you are willing to pay should be at or above Rs 115. In some cases, as in Biocon, the price band (minimum and maximum price) at which you can apply is specified. A price band of Rs 270 to Rs 315 means that you can apply at a floor price of Rs 270 and a ceiling of Rs 315. If you are not still very comfortable fixing a price, do not worry. You, as a retail investor, have the option of applying at the cut-off price. That is, you can just agree to pick up the shares at the final price fixed. This way, you do not run the risk of not getting an allotment because you have bid at a lower price. If you bid at the cut-off price and the price is revised upwards, then the managers to the offer may reduce the number of shares allotted to keep it within the payment already made. You can get the application forms from the nearest offices of the lead managers to the offer or from the corporate or the registered office of the company. HOW IS THE PRICE FIXED? All the applications received till the last date are analyzed and a final offer price, known as the cut-off price is arrived at. The final price is the equilibrium price or the highest price at which all the shares on offer can be sold smoothly. If your price is less than the final price, you will not get allotment. If your price is higher than the final price, the amount in excess of the final price is refunded if you get allotment. If you do not get allotment, you should get your full refund of your money in 15 days after the final allotment is made. If you do not get your money or allotment in a month's time, you can demand interest at 15 per cent per annum on the money due.

HOW ARE SHARES ALLOCATED? As per regulations, at least 25 per cent of the shares on offer should be set aside for retail

investors. Fifty per cent of the offer is for qualified institutional investors. Qualified Institutional Bidders (QIB) are specified under the regulation and allotment to this class is made at the discretion of the company based on certain criteria. QIBs can be mutual funds, foreign institutional investors, banks or insurance companies.

If any of these categories is under-subscribed, say, the retail portion is not adequately subscribed, then that portion can be allocated among the other two categories at the discretion of the management. For instance, in an offer for two lakh shares, around 50,000 shares (or generally 25 per cent of the offer) are reserved for retail investors. But if the bids from this category are received are only for 40,000 shares, then 10,000 shares can be allocated either to the QIBs or non-institutional investors. The allotment of shares is made on a pro-rata basis. Consider this illustration: An offer is

made for two lakh shares and is oversubscribed by times, that is, bids are received for six lakh shares. The minimum allotment is 100 shares. 1,500 applicants have applied for 100 shares each; and 200 applicants have bid for 500 shares each. The shares would be allotted in the following manner: Shares are segregated into various categories depending on the number of shares applied

for. In the above illustration, all investors who applied for 100 shares will fall in category A and those for 500 shares in category B and so on. The total number of shares to be allotted in category A will be 50,000 (100*1500*1/3).

That is, the number of shares applied for (100)* number of applications received (1500)* oversubscription ratio (1/3). Category B will be allotted 33,300 shares in a similar manner. Shares allotted to each applicant in category A should be 33 shares (100*1/3). That is,

shares applied by each applicant in the category multiplied by the oversubscription ratio. As, the minimum allotment lot is 100 shares, it is rounded off to the nearest minimum lot.

Therefore, 500 applicants will get 100 shares each in category A total shares allotted to the category (50,000) divided by the minimum lot size (100). In category B, each applicant should be allotted 167 shares (500/3). But it is rounded off

to 200 shares each. Therefore, 167 applicants out of 200 (33300/200) would get an allotment of 200 shares each in category B. The final allotment is made by drawing a lot from each category. If you are lucky you

may get allotment in the final draw. The shares are listed and trading commences within seven working days of finalisation of

the basis of allotment. You can check the daily status of the bids received, the price bid for and the response form various categories in the Web sites of stock exchanges. This will give you an idea of the demand for the stock and a chance to change your mind. After seeing the response, if you feel you have bid at a higher or a lower price, you can always change the bid price and submit a revision form. The traditional method of doing IPOs is the fixed price offering. Here, the issuer and the

merchant banker agree on an "issue price" - e.g. Rs.100. Then one have the 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 under pricing'. 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 underpriced, with a prevalence of under pricing on average. What is needed is a way to engage in serious price discovery in setting the price at the IPO. No issuer knows the true price of his shares; no merchant banker knows the true price of the shares; it is only the market that knows this price. In that case, can we just ask the market to pick the price at the IPO?

Imagine a process where an issuer only releases a prospectus, announces the number of shares that are up for sale, with no price indicated. People from all over India would bid to buy shares in prices and quantities that they think fit. This would yield a price. Such a procedure should innately obtain an issue price which is very close to the price at first listing -- the hallmark of a healthy IPO market. Recently, in India, there had been issue from Hughes Software Solutions which was a milestone in our growth from fixed price offerings to true price discovery IPOs. While the HSS issue has many positive and fascinating features, the design adopted was still riddled with flaws, and we can do much better.

List of Upcoming IPO's, Current IPO's and Recently Closed IPO's in India Issuer Company Issue Open Sep 07, 2011 Aug 24, 2011 Aug 23, 2011 Aug 16, 2011 Aug 10, 2011 Jul 27, 2011 Jul 20, 2011 Jul 11, 2011 Jun 27, 2011 Jun 20, Offer Price (Rs.) Sep 12, 190/- to 2011 210/Aug 26, 256/- to 2011 261/Aug 26, 58/- to 65/2011 Aug 18, 90/- to 2011 100/Aug 12, 135/- to 2011 153/Jul 29, 51/- to 59/2011 Jul 22, 100/- to 2011 117/Jul 14, 75/- to 82/2011 Jun 29, 90/- to 2011 108/Jun 23, 63/- to 72/Issue Close Issue Type IPOBB IPOBB IPOBB IPOBB IPOBB IPOBB IPOBB IPOBB IPOBB IPOIssue Size (Crore Rs.) 109.16 120.65 227.00 203.00 227.50 63.00 113.83 1,245.00 81.90 55.10 34.75 40.64

PG Electroplast Limited IPO TD Power Systems Ltd IPO SRS Limited IPO Brooks Laboratories Ltd IPO Tree House Education & Accessories Ltd IPO L&T Finance Holdings Limited IPO Inventure Growth & Securities Ltd IPO Bharatiya Global Infomedia Ltd IPO Readymade Steel India Ltd IPO Rushil Decor Ltd IPO

Birla Pacific Medspa Ltd IPO VMS Industries Ltd IPO Timbor Home Limited IPO Galaxy Surfactants Ltd IPO Power Finance Corporation Ltd FPO Aanjaneya Lifecare Ltd IPO Sanghvi Forging & Engineering Ltd IPO

2011 Jun 20, 2011 May 30, 2011 May 30, 2011 May 13, 2011 May 10, 2011 May 09, 2011 May 04, 2011

2011 Jun 23, 2011 Jun 02, 2011 Jun 02, 2011 May 19, 2011 May 13, 2011 May 12, 2011 May 09, 2011

10/- to 11/36/- to 40/54/- to 63/325/- to 340/193/- to 203/228/- to 240/80/- to 85/-

BB IPOBB IPOBB IPOBB IPOBB FPOBB IPOBB IPOBB

65.18 25.75 23.25 0.00 4,578.20 117.00 36.90

Table-1

CONCLUSION
IPO is used by a company to raise its funds. The extra amount obtained from public may be invested in the development o f the company, although it costs a little to a company but it gives a way to get more money for long term investments. Organization, types of organization or companies studied. The study about IPO and its methods helped us to know the different issues for an IPO. Intermediaries involved in IPO, Analyzing an IPO investment studied. The study about IPO and its methods helped us to know the principal steps in an IPO, IPO methods of pricing. Book building process explained in the study. Thus the overall knowledge about IPO is gathered.

BIBLIOGRAPHY www.ipohome.com www.essortment.com www.investopedia.com www.ipoavenue.com www.moneycontrol.com www.wikipedia.com www.moneycentral.hoovers.com www.bullishindian.com

 www.rupya.com www.investorguide.com www.hdil.in