PROJECT REPORT ON INITIAL PUBLIC OFFER

Submitted ToGuru Nanak Dev University, Amritsar In partial fulfilment of the degree in Master of Business Administration (MBA).

Project submitted to:

Dr. Bikramjit Singh Mann

Submitted By:
Shikha Dhir MBA 3rd semester GNDU, Amritsar

(Session 2010-2012) Guru Nanak Dev University, Amritsar

DECLARATION
This project entitled Empirical Study on CAPITAL MARKET is submitted in partial fulfilment of the requirement for the award of degree of master of business administration of Guru Nanak Dev University, Amritsar. This research work is done by Shikha Dhir. This research work has been done only for MBA only and none of this research work has been submitted for any other degree. The assistance and help during the execution of the project has been fully acknowledged.

GUIDES CERTIFICATE
This is to certify that the project report on the capital market is a bonafide project work done by Shikha Dhir, a full time student of the school of management studies GNDU, in partial fulfilment of the requirement for the award of the degree of Master of business Administration, GNDU.

ACKNOWLEDGEMENT
I wish to express my deep sense of gratitude to, Dr B.S.Mann the supervision and support that he gave truly help the progression and smoothness of this report. The special thank goes to my Internal Guide, Mr Karan kapur, for their able guidance and useful suggestions, which helped me in completing the project work, in time. Needless to mention my thanks to Ms Hazel Dhir, who had been a source of inspiration and for her timely guidance in the conduct of my project work. Finally, yet importantly, I would like to express my heartful thanks to my beloved parents for their blessings, my friends and classmates for their help and wishes for the successful completion of this project.

PREFACE
As we all know IPO INITIAL PUBLIC OFFERING is the hottest topic in the current industry, mainly because of India being a developing country and lot of growth in various sectors which leads a country to ultimate success. And when we talk about countrys growth which is dependent on the kind of work and how much importance to which sector is given. And when we say or talk about industries growth which leads the economy of country has to be balanced and given proper finance so as to reach the levels to fulfil the needs of the society. And industries which have massive outflow of work and a big portfolio then its very difficult for any company to work with limited finance and this is where IPO plays an important role.

TABLE OF CONTENTS

S.NO

PARTICULARS Declaration Guide certificate Acknowledgement Preface

PAGE NO.

1. 2. 3. 4. 5. 6. a b c d e f g h i j k

Ludhiana stock exchange Introduction to Capital market Capital market in India Types of capital market Capital market securities in India Initial public offering Introduction on IPO Different kinds of issue Underwriting process Process of IPO Significance of IPO Advantages and disadvantages of IPO Parameters to judge IPO Principal steps in IPO SEBI guidelines Pricing of IPO Risk factor
6

8 16 18 20 24 25 25 28 30 32 33 34 37 39 42 45 46

S.NO l m n Risk assessment Marketing of IPO Top IPOS in India Bibliography

PARTICULAR

PAGE NO. 47 48 51 54

LUDHIANA STOCK EXCHANGE

The Ludhiana Stock Exchange Limited (LSE) was established in 1981, by Sh. S.P. Oswal of Vardhman Group and Sh. B.M. Munjal of Hero Group, leading industrial luminaries, to fulfil a vital need of having a Stock Exchange in the region of Punjab Himachal Pradesh Jammu & Kashmir and Union territory of Chandigarh. 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 company. The Exchange has facilitated the mobilization of funds by entrepreneurs from the public and thereby contributed in the overall, economic, industrial and social development of the state under its jurisdiction.

Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in the forefront of other stock exchange in every spheres, whether it is formation of subsidiary for providing the platform of trading to investors, for brokers etc. in the era of Screen based trading introduced by national Stock exchange and Bombay stock Exchange, entering into the field of Commodities trading or imparting education to the Public at large by way of starting Certificate Programmes in Capital Market. The vision and mission of stock Exchange is: Reaching small investors by providing services relating to Capital market including Trading Depository operations etc and creating Mass Awareness by way of education and training in the field of Capital market. To create educated investors and fulfilling the gap of skilled work force in the domain of Capital Market. Further, the exchange has 295 members out of which 171 are registered with national Stock exchange as Sub- broker and 124 with Bombay Stock exchange as sub- brokers through our subsidiary.

PRESIDENTS/CHAIRMAN Sr. No. 1 2 Name of the person Sh. S.P. Oswal Sh. B.M. Lal Munjal Tenure 16.08.1983 to 27.07.1986 28.07.1986 to 15.10.1989 16.10.1989 to 30.10.1992 30.09.1998 to 04.10.2000 31.10.1992 to 22.12.1993 23.12.1993 to 05.10.1995 01.10.1996 to 29.09.1998 06.10.2001 to 01.07.2002 06.10.1995 to 30.09.1996 05.10.2000 to 05.10.2001 25.06.2007 to 10.12.2007 15.07.2007 to 23.09.2008 23.09.2008 to 29.09.2009

Sh. V.N. Dhiri

Sh. G.S. Dhodi

Sh. Jaspal Singh

6 7 8 9 10 11

Sh. M.S. Gandhi Sh. R.C. Singal Dr. B. B. Tandon, Chairman Sh. S.P. Sharma, Chairman Sh. Jagmohan Krishan

Prof Padam Parkash 30.09.2009 to till Kansal date

VICE PRESIDENTS/ VICE CHAIRMEN Sr. No. 1 Name of the person Sh. Rajinder Verma Tenure 14.07.1984 to 08.08.1987 09.08.1987 to 15.10.1989 31.10.1992 to 22.12.1993 28.10.1991 to 30.10.1992 16.10.1989 to 27.10.1991 23.12.1993 to 05.10.1995 06.10.1995 to 26.09.1997 27.09.1997 to 29.09.1998 30.09.1998 to 04.10.2000 05.10.2000 to 05.10.2001 06.10.2001 to 01.07.2002 025.06.2007 to 10.12.2007 15.07.2007 to 23.09.2008 23.09.2008 to 08.10.2008

Sh. B.K. Arora

Sh. G.S. Dhodi

Sh. B.S. Sidhu

5 6 7 8 9 10 11 12 13 14

Sh. D.P. Gandhi Sh. M. S. Sarna Sh. T.S. Thapar Sh. Tarvinder Dhingra Dr. Rajiv Kalra Sh. D.K. Malhotra, Vice Chairman Sh. Jagmohan Krishan, Vice Chairman Sh. Ravinder Nath Sethi

Prof Padam Parkash 09.10.2008 to Kansal 29.09.2009 30.09.2009 to till Sh. Joginder Kumar date

10

Governance and Management

Ludhiana Stock Exchange has a strong governance and administration, which encompasses a right balance of industry experts with highest level educational background, practicing professional and independent experts in various filed of Financial Sector. The administration is presently headed by Sr. General Manager-cumcompany Secretary (holding additional charge of Executive Director (Offtg.) and team of persons having in depth knowledge of secretarial, legal and Educational Training. The Governing Board of our Exchange comprises of twelve members, out of which three are Public Interest Directors, who are eminent persons in the fields of Finance and Accounts, Education, Law, Capital Markets and other related fields, Six are Shareholder Directors, and three are Broker Member Director and the Exchange has four Statutory Committees namely Disciplinary Committee, Arbitration Committee, Defaults Committee and Investor Services Committee. In addition, it has advisory and standing committees to assist the administration. LSE has a Code of Conduct in place that governs the elected Board Members and the Senior Management Team. The same is monitored through periodic disclosure procedures. The Exchange has an Ethics Committee, which looks into any issue of conflict of interest and has in place general code of conduct for the Senior Officials. The composition of the Governing Board is as under:Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Name of Director Prof. Padam Parkash Kansal Sh. Joginder Kumar Sh. Vikas Batra Sh. Sh. Rajinder Mohan Singla Sh. Ashok Kumar Sh. Satish Nagpal Sh. Ashwani Kumar Sh. V.P. Gaur Dr. Raj Singh, RoC Sh. Sanjay Anand Sh. Sunil Gupta Sh. Jaspal Singh Category Chairman Vice Chairman Shareholder Director Shareholder Director Shareholder Director Shareholder Director Public Interest Director Public Interest Director Public Interest director Trading Member Director Trading Member Director Trading member Director

11

Strengths of LSE
1. LSE brand is popular among masses. 2. It has requisite infrastructure for the Capital Market activities which includes a multistoreyed, centrally air conditioned building situated in the financial hub of the city i.e. Feroze Gandhi Market. 3. It has well experienced staff handling operations of Stock Exchange. 4. It has competent Board and professional management. 5. It has much needed networking of sub brokers in the entire region, who are having rich experience in Stock Market operations for the last 31 years. 6. It has more than 46,000 clients spread across Punjab, Himachal Pardesh, Jammu & Kashmir and adjoining areas of Haryana and Rajasthan. 7. The turnover of our subsidiary is the highest amongst all subsidiaries of Regional Stock Exchanges in India.

Infrastructure and asset base at Ludhiana stock exchange

The Exchange building is situated at Feroze Gandhi Market, Ferozepur Road, Ludhiana. It is a six storied building, which is centrally air-conditioned. The building has 262 rooms, which are located on various floors ranging from second to fifth. The first floor of the building houses the administrative office and rooms from second to fifth floors have been leased out to brokers. The first floor also has canteen facility. Investor Service Centre is also located at first floor which houses a well-equipped library and view-terminals to provide live rates of NSE and BSE to investors. Investors are also provided with Cable TV for the purpose of viewing the latest happenings in the Capital Market and around. Basement of the building has airconditioning plant and Generators to provide air-conditioned environment and twentyfour hours power back up. The Exchange has also an additional plot of land measuring 2333 sq. yards in the prime location of city, to enhance its infrastructure and source of income.
12

Status of its subsidiary- Ludhiana Securities limited

Due to Nationwide reach of bigger Stock Exchanges, the trading volumes at Ludhiana Stock Exchange declined and ultimately, the trading stopped in February, 2002, but the Stock Exchange converted the threat of bigger Exchanges into opportunities and acquired the corporate membership of these exchanges through its subsidiary company i.e. LSE Securities Limited. It has now been providing Trading Platforms of Bigger Stock Exchanges to the Investors of the region. The vast network of Brokers of the Exchange is servicing millions of Investors. The subsidiary company is also providing depository services in the State of Punjab and Himachal Pradesh. The turnover of subsidiary is highest amongst all the subsidiaries of Regional Stock Exchanges. The growth of subsidiary is swift and it has been providing a range of services to the public at large such as Trading, Depository, IPO bidding collection Centre. The Company in its continuous endeavour to provide qualitative services to its valued clients, has started e-broking trading services for its clients, thereby increasing the geographical reach of the company.

Listing of securities of companies at Ludhiana Stock Exchange

At present, Ludhiana Stock Exchange has 324 listed companies, out of which 211 are regional and 113 are Non-regional. The total listed capital of aforesaid companies is Rs. 3063.56 Crores app. The market capitalization of the said companies is more than Rs. 1890.53 crores. The Stock Exchange is covering the vast investor base through the listing of above said companies, which are situated in the region comprising of Punjab, Himachal Pardesh, Jammu & Kashmir, Chandigarh. Ludhiana Stock Exchange has facilitated the capital generation for agro based industries as Punjab is a agricultural led economy. It will continue to do so, once it gets approval for a tie up with bigger Exchanges for commencing trading operations.

13

Investor related services

The Exchange has been providing a variety of services for the benefit of investing public. The services include Investor Service Centres, Investor Protection fund and Investor Educational Seminars. (I).INVESTOR SERVICE CENTRES:The Exchange has set-up Investor Service Centre at LSE Building for providing information relating to Capital Market to the general public. The Centres subscribe to leading economic, financial dailies and periodicals. They also store the Annual Reports of the companies listed at the Stock Exchange. The Investor Service Centres are also equipped with a Terminal for providing live rates of trading at NSE and BSE. A large number of the investors visit the centre to utilize the services being provided by the Exchange. (II). INVESTOR AWARENESS SEMINARS:The Exchange has been organizing Investor Awareness Seminars for the benefit of Investors of the region comprising State of Punjab, Himachal Pradesh, Jammu & Kashmir, Chandigarh and adjoining areas of Haryana and Rajasthan. This massive exercise of organizing Investor Awareness Seminars has been launched as a part of Securities Market Awareness Campaign launched by SEBI in January, 2003. The Exchange apprises the investors about Dos and Donts to be observed while dealing in Securities Market. During 2011-2012, till date, Exchange has organized more than 83 workshops in the region mentioned above. (III).WEBSITE OF THE EXCHANGE:www.lse.co.in The Exchange has its own website with the domain name www.lse.co.in. The website provides valuable information about the latest market commentary, research reports about companies, daily status of International markets, a separate module for Internet trading, information about listed companies and brokers and subbrokers of the Exchange and its subsidiary. The website also contains many useful links on portfolio management, investor education, frequently asked questions about various topics relating to Primary and Secondary Market, information about Mutual Funds, Financials of the Company including Quarterly Results, Share Prices, Profit and Loss
14

Accounts, Balance Sheet and Many More. The website also contains daily Technical Charts of various scrips being traded in BSE and NSE.

15

CAPITAL MARKET
Capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt) The Capital Market deals in the long-term (for time-periods more than one year) capital Securities (Equity or Debt) offered by the private business companies and also governmental undertakings of India. . A nation's capital market includes such financial institutions as banks, insurance companies, and stock exchanges that channel long-term investment funds to commercial and industrial borrowers. Unlike the money market, on which lending is ordinarily short term, the capital market typically finances fixed investments like those in buildings and machinery. Financial regulators, such as SEBI and RBI regulate and oversee the capital market in their designated jurisdictions to ensure an orderly development of the market and protection of investors. Capital market can be classified into primary market and secondary market. In the primary market, new stocks and bonds are sold by companies to investors. In the secondary market, the existing issued securities are sold and bought among investors or traders through a stock exchange. Capital market development is essential for the economic development of a country. The objective of economic activity in any country is to promote the well-being and standard of living of its people, which depends upon the distribution of income in terms of goods and services in the economy. For the growth process in the economy, production plays a vital role. Production of output depends upon material inputs, human inputs, and financial inputs. Material inputs are in the form of raw materials; plant, and machinery etc., Human inputs are in the form of intellectual, managerial and labour manpower. Financial inputs are in the shape of capital, cash, credit etc. The proper availability and utilization of these inputs promotes the economic growth of a country.

16

Its nature
The capital market consists of number of individuals and institutions (Including the government) that channelize the supply and demand for long-term capital and claims on capital. The stock exchange, commercial banks, co-operative banks, saving banks, development banks, insurance companies, investment trust or companies, etc., are important constituents of the capital markets. The capital market, like the money market, has three important Components, namely the suppliers of loanable funds, the borrowers and the Intermediaries who deal with the leaders on the one hand and the Borrowers on the other. The demand for capital comes mostly from agriculture, industry, trade & government. The predominant form of industrial organization developed Capital Market becomes a necessary infrastructure for fast industrialization. Capital market not concerned solely with the issue of new claims on capital, but also with dealing in existing claims.

17

Capital Market in India

In the Indian scenario, efforts were made right since Independence, to create a healthy and efficient capital market through legislative measures. The Capital Issues (Control) Act, 1947 was the first piece of legislation passed in India to control the capital market. Subsequently, The Companies Act was enacted in 1956.

The watershed event in this direction was in 1992 when the Capital Issues Control Act was replaced by the Securities and Exchange Board of India Act, 1992. This Act provides for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.

SEBI has given priority to the development, promotion and regulation of the capital market and to investor protection. Its greater focus on investor protection has earned it the name of the Watchdog of the capital market. SEBI strongly believes that investors are the backbone of the capital market as they are the providers of the capital for the economic growth of the country and also are the fulcrum around which the trading in securities takes place. SEBI has laid down guidelines for almost all constituents of the capital market-from issuers on one hand to stock exchanges on the other hand and all other intermediaries like stock brokers, merchant bankers and underwriters. It also regulates the intermediary fund managers like mutual funds, portfolio managers and collective investment schemes. The capital market is the market for securities, where companies and governments can raise long term funds. Selling stock and selling bonds are two ways to generate capital and long term funds. Thus bond markets and stock markets are considered capital markets. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded.

18

The Indian Equity Markets and the Indian Debt markets together form the Indian Capital markets The Indian Equity Market depends mainly on monsoons, global funds flowing into equities and the performance of various companies. The Indian Equity Market is almost wholly dominated by two major stock exchanges -National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE). The benchmark indices of the two exchanges Nifty of NSE and Sensex of BSE are closely followed. The two exchanges also have an F&O (Futures and options) segment for trading in equity derivatives including the indices. The major players in the Indian Equity Market are Mutual Funds, Financial Institutions and FIIs representing mainly Venture Capital Funds and Private Equity Funds. Indian Equity Market at present is a lucrative field for investors. Indian stocks are profitable not only for long and medium-term investors but also the position traders, short-term swing traders and also very short term intra-day traders. In India as on December 30 2007, market capitalisation (BSE 500) at US$ 1638 billion was 150 per cent of GDP, matching well with other emerging economies and selected matured markets. For a developing economy like India, debt markets are crucial sources of capital funds. The debt market in India is amongst the largest in Asia. It includes government securities, public sector undertakings, other government bodies, financial institutions, banks and companies.

19

Types of capital market

Types of capital market

Primary market

Secondary market

1. Primary 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.

Features of primary markets are:

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy.

20

 The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as going public. The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are: Initial public offering; Rights issue (for existing companies); Preferential issue.

Initial public offering

An initial public stock offering (IPO) referred to simply as an offering or flotation, is when a company issues common stock or shares to the public for the first time. They 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. 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. An IPO 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.

21

Rights issue
Under a secondary market offering or seasoned equity offering of shares to raise money, a company can opt for a rights issue to raise capital. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time. A rights issue is in contrast to an initial public offering (primary market offering), where shares are issued to the general public through market exchanges.

2. Secondary 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 term secondary market is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a second- or thirdmarket has developed for use in ethanol production). Another commonly referred to usage of secondary market term is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac. With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, NASDAQ and the American Stock Exchange provide a centralized, liquid secondary
22

market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade over the counter, or by phoning the bond desk of ones broker-dealer. Loans sometimes trade online using a Loan Exchange.

23

The Capital Market Securities

The two main types of capital market securities are stocks and bonds. Traded in separate markets, companies, corporations and governments use them to raise funds for various purposes. These funds are raised for long terms and are the regulatory to supervise the capital market securities and their respective market in every country.

Bonds
Bond is the medium for handling the debt securities. As the bond market is a part of the capital market, it provides the opportunity to deal in the debt securities. Bond enjoys a vast international market estimated to be around $45 trillion. A huge slice of this bond market transaction generally takes place in the over-the-counter market, where as the corporate bonds are listed on the exchanges. There exist different types of bonds in the market like- the corporate bond, municipal bond, government bond and many more. The government bond is the most secured one amongst all these, besides being the biggest and most liquid.

Stocks
Another type of capital market security is known as stocks. These are favored by the investors as they can get huge returns from this capital market instrument. The estimated size of the global stock market is evaluated to be around $45 trillion. Used for trading of company stocks, companies and governments use it to raise funds for different purposes. There exists every kind of investor in the capital market, both the individual investors and the institutional investors. Today, the market trend has completely changed and is mainly dominated by the institutions, which are increasing the volume of the market. Hence its very important for the investor to take proper care while selecting capital market securities, as the risk factor related to these securities are different. A proper research should be done before any investment.

24

INITIAL PUBLIC OFFERING (IPO)

INTRODUCTION TO IPO
IPO stands for Initial Public Offering. Referred to as taking a company public, the IPO involves a private company offering its shares to the public for purchase for the first time. Like the name says, it's when a company initially offers shares of stocks to the public. This is also known as going public. An IPO is the first time the owners of the company give up part of that ownership to stockholders Businesses use IPOs to raise capital. The IPO may also serve as an exit strategy for a business's owners and investors. If market conditions are right for the particular business at the time of the IPO, the original investors in the private company can make fortunes because the new stock is worth much more than their original investments. However, making money by using an IPO as an exit strategy is certainly not guaranteed and has several drawbacks for business owners. First, you may not be able to get your money out as fast as you would like. Investors may insist that all the money raised by the IPO be reinvested in the business. And a portion of your shares will be held in escrow for years. Second, your ownership position may be seriously whittled down. However, while the IPO as an exit strategy offers the greatest risk, it also offers potentially the greatest rewards. 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%.

IPO
An IPO is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO.
25

Companies fall into two broad categories: private and public.

COMPANY

PRIVATE

PUBLIC

A privately held company has fewer shareholders and its owners don't have to disclose much information about the company. Anybody can go out and incorporate a company: just put in some money, file the right legal documents and follow the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too. It usually isn't possible to buy shares in a private company. You can approach the owners about investing, but they're not obligated to sell you anything.

Public companies, on the other hand, have sold at least a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is also referred to as "going public."

Public companies have thousands of shareholders and are subject to strict rules and regulations. They must have a board of directors and they must report financial information every quarter. In the United States, public companies report to the Securities and Exchange Commission (SEC). In other countries, public companies are overseen by governing bodies similar to the SEC. From an investor's standpoint, the most exciting thing about a public company is that the stock is traded in the open market, like any other commodity. If you have the cash, you can invest. The CEO could hate your guts, but there's nothing he or she could do to stop you from buying stock. 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. In an IPO, the issuer obtains 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
26

predict what the stock 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.

Primary and Secondary markets

In the primary market securities are issued to the public and the proceeds go to the issuing company. Secondary market is term used for stock exchanges, where stocks are bought and sold after they are issued to the public.

PRIMARY MARKET The first time that a companys shares are issued to the public, it is by a process called the initial public offering (IPO). In an IPO the company offloads a certain percentage of its total shares to the public at a certain price. Most IPOS these days do not have a fixed offer price. Instead they follow a method called BOOK BUILDING PROCESS, where the offer price is placed in a band or a range with the highest and the lowest value. The public can bid for the shares at any price in the band specified. Once the bids come in, the company evaluates all the bids and decides on an offer price in that range. After the offer price is fixed, the company allots its shares to the people who had applied for its shares or returns them their money. SECONDARY MARKET Once the offer price is fixed and the shares are issued to the people, stock exchanges facilitate the trading of shares for the general public. Once a stock is listed on an exchange, people can start trading in its shares. In a stock exchange the existing shareholders sell their shares to anyone who is willing to buy them at a price agreeable to both parties. Individuals cannot buy or sell shares in a stock exchange directly; they have to execute their transaction through authorized members of the stock exchange who are also called STOCK BROKERS.

27

DIFFERENT KINDS OF ISSUE

Issues can be classified as public, Rights or Preferential issues. The procedure for Preferential issue is simple than public issue.

Initial Public Offer (IPO)

This is when an unlisted company makes either a fresh issue or offers sale of its existing securities or both for the first time to public. In other words it is the first sale of a corporation's common shares to investors on a public stock exchange. This Initial Public Offering can be made through the fixed price method, book building d or a combination of both. In case the issuer chooses to issue securities through the book building route then as per SEBI guidelines, an issuer company can issue securities in the following manner: a) 100% of the net offer to the public through the book building route. b) 75% of the net offer to the public through the book building process and 25% through the fixed price portion.
28

A follow on public offering (Further Issue)

This 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.

Rights Issue
This is when listed company offers fresh issue to existing shareholders on a record date. Rights issue are offered in particular ratio to the number of securities held prior by the shareholder before the issue.

A Preferential issue
This is an issue of shares or of convertible securities by listed companies 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. The issuer company has to comply with the Companies Act and the requirements contained in the Chapter pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, disclosures in notice etc. Inter-alia includes pricing, disclosures in notice etc.

29

THE UNDERWRITING PROCESS (GETTING IN ON AN IPO)

Getting a piece of a hot IPO is very difficult, if not impossible. To understand why, we need to know how an IPO is done, a process known as underwriting. When a company wants to go public, the first thing it does is hire an investment bank. A company could theoretically sell its shares on its own, but realistically, an investment bank is required. Underwriting is the process of raising money by either debt or equity (in this case we are referring to equity). You can think of underwriters as middlemen between companies and the investing public. The biggest underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse First Boston, Lehman Brothers and Morgan Stanley. The company and the investment bank will first meet to negotiate the deal. Items usually discussed include the amount of money a company will raise, the type of securities to be issued and all the details in the underwriting agreement. The deal can be structured in a variety of ways. For example, in a firm commitment, the underwriter guarantees that a certain amount will be raised by buying the entire offer and then reselling to the public. In a best efforts agreement, however, the underwriter sells securities for the company but doesn't guarantee the amount raised. Also, investment banks are hesitant to shoulder all the risk of an offering. Instead, they form a syndicate of underwriters. One underwriter leads the syndicate and the others sell a part of the issue. Once all sides agree to a deal, the investment bank puts together a registration statement to be filed with the SEC. This document contains information about the offering as well as company info such as financial statements, management background, any legal problems, where the money is to be used and insider holdings. The SEC then requires a cooling off period, in which they investigate and make sure all material information has been disclosed. Once the SEC approves the offering, a date (the effective date) is set when the stock will be offered to the public. During the cooling off period the underwriter puts together what is known as the red herring. This is an initial prospectus containing all the information about the company except for the offer price and the effective date, which aren't known at that time. With the red herring in hand, the underwriter and company attempt to hype and build up

30

interest for the issue. They go on a road show where the big institutional investors are courted. As the effective date approaches, the underwriter and company sit down and decide on the price. This isn't an easy decision: it depends on the company, the success of the road show and, most importantly, current market conditions. Of course, it's in both parties' interest to get as much as possible. Finally, the securities are sold on the stock market and the money is collected from investors. As you can see, the road to an IPO is a long and complicated one. You may have noticed that individual investors aren't involved until the very end. This is because small investors aren't the target market. They don't have the cash and, therefore, hold little interest for the underwriters. If underwriters think an IPO will be successful, they'll usually pad the pockets of their favourite institutional client with shares at the IPO price. The only way for you to get shares (known as an IPO allocation) is to have an account with one of the investment banks that is part of the underwriting syndicate. But don't expect to open an account with $1,000 and be showered with an allocation. You need to be a frequently trading client with a large account to get in on a hot IPO. Bottom line, your chances of getting early shares in an IPO are slim to none unless you're on the inside. If you do get shares, it's probably because nobody else wants them. Granted, there are exceptions to every rule and it would be incorrect for us to say that it's impossible. Just keep in mind that the probability isn't high if you are a small investor.

31

PROCESS OF IPO
The process of initial public offering consists of several steps.

Those are discussed below: When a company is aiming to go public, at first it hires an investment bank to do the underwriting, the way of raising money through equity or debt, functions associated with the issue. Although, a company itself also may sell its shares but, usually an investment bank is selected for that purpose. Underwriters act as intercessors between the public, who are investing, and the companies. The investment bank and the company will first initiate the process of deal negotiation. The main discussing issues are the money amount that the company is going to raise, security type to be issued and all the other details involved with the underwriting agreement. Once the deal gets finalized, the investment bank sets a registration statement up which will be submitted to the Securities and Exchange Commission. That registration statement consists of information regarding the offering and also other company informations like, background of the management, financial statements, legal issues etc. Then the Securities and Exchange Commission (SEC) needs a cooling off period during which it will examine all the submitted documents and make sure that all information regarding the deal has been given to them. After getting the SEC's approval, a date is going to be fixed on which the company will offer the stock to the public. During the above mentioned cooling off period the underwriter publishes an initial prospectus that contains all the necessary information regarding the company. The effective dates of issuing the stock as well as the price have not been mentioned in the prospectus, for these are not known at this time. Then the company and the underwriter meet to decide the price of the stock. This decision depends highly on the current market condition. Lastly, the stocks are sold in the market and money is raised from the investors.

32

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 feature 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.

33

IPO ADVANTAGES AND DISADVANTAGES

ADVANTAGES OF IPO
Access to Capital: The principal motivation for going public is to have access to
larger capital. A company that does not tap the public financial market may find it difficult to grow beyond a certain point for want of capital.

Stockholder Diversification: As a company grows and becomes more valuable,

its founders often have most of its wealth tied up in the company .By selling some of their stock in a public offering; the founders can diversify their holdings and thereby reduce somewhat the risk of their personal portfolios.

Easier to raise new capital: If a privately held company wants to raise capital a
sale of a new stock, it must either go its existing shareholders or shop around for other investors. This can often be a difficult and sometimes impossible process. By going public it becomes easier to find new investors for the business.

Enhances liquidity: The stock of a closely held firm is not liquid. If one of the
holders wants to sell some of his shares, it is hard to find potential buyers especially if the sum involved is large. These problems are easily overcome in a publicly owned company.

Establishes value for the firm: This can be very useful in attracting key
employees with stock options because the underlying stock have a market value and a market for them to be traded that allows for liquidity for them.

Image: The reputation and visibility of the company increases. Other Advantages:
Window of opportunity.

34

It commands better valuation of the company. Better situated for making acquisitions

DISADVANTAGES OF IPO
A public company, of course is not an unmixed blessing. There are several disadvantages of going public.

Disclosure: A public company is required to disclose information to investors and

others. Hence, it cannot maintain a strict veil of secrecy over its expansion plans and product market strategies as its non- public counterpart can do. Management may not like the idea of reporting operating data, because such data will then be available to competitors.

Dilution: When a company issues shares to public, existing shareholders suffer

dilution of their proportionate ownership in the firm. Loss of flexibility: The affairs of a public company are subject to fairly comprehensive regulation. Hence, when a non- public company is transformed into a public company there is some loss of flexibility.

Public pressure: Because of its greater visibility a public company may be

pressurized to do things that it may not otherwise do.

Adverse selection: Investors, in general, no less than the issuers about the value of
companies that go public. Put differently, they are potential victims of adverse selection. Aware of this trap, they are reluctant to participate in public issues unless they are significantly underpriced. Hence, a company making an IPO typically has to under price securities in order to stimulate investor interest and participation.

Self dealings: The owners managers of closely held companies have many
opportunities for self- transactions, although legal they may not want to disclose to the

35

public Inactive market low price: If a firm is very small and its shares are not traded frequently, then its stock will not really be liquid and the market price may not be truly representative of the stocks value.

Control: Owning less than 50% of the shares could lead to a loss of control in the
management.

Costs: Apart from the cost of issuing securities, a public company has to incur
recurring costs for providing investors with periodical reports, holding shareholder meetings communicating with institutional investors and financial analyst, and fulfilling various statutory obligations like filing quarterly reports with the SEBI. These reports can be costly especially for small firms.

Other Disadvantages: The profit earned by the company should be shared with its investors in the form of dividend An IPO is a costly affair. Around 15-20% of the amount realized is spent on raising the same. A substantial amount of time and effort has to be investing.

36

PARAMETERS TO JUDGE AN IPO

Good investing principles demand that you study the minutes of details prior to investing in an IPO. Here are some parameters you should evaluate:-

Promoters
Is the company a family run business or is it professionally owned? Even with a family run business what are the credibility and professional qualifications of those managing the company? Do the top level managers have enough experience (of at least 5 years) in the specific type of business?

Industry Outlook
The products or services of the company should have a good demand and scope for profit.

Business Plans
Check the progress made in terms of land acquisition, clearances from various departments, purchase of machinery, letter of credits etc. A higher initial investment from the promoters will lead to a higher faith in the organization.

Financials
Why does the company require the money? Is the company floating more equity than required? What is the debt component? Keep a track on the profits, growth and margins of the previous years. A steady growth rate is the quality of a fundamentally sound company. Check the assumptions the promoters are making and whether these assumptions or expectations sound feasible.

Risk Factors
The offer documents will list our specific risk factors such as the companys liabilities, court cases or other litigations. Examine how these factors will affect the operations of the company.

37

Key Names
Every IPO will have lead managers and merchant bankers. You can figure out the track record of the merchant banker through the SEBI website.

Pricing
Compare the companys PER with that of similar companies. With this you can find out the P/E Growth ratio and examine whether its earnings projections seem viable.

Listing
You should have access to the brokers of the stock exchanges where the company will be listing itself.

38

PRINCIPAL STEPS IN IPOWho decides the IPO Price? Company with the help of lead managers decides the price or price band of an IPO. Merchant bankers or syndicate members are acting as the lead managers of companies.

Registrars to the Issue Registrar plays an important role in an IPO process. Their main job involves processing of IPO applications, allocation of shares to the applicants on the guidelines provided by SEBI, processing refunds and also allocating shares in the account of the applicants.

Lead managers in an IPO Lead managers are the independent financial institutions which are appointed by the companies generally involving big IPOs. Their main responsibility is to initiate the IPO process, help the company in road shows, creating draft offer document and also getting the same approved by the SEBI and Stock exchange sand also helping the company in getting its shares listed on the stock exchanges.

Life cycle of IPO Prospectus There are three stages in the life cycle of an IPO ProspectusDraft offer document Offer document Red Herring prospectus

Stage 1:- Draft offer document Issuing company and the Book building lead managers prepare the draft offer document which is submitted to SEBI for the review. Now the SEBI may ask the lead managers to either make any changes if required or approve it. Issuing company and the Book building lead managers prepare the draft offer document which is submitted to SEBI for the review. Now the SEBI may ask the lead managers to either make any changes if required or approve it.

39

Stage 2:- Offer document Once the Draft offer document gets cleared by SEBI it becomes offer document, offer document is a modified version of Draft offer document after SEBI suggestion.

Stage 3:- Red Herring prospectus Once the offer document gets clearance from SEBI the issuing company adds number of shares and the price on the document which is then offered to the public. The issue prospectus is now called the red herring prospectus.

Life cycle of an IPO

There are eight major steps in the life cycle of an IPO such as: IPO process initialization Pre Issue Role - Part 1 Prospectus Review Pre Issue Role - Part 2 Bidding for the public issue Price Fixing Processing IPO Applications Stock Listing

IPO process initialization - Issuing Company Lead managers are appointed as book runners Registrar to the issue are appointed Syndicate members are appointed.

Pre Issue Role - Part 1 - Lead Manager's Draft offer prospectus document for IPO is prepared Filing of draft offer prospectus with SEBI. Road shows are conducted. Prospectus Review SEBI Reviewing draft offer prospectus by SEBI If any changes are required in the document it is sent back the draft offer prospectus becomes Offer Prospectus after the approval of SEBI.

Pre Issue Role - Part 2 - Lead Manager submit the offer documents to SEBI decision on the issue date & issue price band is taken Offer Prospectus modification with respect

40

to date and price band if any. Document is now called Red Herring Prospectus. Printing and distribution of red herring prospectus and IPO document to syndicate members. Bidding for the public issue Investor Public Issue is opened for investors bidding. Filling of application form by the investor, providing bidding information to BSE/NSE Sending the cheques collected to the registrar by syndicate Members. Revision of bid by investor if any, Updating stock exchanges with latest data closing of public issue.

Price Fixing - Lead Manager Lead managers evaluate the final issue price. Red Herring Prospectus is updated with the final issue price and sent to SEBI and Stock Exchanges. Processing IPO Applications Registrar all cheques and application forms are received by registrar Applicant data is feeded into systems Cheques are sent for clearance. Looking out for all bogus application Finalizing the pattern for share allotment Preparing 'Basis of Allotment' Transferring shares in the demat account of investors. Refund the remaining money though ECS or Cheques.

Stock Listing - Lead manager after the completion of all the above process lead managers decide the listing date with stock exchanges.

41

SEBI GUIDELINES FOR IPO'S

It should be a public company as defined under the Companies Act, 1956 Allotment has to be made within 30 days of the closure of the Public Issue and 42 days in case of a Rights issue. Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock exchange. For listing an IPO on the NSE firstly, firstly, Paid up capital should be Rs. 20 Crores, secondly the issuer or the promoting company should have a track record of profitability and thirdly the project should be appraised by a financial Institution, banks or Category I merchant bank. For knowledge based companies like IT the paid up capital should be Rs. 5 Crores, but the market capitalization should be at least Rs. 50 Crores. It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located. A Venture Capital Fund shall not be entitled to get its securities listed on any stock exchange till the expiry of 3 years from the date of issuance of securities. In an issue of more than Rs. 100 crores the issuer is allowed to place the whole issue by book building. Minimum of 50% of the Net offer to the Public has to be reserved for Investors applying for less than 1000 shares. All the listing formalities for a public Issue has to be completed within 70 days from the date of closure of the subscription list. There should be at-least 5 investors for every 1 lakh of equity offered. Quoting of permanent Account number or GIR No. in application for allotment of securities is compulsory where monetary value of I n v e s t m e n t i s Rs.50, 000/- or above. Firm Allotment to permanent and regular employees of the issuer is subject to a ceiling of 10% of the issue amount. Indian development financial institutions a nd Mutual Fund can be allotted securities up to 75% of the Issue Amount. Allotment to categories of FIP's and NRI's/OCB's is up to Maximum of 24%w h i c h can be further extended to 30% by an

a p p l i c a t i o n t o t h e R B I - supported by a resolution passed in the General Meeting.

42

 10% individual ceiling for each category a) Permanent e m p l o y e e s ' b ) Shareholding of the promoting companies. S e cu ri t i e s i ss ue d t o t he p r om ot e r, hi s gr oup co m p an i e s b y wa y of fi rm allotment and reservation have a lock-in period of 3 years. However shares allotted to FII's and certain Indian and multilateral development financial institutions and Indian Mutual Funds are not subject to Lock-in periods. Th e m i ni m u m pe ri od f or w hi ch a pu b l i c i s su e h as t o b e ke pt op en i s 10 working days. The minimum period for a rights issue is 15 working days and the maximum 60 working days. A public issue is affected if the issue is able to procure 90% of the Total issue size within 60 days from the date of earliest closure of the Public Issue. In c a se of o v e r - su bs c ri p t i o n t h e c om p a n y m a y h a v e t h e ri ght t o r et ai n t h e excess application money and allot shares more than the proposed issue which is referred to as the 'green-shoe' option. A rights issue has to procure 90% subscription in 60 days of the opening of the issue: Refund orders have to be dispatched within 30 days of the closure of the Public Issue.

43

PRICING OF AN IPO
Controller of capital issue:
During the controller of capital issue (CCI) regime the issues were priced by the company and approved by CCI. Generally the CCI was very conservative and hardly allowed premium issues.

Arrival of SEBI:
After the arrival of SEBI free market policy is followed for pricing of issue .Merchant bankers are responsible for justifying the premium. The company was allowed to give future profit projections. A company can issue shares to applicants in the firm allotment category at higher price than the price at which securities are offered to public. Further, an eligible company is free to make public/rights issue in any denomination determined by it in accordance with the Companies Act, 1956 and SEBI norms.

Deciding premium by bid system:

Since year 2000 SEBI has changed pricing formula. The promoters cannot give future projections and merchant banker alone cannot decide the pricing of IPO.

At present, 50% of the IPO is reserved for the wholesale investors and 50% is for the small investor. The lead manager starts road show in consultation with institutional investors. Then they call for bid at recommend prices. Once, the bids are received pricing is open for discussion. The mean bid price is accepted and allocation is done. The lead manager has to ensure full subscription of the full quota. Then the price is declared in the newspapers. The retail investor has to follow this price and submit application with cheque or demand draft. This part of the issue should also be fully subscribed if the issue is not underwritten and subscription received is less than 90% then the IPO is considered as fail and whatever fund has been received has to refund. The important and difficult aspects of IPO. However in the present scenario most of the issues are priced by the book building method. Accurate pricing is essential for the success of IPO. Company losses money it has spent on IPO. Thus pricing is most and difficult aspects of IPO. However in the present scenario most of the issues are priced by the book building method. Accurate pricing is essential for the success of IPO.
44

RISK FACTOR
Investing in IPO is often seen as an easy way of investing, but it is highly risky and many investment advisers advise against it unless you are particularly experienced and knowledgeable. The risk factor can be attributed to the following reasons:

No Past Track Record of the Company:

No past track record of the company adds further to the dilemma of the shareholders as to whether to invest in the IPO or not. With no past track record, it becomes a difficult choice for the investors to decide whether to invest in a particular IPO or not, as there is basis to decide whether the investment will be profitable or not.

Unpredictable nature of IPO:

The Unpredictable nature of the IPOs is one of the major reasons that investors advise against investing in IPOs. Shares are initially offered at a low price, but they see significant changes in their prices during the day. It might rise significantly during the day, but then it may fall steeply the next day.

Potential of Stock Market:

Returns from investing in IPO are not guaranteed. The Stock Market is highly volatile. Stock Market fluctuations widely affect not only the individuals and household, but the economy as a whole. The volatility of the stock market makes it difficult to predict how the shares will perform over a period of time as the profit and risk potential of the IPO depends upon the state of the stock market at that particular time.

45

RISK ASSESSMENT

The possibility of buying stock in a promising start-up company and finding the next success story has intrigued many investors. But before taking the big step, it is essential to understand some of the challenges, basic risks and potential rewards associated with investing in an IPO.

This has made Risk Assessment an important part of Investment Analysis. Higher the desired returns, higher would be the risk involved. Therefore, a thorough analysis of risk associated with the investment should be done before any consideration. For investing in an IPO, it is essential not only to know about the working of an IPO, but we also need to know about the company in which we are planning to invest. Hence, it is imperative to know:

The fundamentals of the business The policies and the objectives of the business Their products and services Their competitors Their share in the current market The scope of their issue being successful

It would be highly risky to invest without having this basic knowledge about the company. There are 3 kinds of risks involved in investing in IPO:

Business Risk
It is important to note whether the company has sound business and management policies, which are consistent with the standard norms. Researching business risk involves examining the business model of the company.
46

Financial Risk
Is this company solvent with sufficient capital to suffer short-term business setbacks? The liquidity position of the company also needs to be considered. Researching financial risk involves examining the corporation's financial statements, capital structure, and other financial data.

Market Risk:
It would beneficial to check out the demand for the IPO in the market, i.e., the appeal of the IPO to other investors in the market. Hence, researching market risk involves examining the appeal of the corporation to current and future market conditions.

47

MARKETING OF IPO
The role of marketing, and particularly promotion, in the pricing and trading of securities is fairly limited.

PRELIMINARY REQUIREMENTS
The company has to complete all legal requirements, appoint all intermediaries and once they get SEBI card (approval). The process of marketing of IPO can commence.

TIMING OF IPO
This is most important factor for the success of IPO. If , secondary market is depressed, if there is political unrest, if serious international problems are prevailing then it is considered to be negative factors for timing of IPOs. If these factors are favourable then the Company must find out about the timing of other prestigious IPOs. Normally in good times many companies are crowding at the same time. A question of Timing Timing the issue is crucial as it determines the success or failure of an issue to a great extent. During 1995-96, primary market boom, there was a period during which there were two to three issues in a day. This is a dangerous situation. The ideal time for marketing an issue is a boom in the secondary market, peaceful socio-political-economic environment and at least two days gap between two issues.

Marketing of Initial Public Offers (IPOs) through the secondary market:

SEBI approved a proposal of marketing IPOs through the secondary market. It process to use the existing infrastructure of stock exchanges , presently being used for secondary market transactions, for marketing IPOs with a view to get rid of certain inherent disadvantages faced by issuers and investors like tremendous load on banking

48

and postal system and huge costs in terms of money and time associated with the issue process. This system would confirm to all extant requirements . the investor would approach broker for placing an order for buying shares of

primary issues. the registrar in consultation with merchant banker and the regional stock exchange of the issuer will finalize the basis of allotment and intimate the same to the exchanges who in turn shall inform the brokers. The brokers will advise the successful allotters to submit the application form and the amount payable towards the shares. the broker will deposit the amount received in a separate escrow account for the primary market issue. the clearing house of the exchange will debit the primary issue account of the broker and credit the issuers account. Subsequently, the certificates would be delivered to the investors or the depository account of the investor would be credited. the securities can be listed on the stock exchange from the 15th day As investors will have to part with their funds only on successful. Allotment, their funds are not unnecessarily blocked. This would also ensure that refunds are done away with. The system seeks to reduce the time taken presently for completion of the issue process, as well as the cost of the issue.

GENERAL PROCEDURE FOR MARKETING OF IPO

PRESS CONFERENCE
Promoters and Lead Managers call for press conference in each major investment enter. Reporters are briefed about the issue. They carry it as news-item in their papers.

49

INVESTORS CONFERENCE
The prospective investors are called by invitation. The promoters and lead managers give presentations. They reply to the questions of the investors to boost their confidence.

ROAD-SHOW
This is like the investors conference but normally is done abroad for marketing ADR/GDR Issues. It is an expensive process and requires a lot of legal compliances. The company has to observe the rules of the concerned country. However, road shows are becoming more and more popular in India.

NEWSPAPER ADVERTISEMENT
The company releases statutory advertisements in leading newspapers. The company has to publish abridges prospectus in leading newspapers. It is the responsibility of the promoters to ensure that the issuing company and their group companies should not release any commercial advertisement, which may influence the investors decision for investment.

PRINTING STATIONERY-PROSPECTUS
The company has to print approved prospectus and provide enough copies to all intermediaries. If any investor asks for a copy of prospectus it must be provided to him without any fees. Sufficient quantities should be maintained at the registered office of the company and with the Lead Managers.

50

TOP IPOS IN INDIA

1) Coal India ltd.

IPO SIZE 15000 Crore Year of issue 2010 The Government has announced that it will be fixing the price of Coal India Ltds (CIL) initial public offering (IPO) at the upper end of the price band at Rs. 245 per share. This decision was taken yesterday in view of the high demand the IPO witnessed. The IPO of Coal India was oversubscribed by more than 15.28 times the Coal India. IPO issue received bids for almost US$ 53 billion worth of equity shares as against issue size of US$ 3.5 billion. This is one of the biggest IPOs to ever hit the Indian Capital Markets. The portion for Qualified institutional buyers(QIBs) for whom there was a reservation of 50 per cent of the shares has been oversubscribed by as much as 24.7times.The retail segment saw more than 16.45lakh applications received, which is a new record and the highest that any PSUs IPO has so far attracted. The government has stated that the amount of Rs. 15,200 crore that it will mop from this disinvestment will be utilised for infrastructure and development programmes in the rural areas of India. Coal India Limited is the holder of the worlds largest coal reserves and also the largest producer .It is ranked as one of the lowest cost coal mining firms in the world. The issue price of Coal India is far lower than what its global peers are valued at and this has prompted the huge retail and FII interest in the company. Experts and analysts expect Coal India to list above Rs 300 on its day of listing. In the grey market the shares are already trading and deals are being made at a premium of Rs 30 Rs 40 per share. Some experts believe Coal Indias fair value is at least Rs 316 per share as coal prices are unlikely to come down in India. This assessment of fair value of Rs 316 is based on the Discounted Cash Flow valuation. At an issue price of Rs 245 per share, Coal India will enjoy a valuation of more than US$ 35 billion, which will make it the seventh highest among Indias listed firms.

51

2) Oil and natural gas Corporation (ONGC) IPO size: Rs 9,500 crore Year of issue: 2004 ONGC's public offering opened on March 5, 2004.The IPO was oversubscribed within half an hour of its opening, with estimated proceeds of Rs 9,500 crore (Rs 95 billion).Till the Reliance Power IPO was launched, the ONGC offering was the largest IPO by any company ever in the Indian capital markets with 142.59 million shares being sold through the book-building route in a price band of Rs 680-750.

3) DLF LTD. IPO size: Rs 9,188 crore Year of issue: 2007 DLF Universal's IPO hit the markets on June 11, 2007and closed on June 14.Although scheduled for June 2006, the IPO ran into rough weather with minority investors create a furore with 'chatting' allegations against the company.DLF managed to settle this issue and filed a new prospectus with the Securities and Exchange Board of India. The SEBI approval for the same was received soon after.DLF Universal priced its IPO between Rs 500 and Rs 550. It was earlier expected to price the issue around Rs 600. The issue rose about Rs 9,188 crore (Rs 91.88 billion). The IPO was oversubscribed a modest 3.45 times.

4) Tata Consultancy Services ltd. (TCS) IPO size: Rs 5,420 crore Year of issue: 2004

52

India's largest IT company, Tata Consultancy Services Ltd, offered 5.54 crore (55.4 million) equity shares of Re 1 each; including a fresh issue of 2.27crore (22.7million) shares, in its initial public offering through a book-building route. The Rs 5,000-crore (Rs 50 billion) IPO opening coincided with the birth centenary of JRD Tata, who was at the helm of the Tata group for over four decades before Ratan Tata took charge. The issue also comprised an offer for sale of 3.26 crore (32.6 million) shares by Tata Sons Ltd and certain other shareholders of TCS, and a further green shoe option by Tata Sons for 831,000 shares each. The company rose about Rs 5,420 crore (Rs 54.20 billion) through the IPO.

5) Reliance Petroleum ltd. IPO size: Rs 2,700 crore Year of issue: 2006 Reliance Petroleum opened for bidding on April 13, 2006. The price band was fixed at Rs 57 to Rs 62 and the bidding closed on April 20, 2006. This was the second time in the market for the petrochemical major, after 1993 when it first came out with an IPO. The company offered 45 crore (450 million) equity shares for subscription. Retail investors could bid for up to 1,600 shares at the upper end of the price band and they needed to pay only Rs 16 per share at the time of bidding. The balance amount was to be payable on allotment. The company raised Rs 2,700 crore (Rs 27billion) through the IPO.

53

BIBLIOGRAPHY
www.yahoo.com www.google.com www.moneycontrol.com www.yahoofinance.com www.wikipedia.com www.bullishindian.com www.rupya.com www.investorguide.com www.hdil.in/

54