Ipo in India

CHAPTER: 1
THE INDIAN CAPITAL MARKET - AN OVERVIEW
Capital market in any country plays an important role in supporting technological progress
and in economic development by channeling funds for investment in productive assets,
contributing to long term growth prospects of the economy. The direct influence of capital
market is seen in the growth of corporate sector, that have reduced the dependent on bank
as a source of finance to raise in the capital market.
It consists of primary and secondary markets. The primary market deals with the issue of
new instruments by the corporate sector such as equity shares, preference shares and debt
instruments. Central and State governments, various public sector industrial units (PSUs),
statutory and other authorities such as state electricity boards and port trusts also issue
bonds/debt instruments.
The primary market in which public issue of securities is made through a prospectus is a
retail market and there is no physical location. Offer for subscription to securities is made
to investing community. The secondary market or stock exchange is a market for trading
and settlement of securities that have already been issued. The investors holding securities
sell securities through registered brokers/sub-brokers of the stock exchange. Investors who
are desirous of buying securities purchase securities through registered brokers/sub-brokers
of the stock exchange. It may have a physical location like a stock exchange or a trading
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floor. Since 1995, trading in securities is screen-based and Internet-based trading has also
made an appearance in India.
The secondary market consists of 23 stock exchanges including the National Stock
Exchange, Over-the-Counter Exchange of India (OTCEI) and Inter Connected Stock
Exchange of India Ltd. The secondary market provides a trading place for the securities
already issued, to be bought and sold. It also provides liquidity to the initial buyers in the
primary market to re-offer the securities to any interested buyer at any price, if mutually
accepted. An active secondary market actually promotes the growth of the primary market
and capital formation because investors in the primary market are assured of a continuous
market and they can liquidate their investments. The securities market moved from T+3
settlement period to T+2 rolling settlement with effect from April 1, 2003
1.1 CAPITAL MARKET PARTICIPANTS:
There are several major players in the primary market. These include the merchant bankers,
mutual funds, financial institutions, foreign institutional investors (FIIs) and individual
investors. In the secondary market, there are the stock brokers (who are members of the
stock exchanges), the mutual funds, financial institutions, foreign institutional investors
(FIIs), and individual investors. Registrars and Transfer Agents, Custodians and
Depositories are capital market intermediaries that provide important infrastructure
services for both primary and secondary markets.
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1.2 MARKET REGULATION:
It is important to ensure smooth working of capital market, as it is the arena where the
players in the economic growth of the country come together. Various laws have been
passed from time to time to meet this objective.
The financial market in India was highly segmented until the initiation of reforms in 1992-
93 on account of a variety of regulations and administered prices including barriers to
entry. The reform process was initiated with the establishment of Securities and Exchange
Board of India (SEBI).
The legislative framework before SEBI came into being consisted of three major Acts
governing the capital markets:
1. The Capital Issues Control Act 1947, which restricted access to the securities market and
controlled the pricing of issues.
2. The Companies Act, 1956, which sets out the code of conduct for the corporate sector in
relation to issue, allotment and transfer of securities, and disclosures to be made in public
issues.
3. The Securities Contracts (Regulation) Act, 1956, which regulates transactions in
securities through control over stock exchanges. In addition, a number of other Acts, e.g.,
the Public Debt Act, 1942, the Income Tax Act, 1961, the Banking Regulation Act, 1949,
have substantial bearing on the working of the securities market.
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1.3 PRIMARY MARKET:
Companies raise funds to finance their projects through various methods. The promoters
can bring their own money of borrow from the financial institutions or mobilize capital by
issuing securities. The funds maybe raised through issue of fresh shares at par or premium,
preferences shares, debentures or global depository receipts. The main objectives of a
capital issue are given below:
• To promote a new company
• To expand an existing company
• To diversify the production
• To meet the regular working capital requirements
• To capitalize the reserves
Stocks available for the first time are offered through primary market. The issuer may be a
new company or an existing company. These issues may be of new type or the security
used in the past. In the primary market the issuer can be considered as a manufacturer. The
issuing houses, investment bankers and brokers act as the channel of distribution for the
new issues. They take the responsibility of selling the stocks to the public.
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1.3.1 THE FUNCTION OF PRIMARY MARKET:
The main service functions of the primary market are origination, under writing and
distribution. Origination deals with the origin of the new issue. The proposal is analyzed in
terms of the nature of the security, the size of the issue, timing of the issue and floatation
method of the issue. Underwriting contract makes the share predictable and removes the
element of uncertainty in the subscription (underwriting is given in the latter part of this
chapter). Distribution refers to the sale of securities to the investors. This is carried out with
the help of the lead managers and brokers to the issue.
1.3.2 FACTORS CONSIDERED BY THE INVESTORS:
Promoter’s Promoter’s past performance with reference to the companies

Credibility promoted by them earlier.
The integrity of the promoters should be found out with enquiries
and from financial magazines and newspapers.
Efficiency of the The managing director’s background and experience in the field.
Management The composition of the Board of Directors is to be studied to find
out whether it is broad based and professionals are included.
Project Details The credibility of the appraising institution or agency.

The stake of the appraising agency in the forthcoming issue.
Product Reliability of the demand and supply projections of the product.

Competition faced in the market and the marketing strategy.
If the product is export oriented, the tie-up with the foreign
collaborator or agency for the purchase of products.
Financial Data Accounting policy.

Revaluation of the assets, if any.
Analysis of the data related to capital, reserves, turnover, profit,
dividend record and profitability ratio.
Litigation Pending litigations and their effect on the profitability of the

company. Default in the payment of dues to the banks and
financial institutions.
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Risk Factors A careful study of the general and specific risk factors should be
carried out.
Auditor’s Report A through reading of the auditor’s report is needed especially with
reference to significant notes to accounts, qualifying remarks and
changes in the accounting policy. In the case of letter of offer the
investors have to look for the recently audited working result at
the end of letter of offer.
Statutory Investor should find out whether all the required statutory
Clearance clearance has been obtained, if not, what is the current status. The
clearances used to have a bearing on the completion of the
project.
Investor Service Promptness in replying to the enquiries of allocation of shares,

refund of money, annual reports, dividends and share transfer
should be assessed with the help of past record.
1.4 INITIAL PUBLIC OFFERINGS:
The first offering of a company’s shares to the public. The shares offered may be existing
ones held privately, or the company may issue new shares to the public.
1.4.1 PARTIES INVOLVED IN THE IPO:
The promoters also should have a clear idea about the agencies to coordinate their activities
effectively in the public issue. The various parties involved are:
• The manager to the issue,
• The registrars to the issue,
• Underwriters,
• Bankers,
• Advertising agencies,
• Financial Institutions and
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• Government /Statutory Agencies.
The Managers To The Issue:
Lead managers are appointed by the company to manage the initial public offering
campaign. Their main duties are:
• Drafting of prospectus
• Preparing the budget of expenses related to the issue
• Suggesting the appropriate timings of the public issue
• Assisting in marketing the public issue successfully
• Advising the company in the appointment of registrars to the issue, underwriters,
brokers, bankers to the issue, advertising agents etc.
• Directing the various agencies involved in the public issue.
The merchant banking division of the financial institutions, subsidiary of commercial
banks, foreign banks, private sector banks and private agencies are available to act as lead
mangers. Such as SBI Capital Markets Ltd., Bank of Baroda, Canara Bank, DSP Financial
Consultant Ltd. ICICI Securities & Finance Company Ltd., etc.
The Registrar To The Issue
After the appointment of the lead managers to the issue, in consultation with them, the
Registrar to the issue is appointed. Quotations containing the details of the various
functions they would be performing and charges for them are called for selection. Among
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them the most suitable one is selected. It is always ensured that the registrar to the issue has
the necessary infrastructure like Computer, Internet and telephone.
The Registrars normally receive the share application from various collection centers. They
recommend the basis of allotment in consultation with the Regional Stock Exchange for
approval. Usually registrars to the issue retain the issuer records at least for a period of six
months from the last date of dispatch of letters of allotment to enable the investors to
approach the registrars for redressal of their complaints.
The Underwriters
Underwriting is a contract by means of which a person gives an assurance to the issuer to
the effect that the former would subscribe to the securities offered in the event of non-
subscription by the person to whom they were offered. The person who assures is called an
underwriter. The underwriters do not buy and sell securities. They stand as back-up
supporters and underwriting is done for a commission. Underwriting provides an insurance
against the possibility of inadequate subscription. Underwriters are divided into two
categories:
• Financial Institutions and Banks
• Brokers and approved investment companies.
The company after the closure of subscription list communicates in writing to the
underwriter the total number of shares/debentures under subscribed, the number of
shares/debentures required to be taken up by the underwriter. The underwriter would take
up the agreed portion. If the underwriter fails to pay, the company is free to allot the shares
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to others or take up proceeding against the underwriter to claim damages for any loss
suffered by the company for his denial.
The Bankers To The Issue:
Bankers to the issue have the responsibility of collecting the application money along with
the application form. The bankers to the issue generally charge commission besides the
brokerage, if any. Depending upon the size of the public issue more than one banker to the
issue is appointed. When the size of the issue is large, 3 to 4 banks are appointed as bankers
to the issue. The number of collection centers is specified by the central government. The
bankers to the issue should have branches in the specified collection centers.
Advertising Agents:
Advertising plays a key role in promoting the public issue. Hence, the past track record of
the advertising agency is studied carefully. Tentative program of each advertising agency
along with the estimated cost are called for. After comparing the effectiveness and cost of
each program with the other, a suitable advertising agency if selected in consultation with
the lead managers to the issue. The advertising agencies take the responsibility of giving
publicity to the issue on the suitable media. The media may be newspapers/ magazines/
hoardings/press release or a combination of all.
The Financial Institutions
Financial institutions generally underwrite the issue and lend term loans to the companies.
Hence, normally they go through the draft of prospectus, study the proposed program for
public issue and approve them. IDBI, IFCI & ICICI, LIC, GIC and UTI are the some of the
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financial institutions that underwrite and give financial assistance. The lead manager sends
copy of the draft prospectus to the financial institutions and includes their comments, if any
in the revised draft.
Government And Statutory Agencies
The various regulatory bodies related with the public issue are:
• Securities Exchange Board of India
• Registrar of companies
• Reserve Bank of India (if the project involves foreign investment)
• Stock Exchange where the issue is going to be listed
• Industrial licensing authorities
• Pollution control authorities (clearance for the project has to be stated in the prospectus)
1.4.2 COLLECTION CENTERS
Generally there should be at least 30 mandatory collection centers inclusive of the places
where stock exchanges are located. If the issue is not exceeding Rs.10 Cr (excluding
premium if any) the mandatory collection centers are the four metropolitan centers viz.
Mumbai, Delhi, Kolkatta and Chennai and at all such centers where stock exchanges are
located in the region in which the registered office of the company is situated. The regional
divisions of the various stock exchanges and the places of their locations are given in the
following table:
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Table 1.2: Collection centres
Region Exchange City
Northern Ludhiana Stock Ludhiana

Region Exchange Delhi
Delhi Stock Exchange Jaipur
Jaipur Stock Exchange Kanpur
U P Stock Exchange
Southern Hyderabad Stock Hyderabad

Region Exchange Bangalore
Bangalore Stock Managlore
Exchange Chennai
Mangalore Stock Coimbatore
Exchange Cochin
Madras Stock Exchange
Coimbatore Stock
Exchange
Cochin Stock Exchange
Eastern Region Calcutta Stock Exchange Kolkatta

Gawahati Stock Gawahati
Exchange Patna
Magadh Stock Exchange Bhubaneswar
Bhubaneswar Stock
Exchange
Western Bombay Stock Mumbai

Region Exchange Mumbai
National Stock Mumbai
Exchange Indore
OTCEL Stock Exchange Pune
M P Stock Exchange Vadodara
Pune Stock Exchange Ahmedabad
Vadodara Stock Rajkot
Exchange
Ahmedabad Stock
Exchange
Sauashtra Kutch Stock
Exchange
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In addition to the collection branch, authorized collection agents may also be appointed.
The names and addresses of such agent should be given in the offer documents. The
collection agents are permitted to collect such application money in the form of cheques,
draft, and stock-invests and not in the form of cash. The application money so collected
should be deposited in the special share application account with the designated scheduled
bank either on the same day or latest by the next working day.
The application collected by the bankers to the issue at different centers are forwarded to
the Registrar after realization of the cheques, within a period of 2 weeks from the date of
closure of the public issue. The applications accompanied by stock-invests are sent directly
to the Registrars to the issue along with the schedules within one week from the date of
closure of the issue. The investors, who reside in places other than mandatory and
authorized centers, can send their application with stock-invests to the Registrar to the issue
directly by registered post with acknowledgement due card.
1.4.3 PLACEMENT OF THE IPO
Initial public offers are floated through Prospectus; Bought out deals/offer for sale; Private
Placement and Book Building.
OFFER THROUGH PROSPECTUS
According to Companies (Amendment) Act 1985, application forms for shares of a
company should be accompanied by a Memorandum (abridged prospectus). In simple
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terms a prospectus document gives details regarding the company and invites offers for
subscription or purchase of any shares or debentures from the public. The draft prospectus
has to be sent to the Regional Stock Exchange where the shares of the company are to be
listed and also to all other stock exchanges where the shares are proposed to be listed. The
stock exchange scrutinizes the draft prospectus. After scrutiny if there is any clarification
needed, the stock exchange writes to the company and also suggests modification if any.
The prospectus should contain details regarding the statutory provisions for the issue,
program of public issue – opening, closing and earliest closing date of the issue, issue to be
listed at, highlights and risk factors, capital structure, board of directions, registered office
of the company, brokers to the issue, brief description of the issue, cost of the project,
projected earnings and other such details. The board, lending financial institutions and the
stock exchanges in which they are to be listed should approve the prospectus. Prospectus is
distributed among the stock exchanges, brokers and underwriters, collecting branches of
the bankers and to the lead managers.
Table 1.3: Salient Features of the Prospectus
Salient Features of the Prospectus:
General Name and address of the registered office of the company.

Information The name(s) of the stock exchange(s) where applications have
been made for permission to deal in and for official quotations of
shares/debentures.
Opening, closing and earliest closing dates of the issue.
Name and address of lead managers.
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Capital Structure Issued, subscribed and paid-up capital.
of the Company Size of the present issue giving separately reservation for
preferential allotment to promoters and others.
Paid-up capital – After the present issue
Details regarding the promoter’s contribution.
Terms of the Authority for the issue, terms of payment, procedure and time
Present Issue schedule for allotment, issue of certificate and rights of the
instrument holders.
How to apply – availability of forms, prospectus and mode of
payment.
Special tax benefits to the company and share holders under the
Income Tax Act, if any.
Particulars of the Object of the issue

Issue Project cost
Means of financing (including promoter’s contribution).
Company, History, main objects and present business of the company.

Management and Subsidiary (ies) of the company, if any.
Project Promoters and their background.
Names, addresses and occupation of managing directors and other
directors including nominee directors and whole-time directors.
Location of the project.
Plant and machinery, technological process etc.
Collaboration, any performance guarantee or assistance in
marketing by the collaborators.
Infrastructure facilities for raw materials and utilities like water,
electricity etc.
Schedule of implementation of the project and progress so far,
giving details of land acquisition, civil works, installation of plant
and machinery, trail production, consumer production etc.
The Product – (a) Nature of the products – Consumer or Industrial
and the end users; (b) Approach to marketing and proposed
marketing set-up; (c) Export possibilities and export obligations,
if any.
Future prospects – expected capacity utilization during the first
three years from the date of commencement of production and the
expected year when the company would be able to earn cash
profit and net profit.
Stock market data for shares, debentures of the company (high –
low price for each of the last years in consideration).
Particulars regarding the other listed companies under the same
management, which have made any capital issues during the last
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three years.
Outstanding Details of the outstanding litigations pertaining to matters likely to

Litigations affect the operations and finances of the company including
disputed tax liabilities of any nature, any other default and
criminal prosecution launched against the company.
Risk Factors Management perception of risk factors like sensitivity to foreign

exchange rate fluctuations, difficulty in the availability of raw
materials or in marketing of products, cost, time over-run etc.
Justification of The justification for price is given, taking into account the
the issue following parameters:
premium Performance of the company – reflected by earnings per share and
book value of shares for the past five years.
Future projections in terms of EPS and book value of shares in the
next three years.
Stock market data.
Net asset value as per the latest audited balance sheet.
If the projections are not based on the past data, appraisal made by
a banker or financial institution should be specifically stated.
Financial Financial performance of the company for last five years should
Information be given from the audited annual accounts in tabular form.
Balance sheet date – equity capital, reserves (revaluation reserve,
the year of revaluation and its monetary effect on assets) and
borrowings.
Profit and loss data – sales, gross profit, net profit, and dividend
paid, if any.
Any change in the accounting policy during the last three years
and its effect on the profit and reserves of the company.
Statutory and Minimum subscription.

other Details of the fee payable to Advisers, Registrar, Managers, and
information underwriters.
Details regarding the previous issues, if any.
BOUGHT OUT DEALS (OFFER FOR SALE)
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Here, the promoter places his shares with an investment banker (bought out dealer or
sponsor) who offers it to the public at a later date. In other works in a bought out deal, an
existing company off-loads a part of the promoters’ capital to a wholesaler instead of
making a public issue. The wholesaler is invariably a merchant banker or some times just a
company with surplus cash. In addition to the main sponsor, there could be individuals and
other smaller companies participating in the syndicate. The sponsors hold on to these
shares for a period and at an appropriate date they offer the same to the public. The hold on
period may be as low as 70 days or more than a year.
In a bought out deal, proving is the essential element to be decided. The bought out dealer
decides the price after analyzing the viability, the gestation period, promoters’ background
and future projections. A bough out dealer sheds the shares at a premium to the public.
PRIVATE PLACEMENT
In this method the issue is placed with a small number of financial institutions, corporate
bodies and high net worth individuals. The financial intermediaries purchase the shares and
sell them to investors at a later date at a suitable price. The stock is placed with issue house
client with the medium of placing letter and other documents which taken together
contribute a prospectus, giving the information regarding the issue. The special feature of
the private placement is that the issues are negotiated between the issuing company and the
purchasing intermediaries. Listed public limited company as well as closely held private
limited company can access the public through the private placement method. Mostly in the
private placement securities are sold to financial institutions like Unit Trust of India,
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mutual funds, insurance companies, and merchant banking subsidiaries of commercial
banks and so on. Through private placement equity shares, preference shares, cumulative
convertible preference shares, debentures and bonds are sold.
BOOK BUILDING
Book building is a mechanism through which the initial public offerings (IPOS) take place
in the U.S. and in India it is gaining importance with every issue. Most of the recent new
issue offered in the market has been through Book Building process. Similar mechanisms
are used in the primary market offerings of GDRs also. In this process the price
determination is based on orders placed and investors have an opportunity to place orders
at different prices as practiced in international offerings.
The recommendations given by Malegam Committee paved way for the introduction of the
book building process in the capital market in Oct 1995. Book building involves firm
allotment of the instrument to a syndicate created by the lead managers who sell the issue
at an acceptable price to the public. Originally the potion of book building process was
available to companies issuing more than Rs.100 cr. The restriction on the minimum size
was removed and SEBI gave impression to adopt the book building method to issue of any
size. In the prospectus, the company has to specify the placement portion under book
building process. The securities available to the public are separately known as net offer to
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the public. Nirma by offering a maximum of 100 lakh equity shares through this process
was set to be the first company to adopt the mechanism.
Among the lead managers or the syndicate members of the issue or the merchant bankers as
member. The issuer company as a book runner nominates this member and his name is
mentioned in the draft prospectus. The book runner has to circulate the copy of the draft
prospectus to be filed with SEBI among the institutional buyers who are eligible for firm
allotment. The draft prospectus should indicate the price band within which the securities
are being offered for subscription.
The offers are sent to the book runners. He maintains a record of names and number of
securities offered and the price offered by the institutional buyer within the placement
portion and the price for which the order is received to the book runners. The book runner
and the issuer company finalize the price. The issue price for the placement portion and
offer to the public should be the same. Underwriting agreement is entered into after the
fixation of the price.
One day earlier to the opening of the issue to the public, the book runner collects the
application forms along with the application money from the institutional buyers and the
underwriters. The book runner and other intermediaries involved in the book building
process should maintain records of the book building process. The SEBI has the right to
inspect the records.
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Book building as discussed is a process of offering securities in which bids at various
prices from investors through syndicate members are collected. Based on bids, demand for
the security is assessed and its price discovered. In case of normal public issue, investor
knows the price in advance and the demand is known at the close of the issue. In case of
public issue through book building, demand can be known at the end of everyday but price
is known at the close of issue.
An issuer company proposing to issue capital through book building has two options viz.,
75% book building route and 100% book building route. In case of 100% book building
route is adopted, not more than 60% of net offer to public can be allocated to QIBs
(Qualified Institutional Buyers), not less than 15% of the net offer to the public can be
allocated to non-institutional investors applying for more than 1000 shares and not less than
25% of the net offer to public can be allocated to retail investors applying for up to 1000
shares. In case 75% of net public offer is made through book building, not more than 60%
of the net offer can be allocated to QIBs and not less than 15% of the net offer can be
allocated to non-institutional investors. The balance 25% of the net offer to public, offered
at a price determined through book building, are available to retail individual investors who
have either not participated in book building or have not received any allocation in the
book built portion. Allotment to retail individual or non-institutional investors is made on
the basis of proportional allotment system. In case of under subscription in any category,
the un-subscribed portions are allocated to the bidder in other categories. The book built
portion, 100% or 75%, as the case may be, of the net offer to public, are compulsorily
underwritten by the syndicate members or book runners.
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Other requirements for book building include:
• Bids remain open for at least 5 days.
• Only electronic bidding is permitted.
• Bids are submitted through syndicate members.
• Bids can be revised.
• Bidding demand is displayed at the end of every day.
• Allotments are made not later than 15 days from the closure of the issue etc.
The 100% book building has made the primary issuance process comparatively faster and
cost effective and trading can commence from T+16.
The SEBI guidelines for book building provides that the company should be allowed to
disclose the floor price, just prior to the opening date, instead of in the Red herring
prospectus, which may be done by any means like a public advertisement in newspaper etc.
Flexibility should be provided to the issuer company by permitting them to indicate a 20%
price band. Issuer may be given the flexibility to revise the price band during the bidding
period and the issuers should be allowed to have a closed book building i.e. the book will
not be made public. The mandatory requirement of 90% subscription should not be
considered with strictness, but the prospectus should disclose the amount of minimum
subscription required and sources for meeting the shortfall. The Primary Market Advisory
Committee recommended the practice of ‘green-shoe option’ available in markets abroad
which is an ‘over allotment’ option granted by the issuer to the underwriter in a public
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offering. This helps the syndicate member to over allocate the shares to the extent of option
available and to consequently purchase additional shares from the issuer at the original
offering price in order to cover the over-allotments.
FIXED VERSUS BOOK BUILDING ISSUES
The main difference between offer of shares through book building and offer of shares
through normal public issue can be identified on the following parameters:
• Price at which securities will be allotted is not known in case of offer of shares
through Book Building while in case of offer of shares through normal public issue, price is
known in advance to investor. Under Book Building, investors bid for shares at the floor
price or above and after the closure of the book building process the price is determined for
allotment of shares.
• In case of Book Building, the demand can be known everyday as the book is being
built. But in case of the public issue the demand is known at the close of the issue.
1.4.4 ON-LINE INITIAL PUBLIC OFFERS (IPO)
A company proposing to issue capital to public through on-line system of the stock
exchange has to comply with Section 55 to 68A of the Companies Act, 1956 and SEBI
Guideline, 2000. The company is required to enter into an agreement with the stock
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exchange(s), which have the requisite system for on-line offer of securities. The agreement
should cover rights, duties, responsibilities and obligations of the company and the stock
exchanges inter-se, with provision for a dispute resolution mechanism between the
company and the stock exchange. The issuer company appoints a Registrar to the Issue
having electronic connectivity with the stock exchanges. The issuer company can apply for
listing of its securities at any exchange through which it offers its securities to public
through on-line system, apart from the requirement of listing on the regional stock
exchange. The stock exchange appoints brokers for the purpose of accepting applications
and placing orders with the company. The lead manager would co-ordinate all the activities
amongst various intermediaries connected in the system.
In addition to the above, the SEBI guidelines also provide details of the contents of the
offer document and advertisement, other requirements for issues of securities, like those
under Rule 19(2)(b) of SC(R) Rules, 1957. The guidelines also lay down detailed norms for
issue of debt instruments, Issue of capital by designated financial institutions and
preferential/bonus issues.
1.4.5 ELIGIBILITY TO ISSUE SECURITIES
The issues of capital to public by Indian companies are governed by the Disclosure and
Investor Protection (DIP) Guidelines of SEBI, which were issued in June 1992. SEBI has
been issuing clarifications to these guidelines from time to time aiming at streamlining the
public issue process. In order to provide a comprehensive coverage of all DIP guidelines,
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SEBI issued a compendium series in January 2000, known as SEBI (DIP) Guidelines,
2000. The guidelines provide norms relating to eligibility for companies issuing securities,
pricing of issues, listing requirements, disclosure norms, lock-in period for promoter’s
contribution, contents of offer documents, pre-and post-issue obligations, etc. The
guideline applies to all public issues, offers for sale by listed and unlisted companies.
Eligibility Norms: Any company issuing securities through the offer document has to
satisfy the following conditions:
• A company making a public issue of securities has to file a draft prospectus with SEBI,
through an eligible merchant banker, at least 21 days prior to the filing of prospectus with
the Registrar of Companies (RoCs). The filing of offer document is mandatory for a listed
company issuing security through a rights issue where the aggregate value of securities,
including premium, if any, exceeds Rs.50 lakh. A company cannot make a public issue
unless it has made an application for listing of those securities with stock exchanges(s). The
company must also have entered into an agreement with the depository for
dematerialization of its securities and also the company should have given an option to
subscribers/ shareholders/ investors to receive the security certificates or securities in
dematerialized form with the depository. A company cannot make an issue if the company
has been prohibited from accessing the capital market under any order or discretion passed
by SEBI.
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• An unlisted company can make public issue of equity shares or any other security
convertible into equity shares, on fixed price basis or on book building basis, provided:
(i) It has a pre-issue net worth of not less than Rs.1 crore in 3 out of the preceding 5
years and has minimum net worth in immediately preceding two years,
(ii) It has a track record of distributable profits in terms of section 205 of the
Companies Act, 1956, for at least 3 out of immediately preceding 5 years, and
(iii) The issue size (offer through offer document + firm allotment + promoters
contribution through the offer document) does not exceed five times its pre-issue net worth.
(iv) A listed company is eligible to make a public issue, on fixed price basis or on book
building basis, if the issue size does not exceed five times its pre-issue net worth.
If the company, listed or unlisted, does not meet the above criteria, then the issue will have
to be compulsorily made through book building route. In such a case, 60% of the issue size
will have to be allotted to the ‘Qualified Institutional Buyers’ (QIBs) failing which the full
subscription money shall be refunded.
• Infrastructure companies are exempt from the requirement of eligibility norms if their
project has been appraised by a public financial institution or infrastructure development
finance corporation or infrastructure leasing and financing services and not less than 5% of
the project cost is financed by any of the institutions, jointly or severally, by way of loan
and/or subscription to equity or a combination of both. Banks and rights issues of listed
companies are also exempt from the eligibility norms.
24
Thus the quality of the issue is demonstrated by track record/appraisal by approved
financial institutions/credit rating/subscription by QIBs.
1.4.6 PRICING OF ISSUES
The Controller of Capital Issues Act governed issue of capital prior to May 27, 1992 1947.
Under the Act, the premium was fixed as per the valuation guidelines issued. The
guidelines provided for fixation of a fair price on the basis of the net asset value per share
on the expanded equity base taking into account, the fresh capital and the profit earning
capacity.
The repealing of the Capital Issue Control Act resulted in an era of free pricing of
securities. Issuers and merchant bankers fixed the offer prices. Pricing of the public issue
has to be carried out according to the guidelines issued by SEBI.
At Premium: Companies are permitted to price their issues at premium in the case of the
following:
• First issue of new companies set up by existing companies with the track record.
• First issue of existing private/closely held or other existing unlisted companies with
three-year track record of consistent profitability.
25
• First public issue by exiting private/closely held or other existing unlisted companies
without three-year track record but promoted by existing companies with a five-year track
record of consistent profitability.
• Existing private/closely held or other existing unlisted company with three-year track
record of consistent profitability, seeking disinvestments by offers to public without issuing
fresh capital (disinvestments).
• Public issue by existing listed companies with the last three years of dividend paying
track record.
At Par Value: In certain cases companies are not permitted to fix their issue prices at
premium. The prices of the share should be at par. They are for:
• First public issue by existing private, closely held or other existing unlisted
companies without three-year track record of consistent profitability and
• Existing private/closely held and other unlisted companies without three-year track
record of consistent profitability seeking disinvestments offer to public without issuing
fresh capital (disinvestments).
1.4.7 How to evaluate an IPO ?
Whether you are buying stock from the secondary market or subscribing to an initial public
offering (IPO), make sure you have all the facts. That means going through the small print
in the IPO document with a fine-toothed comb. Don't let market hype, investment trends or
media reports influence you. Following these parameters should help:
26
• Promoters. Who runs the company? Professionals or a family? If the directors are
well known, it gives a company credibility. Check the credentials of the promoters,
directors and key managerial persons. See if they have at least five years' experience in the
company's line of business,
• Industry outlook. There should be demand for the company's product or service,
with adequate profit potential.
• Business plans. Check the progress made, and the money invested in aspects such as
land/office space, plant and machinery, utilities, regulatory clearances, personnel,
financing, projects in hand, sales and marketing, technical and marketing tie-ups. High
investments from promoters lend credibility to the IPO plan, as do project appraisals by
merchant bankers.
• Financials. Check if the company is over-leveraged in terms of the equity and debt
on its books, and whether the additional issue of equity is justified.
Check for consistency in revenue, profit growth and margins for at least three years before
the IPO. A steady growth rate suggests a fundamentally sound company.
More important, scale the historic trend into future projections: A company with a PAT
(profit after tax) of Rs 10 lakh will find it difficult to reach a projected PAT of Rs 15 crore.
Projections are based on assumptions, which give promoters leeway to manipulate figures.
A good way to check if projections are true is to see whether the assumptions are realistic,
given the company's scope of operations, and check how it compares with competitors'
figures.
27
• Risk factors. This is the most relevant part of the offer document. General risk
factors are not as damaging as specific ones. Check for contingent liabilities, disputed tax
claims, litigation against promoters and directors, and delay in government clearances.
Assume a worst-case scenario, and see how such factors could impact the company's
operations.
• Key names. An issue's lead managers and merchant bankers are the people who
manage the issue, from vetting the company's prospectus to seeing the issue through.
Check their track record. You could look up the Sebi website (www.sebi.com) for the
issues the merchant banker has managed in the recent past to see how they fared.
• Pricing. For valuation purposes, compare a company's issue price-earnings (P/E)
multiple with that of similar players. Check if the earning projections are achievable. If so,
discount the issue price for the next two years to arrive at the growth-adjusted P/E multiple.
You invest in a company purely for returns. In the case of primary equity issues, this can be
a tricky proposition because there are no benchmarks in the form of secondary market
prices to go by.
When a stock is listed, market sentiment, technical factors and investor interest influence
share prices. But in the medium- to long-term, fundamentals take over, which is what
should matter to you if you're in for the long haul.
• Listing. Ensure you have access to brokers of stock exchanges where the company
proposes to list. If you reside in, say, Delhi, and subscribe to an IPO that is likely to be
listed on the Hyderabad Stock Exchange, the time lag in selling can eat into your returns.
28
CHAPTER 2
REVIEW OF LITERATURE
Ranjan, Madhusoodanan (2004) examines whether the introduction of Bookbuilding has an
impact on IPO pricing. The results suggest that IPOs are underpriced. The results also
suggest that bookbuilt IPOs show less underpricing than fixed price issues. A more detailed
study suggests that this has to do more with the size of the issue than the issue process. A
model describing the IPO process in the presence of asymmetric information and
heterogenous beliefs is presented. This model suggests that IPO underpricing can be avoided
in the presence of selectively informed investors. The model includes the choices on
signaling cost, homogenous and heterogeneous beliefs among the investors, entrepreneur
holding dilution and issue size that exist for a firm while coming for an IPO. The model
suggests that a larger amount of money is left on the table if the entrepreneur holds a lesser
amount with herself post IPO.
Despite asymmetric information, the high value firm can place an issue without leaving
money on the table. The model also suggests that IPO underpricing is unavoidable in a
market with information asymmetry and homogenous beliefs among investors. The models
29
predict that underpricing is more severe in the case of smaller issue sizes. This is consistent
with the empirical findings.
Guo, Lev, and Shi (2004) investigated the initial underpricing and long-term
underperformance of IPOs generally attribute these phenomena to information asymmetry
and investors’ misevaluations. Here, we identify a widespread source of information
asymmetry and valuation uncertainty—the R&D activities of issuers—and document that
these activities significantly affect both the initial underpricing of IPOs (R&D is positively
correlated with underpricing) and their long-term performance (R&D is positively related to
long-term performance). Given the pervasiveness and constant growth of firms’ R&D
activities in modern economies, our identification of R&D as a major factor affecting IPO’s
performance contributes to the understanding of this important economic and capital market
phenomenon.
Lian (2006) investigated that second time IPOs (issuers that return to the IPO market
successfully after withdrawing their first IPOs) sell at a significant discount relative to
similar contemporaneous first time IPOs (IPOs that succeed in their first attempts). This
result indicates that the withdrawal event, which is public information, is incorporated into
offer prices when withdrawn-IPO firms come back for second IPO attempts. We also find
that, 1) on the first trading day, second time IPOs experience the same magnitude of initial
returns as comparable first time IPOs, 2) in the long run, second time IPOs do not
underperform their contemporary first time IPOs in either stock price or operating
performance. These findings suggest that the discount is appropriate and that the market fully
30
adjusts the offer price of second time IPOs to reflect the negative information conveyed by
their previous withdrawals.
TEKER , EKIT (2000) assessed that Initial public offering (IPO) may be the lowest cost
financing for firms to obtain funds from small and institutional investors. The commissions,
fees and other related expenses incurred are considerably small compared to those of short or
long term loan or bond financing. This empirical study examines the performance of all IPOs
in Istanbul Stock Exchange during the year of 2000. The study employs standard event study
methodology for 34 IPOs over a 30 day event window. The empirical findings are consistent
with most of the previous literature. The results support that the first two days of IPOs
generally provide positive abnormal returns.
Ritter, Welch (2002) interpreted the theory and evidence on IPO activity: why firms go
public, why they reward first-day investors with considerable underpricing, how underwriters
choose these first-day investors, and how IPOs perform in the long run. Our perspective on
the literature is three-fold: First, we believe that many IPO phenomena are not stationary.
The long-run performance of IPOs is particularly sensitive to choice of sample period, but
not necessarily how one would expect it to be. Second, we believe research into IPO share
allocation issues is the most promising area of research in IPOs at the moment. Third, we
argue that asymmetric information is not the primary driver of many IPO phenomena.
31
Instead, we believe future progress in the literature will come from non-rational and agency
conflict explanations. We describe some promising such alternatives.
Shah Ajay (2004), This article studies India's vibrant IPO market, via a data set of the 2056
IPOs which took place in the last 4.5 years. We study the overall underpricing, the delay
between issue date and listing date, the time-series of monthly volume of IPO issues and
average underpricing in a given month, the cross-section of underpricing across companies,
the post-listing trading frequency, the long-run returns to new listings, and price discovery by
the market shortly after first listing.
Shachmurove (2004), investigated the incredible profits of Initial Public Offerings have
often been emphasized in the media as a popular investment for the public. This paper takes a
few steps towards refuting such an assertion by investigating the performance of 2,895
venture capital backed IPOs between 1968 and September 1998. The paper finds that it is
incorrect to assume that investors demand very high annualized and cumulative rates of
return to compensate for the risks they are taking by financing ventures in different sectors of
the economy. The mean rates of return are found to be, in practice, very moderate, and often,
negative.
Pandey, A. (2002) compared fixed priced and Book Building IPO’s in terms of issuers,
initial returns and long run performance and found that Book Building process for IPO was
associated with lower underpricing or initial returns. Keeping into consideration the present
review and need of conduct of comparative study of fixed priced and Book Building tools
32
used in pricing the issue, following specific objectives were undertaken in conducting this
study:
CHAPTER 3
RESEARCH METHODOLOGY
3.1 OBJECTIVES OF THE STUDY
 To evaluate can immediate performance of an IPO be relied upon for the equity in the
long run.
 To analyze that More the subscription (times of issue size) of the IPO, more is the
immediate performance.
 To study the factors affecting IPO purchase decision of the Retail Investors.
3.2 RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the problem. It includes all those
steps that are generally adopted to solve the research problem. Thus, it refers to the
systematic method consisting of enunciating the problem, formulating a hypothesis,
collecting the facts or data, analyzing the facts and reaching certain conclusion either in the
form of solutions towards the concerned problems or in certain generalizations for some
theoretical formulation.
33
3.3 RESEARCH DESIGN
The research design in this study is Descriptive. Descriptive research studies are those
studies, which are concerned with describing the characteristics of a particular individual, or
of a group. The studies concerned with narration of facts and characteristics concerning
individual, group or situation are all examples of descriptive research studies.
3.4 DATA COLLECTION
Collection of data is a very important step because accuracy in data is a factor of the method
used for data collected. Thus there are two ways of collecting appropriate data:
 Primary Data
 Secondary Data
Primary Data are those, which are collected for the first time, thus happen to be original in
character. For the purpose of collection of primary data personal interview of respondents
were conducted. An unbiased, undisguised structured questionnaire was prepared which was
administered to the respondents for the purpose of getting the information.
Secondary Data are those, which have already been collected by someone else. For the
purpose of the study, the data were collected from secondary sources like Websites of NSE,
Economic Times & related companies, Journals like The Chartered Accountant, the Dalal
Street, The Financial Analyst, Newspapers like The Economic Times, The Times of India,
The Financial Express etc. All of the 260 Companies were considered which had raised their
public issues only in National Stock Exchange (NSE) from 1 January 2003 To 31 December
34
2007 (compiling 5 years). Company’s current stock price was taken as closing price at 3.30
pm on 31st December 2007.
3.5 SAMPLE SIZE
In this research, a sample of 100 persons is taken.
3.7 SAMPLING TECHNIQUE
All the respondents who were easily accessible and willing to share the information were
administered the structured questionnaire to get the desired information. A non-probability
sampling technique i.e. convenience sampling technique was used.
3.8 STATISTICAL TOOLS USED
Different statistical tools have been used in the study.
Eg. Mean, Standard Deviation, Correlation, Standard Error, Z Test, Likert Scale.
3.9 LIMITATIONS
 The study was to be completed in a short time; the time factor put a considerable limit
on the scope and the extensiveness of the study.
 The unsupportive attitude of the respondents while responding to the questions,
requiring the qualitative information may have affected the final findings and
outcomes.
35
 Because of the diversity of nature of respondents as well as due to conduction of the
study on very small scale, the findings of the survey could not be generalized.
 It was tried very harder to include the best of information from published and
unpublished sources available on internet, books and magazines but some of the data
required for the detailed study was not available freely.
 As it is only the share’s market price that played a major role in this study and market
price changes with the change in Indian market condition which is depicted by two
indices i.e. SENSEX & NIFTY.
 When the market is in bull run the market price will increase and when in bear run
market price decreases. In this study, the market price is taken as on 31st December
2007. So this study was conducted keeping apart the major decline/increase in the
market trend..
36
CHAPTER : 4
ANALYSIS AND DISCUSSION
The whole study has been divided into 2 parts:
Part I focuses on performance of the IPO’s, whereas,
Part-II shows the investors perception of evaluating the Initial Public Offerings.
4.1 PERFORMANCE OF THE IPO:
The performance of the IPO can be determined by;
I. The immediate and long run performance of the IPO’s,
II. The effect of subscription on immediate performance of the issue,
4.1.1 IMMEDIATE AND LONG TERM PERFORMANCE:
This segment of the study analyses the immediate and long term performance of 260 IPOs
which were issued from 1st January 2003 to 31st December 2007, a tenure of 5 years. This
section also focuses on the aspect that; Can the immediate performance of the IPO be taken
as indicator of its success in secondary market? For this purpose, coefficient of correlation
(Karl Pearson’s coefficient of correlation) was calculated between percentage change in the
issue price & list price and percentage change in the issue price & current market price of the
same.
The coefficient of correlation(Karl Pearson’s coefficient of correlation) was calculated in MS
Excel 2003 using correlation function.
37
Co-efficient of correlation( r) = 0.14595
PROBABLE ERROR
Here Probable Error is also introduced in order to access the significance of the degree of
correlation. Probable Error is a sort of instrument which confirms and measures the reliability
and dependability of the value of r, the Karl Pearson’s co-efficient of correlation.
Probable Error of “r” = 0.6745 1 – r2

√N
Probable error = 0.6745 1 – (0.14595)2

√260
Probable Error = 0.0409
Table 4.1.1 coefficient of correlation and probable error for immediate performance &
long term performance.
Number of IPO Coefficient of correlation Probable Error (PE)

(N) (r)
260 0.14595 0.0409
Further, using Probable Error method, significance of the degree of correlation has been
tested. Results revealed that there is positive correlation between the immediate performance
and the long term performance. The co-efficient of correlation was 0.14595.
The probable error existed at 0.0409. However degree of correlation was not significant as it
was not 6 times greater than its Probable Error which was 0 .0409.
38
As for , 6 times probable error is equal to 6 * 0.0409, gives result 0.2454, Which is greater
than the degree of correlation.
Inference:
Therefore, it can be concluded that there is no significant correlation between immediate
performance and long term performance.
4.1.2 SUBSCRIPTION AND IMMEDIATE PERFORMANCE.
This part is devoted to the impact of over subscription of the issue on its immediate
performance.
Here over subscription means the times that the issue size of the IPO is being applied for. We
can say that the over subscription is the times of the issue size for which application is being
received.
When there over subscription exists then all the applicants does not get the desired number
of shares that they applied for, but the company decides to allot the shares according to “
PRORATA BASIS”. And here immediate performance is referred to as the initial return the
issue is giving at the time of its listing viz. the difference between issue price and list price.
The initial return of the issue largely depends on the demand and supply factor. Demand of
the issue will only increase when the investor sees some growth opportunity in the company
or its past growth. And supply of the issue is being given in the market when the company
needs capital for its future projects. So all the things are interrelated.
For the purpose of this section, a total of 260 IPOs have been taken from 1 st January 2003 to
31st December 2007 (listed between these dates). Coefficient of correlation (Karl Pearson’s
39
coefficient of correlation) was calculated between percentage change in the issue price & list
price and subscription of the same.
The coefficient of correlation(Karl Pearson’s coefficient of correlation) was calculated in MS
Excel 2003 using correlation function.
Co-efficient of correlation( r) = 0.6566
PROBABLE ERROR
Here Probable Error is also introduced in order to access the significance of the degree of
correlation. Probable Error is a sort of instrument which confirms and measures the reliability
and dependability of the value of r, the Karl Pearson’s co-efficient of correlation.
Probable Error of “r” = 0.6745 1 – r2

√N
Probable error = 0.6745 1 – (0.6566)2

√260
Probable Error = 0.0238
Table 4.1.2 coefficient of correlation and probable error for immediate performance
& subscription.
Number of IPO Coefficient of correlation Probable Error (PE)

(N) (r)
260 0.6566 0.0238
40
Further, using Probable Error method, significance of the degree of correlation has been
tested. Results revealed that there is positive moderate degree of correlation between the
subscription and the immediate performance. The co-efficient of correlation was 0.6566.
The probable error existed at 0.0238. Thus, degree of correlation was significant as it was 6
times greater than its Probable Error which was 0 .0238.
As for , 6 times probable error is equal to 6 * 0.0238, gives result 0.1428, Which is less than
the degree of correlation.
Inference:
Therefore, it can be concluded that there is significant positive correlation between
Subscription and Immediate performance of the issue.
41
4.2 Factors Affecting the IPO Purchase Decision of Retail Investors:
In order to access the investors perception of evaluating the Initial Public Offerings, a
Questionnaire was filled in by 100 respondents. The question wise analysis is as under:
4.2.1 Number of years investors have been in the market.
Table 4.2.1 Number of years investors have been in the market.
YEARS NO. OF
PERSONS
0-1 yrs 40
60
2-10 yrs 53
10+ yrs 7
50
TOTAL 100
NO. OF PERSONS
40
30 Number of years investors have been in the market.

Fig 4.2.1
53
20 40
10
7
0 42
0-1 yrs 2-10 yrs 10+ yrs
YEARS
INTERPRETATION
 Out of 100, 53 investors i.e. Maximum Investors are in share trading for 2 to 10 years.
4.2.2 Average Yearly Investment
Table 4.2.2 Average Yearly Investment
YEARLY NO. OF
INVESTMENT PERSONS
Upto Rs. 1,00,000 62

Rs. 1,00,000 & 38
above
TOTAL 100
704.2.2 Average Yearly Investment

Fig
60
NO. OF PERSONS
50
40
30 62
20 38
10
0
43
Upto Rs. 1,00,000 Rs. 1,00,000 & above
INVESTMENT
INTERPRETATION
 Out of 100, 62 investors i.e. Maximum Investors are investing Less than Rs. 1,00,000
in the share market.
4.2.3 Primary Area of Interest:
Table 4.2.3 Primary Area of Interest
AREA OF NO. OF
INTEREST PERSONS
IPO 30
Secondary 43
Securities
Others 27
50
TOTAL 100
45
40 Fig 4.2.3 Primary Area of Interest:
NO. OF PERSONS
35
30
25
43
20
15 30 27
10
5
0
44
IPO Secondary Securities Others
AREA OF INTEREST
INTERPRETATION
 Out of 100, 43 investors i.e. Maximum Investors are interested in investing
Secondary Securities than IPOs.
4.2.4 Type of Investment:
Table 4.2.4 Type of Investment
NO. OF PERSONS
MARGIN
INCOME FUNDING SELF HYBRID TOTAL
Less than Rs. 24 2 4 30

2,00,000
Rs.2,00,000 - 3 10 37 50
Rs.5,00,000
Rs. 5,00,000 1 16 3 20
& above
TOTAL 28 28 44 100
40Fig 4.2.4 Type of Investment 37

NO. OF PERSONS
35
30
24
25
20 16
15 10
10
4 3 3
5 2 1
0
Less than Rs. 2,00,000 Rs.2,00,000 - Rs. 5,00,000 & above
Rs.5,00,000
45
YEARLY INCOME
MARGIN FUNDING SELF HYBRID

INTERPRETATION
 Maximum of the Investors who have yearly income less than Rs. 2,00,000 opt for
Margin Funding.
 Maximum of the Investors who have yearly income between Rs. 2,00,000 to Rs.
5,00,000 opt for Hybrid Type of Investment consisting of margin funding and self.
 Maximum of the Investors who have yearly income more than Rs. 5,00,000 opt for
self.
4.2.5 Purpose of IPO Investment:
Table 4.2.5 Purpose of IPO Investment
PURPOSE
PURPOSE OF IPO NO. OF
INVESTMENT PERSONS
Listing Gains 77
Long Term Gains 23
90
TOTAL 100
80
70
Fig 4.2.5 Purpose of IPO Investment
60
NO. OF PERSONS
50
40 77
30
20
10 23
0
46
Lis ting G ains Long Te rm G ains
P U R P O S E O F IP O IN V ES T M EN T
INTERPRETATION
 Out of 100, 77 investors i.e. maximum of the Investors invest in IPOs for Listing
Gains.
4.2.6 Professional Knowledge of Stock Market:
Table 4.2.6 Professional Knowledge of Stock Market
PROFESSIONAL NO. OF
KNOWLEDGE PERSONS
YES 69
NO 31
TOTAL 100
80 Fig 4.2.6 Professional Knowledge of Stock Market
70
60
NO. OF PERSONS
50
40
69
30
20
31
10
0 47
YES NO
HAV E P RO FES S IO NAL KNO W L EDG E?
INTERPRETATION
 Out of 100, 69 investors i.e. maximum of the Investors who invest in the share market
have Professional Knowledge about Share Market.
Please specify views about investing in an IPO:
48
Neither
S. Strongly Disagree Nor Strongly
NO. FACTORS Agree Agree Agree Disagree Disagree
4.2.7 Financial statements 34 15 30 12 9
4.2.8 Business 22 46 21 10 1
4.2.9 Suppliers 5 9 39 31 16
4.2.10 Promoters 67 23 2 5 3
Past Growth of
4.2.11 Industry 13 35 5 29 18
Future Prospects of
4.2.12 Ind. 37 22 2 19 20
4.2.13 Objective of the Issue 9 19 48 20 4
4.2.14 Price Band 41 27 11 19 2
4.2.15 Issue Size 15 61 7 14 3
4.2.16 Underwriter 1 14 66 13 6
4.2.17 Inflation 5 26 52 10 7
Interest Rates of
other Investment
4.2.18 Avenues 9 36 40 12 3
80
70
60
NO. OF PERSONS
50
40
Z TEST:
30
20
Fig. 4.2.7 Factors affecting IPO Purchase Decision of Retail Investors
10
0
Financial Business Suppliers Promoters Past Growth of Future
statements Industry Prospects of
Ind.49
FACTORS
70
60
50
NO. OF PERSONS
40
30
20
10
0
Ob je ctive o f the P rice B a nd Issue S ize Unde rwriter Infla tio n Inte rest Rate s of
Issue othe r Investm e nt
A venues
F AC T OR S
S tro ngly A gre e A gre e Ne ithe r A gree Nor D isag ree

D isag ree S tro ng ly D isa gre e
4.2.7 FINANCIAL STATEMENT
Table 4.2.7 Financial Statement
50
X f fx d = X-3 fd d² fd²
1
5 34 170 2 68 4 136
4 15 60 1 15 1 15
3 30 90 0 0 0 0
2 12 24 -1 -12 1 12
1 9 9 -2 -18 4 36
∑f = 100 ∑fx = 353 ∑fd = 53 ∑fd² =199
X = ∑fx = 353 = 3.53

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.53
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 199 - 53 * 1 = 1.99 – 0.53 = 1.208

100 100
SE = σ = 1.208 = 0.1208
√N √ 100
Z = | X - µ | = | 3.53 -5 | = 12.168
SE 0.1208
Zc = 12.168 > 1.65 = Zt
Ho is rejected and H1 is accepted
4.2.8 BUSINESS
Table 4.2.8 Business
1
5 22 110 2 44 4 88
4 46 184 1 46 1 46
51
3 21 63 0 0 0 0
2 10 20 -1 -10 1 10
1 1 1 -2 -2 4 4
∑f = 100 ∑fx = 378 ∑fd = 78 ∑fd² =148
X = ∑fx = 378 = 3.78

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.78
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 148 - 78 * 1 = 1.48 – 0.78 = 0.8366

100 100
SE = σ = 0.8366 = 0.08366
√N √ 100
Z = | X - µ | = | 3.78 -5 | = 14.5828
SE 0.08366
Zc = 14.5828 > 1.65 = Zt
4.2.9 SUPPLIERS
Table 4.2.9 Suppliers
1
5 5 25 2 10 4 20
4 9 36 1 9 1 9
3 39 117 0 0 0 0
2 31 62 -1 -31 1 31
1 16 16 -2 -32 4 64
∑f = 100 ∑fx = 256 ∑fd = -44 ∑fd² =124
52
X = ∑fx = 256 = 2.56
∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =2.56
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 124 - (-44) * 1 = 1.24 + 0.44 = 1.296

100 100
SE = σ = 1.296 = 0.1296
√N √ 100
Z = | X - µ | = | 2.56 -5 | = 18.827
SE 0.1296
Zc = 18.827 > 1.65 = Zt
4.2.10 PROMOTERS
Table 4.2.10 Promoters
1
5 67 335 2 134 4 268
4 23 92 1 23 1 23
3 2 6 0 0 0 0
2 5 10 -1 -5 1 5
1 3 3 -2 -6 4 12
∑f = 100 ∑fx = 446 ∑fd = 146 ∑fd² =308
X = ∑fx = 446 = 4.46
53
∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =4.46
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 308 - 146 * 1 = 3.08 -1.46 = 1.27279

100 100
SE = σ = 1.27279 = 0.127279
√N √ 100
Z = | X - µ | = | 4.46 -5 | = 4.24
SE 0.127279
Zc = 4.24 > 1.65 = Zt
4.2.11 PAST GROWTH OF INDUSTRY
Table 4.2.11 Past Growth of Industry
1
5 13 65 2 26 4 52
4 35 140 1 35 1 35
3 5 15 0 0 0 0
2 29 58 -1 -29 1 29
1 18 18 -2 -36 4 72
∑f = 100 ∑fx = 296 ∑fd = -4 ∑fd² =188
X = ∑fx = 296 = 2.96

∑f 100
54
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =2.96
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 188 - (-4) * 1 = 1.88 + 0.04 = 1.385

100 100
SE = σ = 1.385 = 0.1385
√N √ 100
Z = | X - µ | = | 2.96 -5 | = 14.729
SE 0.1385
Zc = 14.729 > 1.65 = Zt
4.2.12 FUTURE PROSPECTS OF INDUSTRY
Table 4.2.12 Future Prospects of Industry
1
5 37 185 2 74 4 148
4 22 88 1 22 1 22
3 2 6 0 0 0 0
2 19 38 -1 -19 1 19
1 20 20 -2 -40 4 80
∑f = 100 ∑fx = 337 ∑fd = 37 ∑fd² =269
X = ∑fx = 337 = 3.37

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.37
55
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 269 - 37 * 1 = 2.69 - 0.37 = 1.523

100 100
SE = σ = 1.523 = 0.1523
√N √ 100
Z = | X - µ | = | 3.37 -5 | = 10.7025
SE 0.1523
Zc = 10.7025 > 1.65 = Zt
4.2.13 OBJECTIVE OF THE ISSUE
Table 4.2.13 Objective of the issue
1
5 9 45 2 18 4 36
4 19 76 1 19 1 19
3 48 144 0 0 0 0
2 20 40 -1 -20 1 20
1 4 4 -2 -8 4 16
∑f = 100 ∑fx = 309 ∑fd = 9 ∑fd² =91
X = ∑fx = 309 = 3.09

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.09
56
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 91 - 9 * 1 = 0.91 - 0.09 = 0.9055

100 100
SE = σ = 0.9055 = 0.0905
√N √ 100
Z = | X - µ | = | 3.09 -5 | = 21.104
SE 0.0905
Zc = 21.104 > 1.65 = Zt

4.2.14 PRICE BAND
Table 4.2.14 Price Band
1
5 41 205 2 82 4 164
4 27 108 1 27 1 27
3 11 33 0 0 0 0
2 19 38 -1 -19 1 19
1 2 2 -2 -4 4 8
∑f = 100 ∑fx = 386 ∑fd = 86 ∑fd² =218
X = ∑fx = 386 = 3.86

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.86
SE = σ
√N
57
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 218 - 86 * 1 = 2.18 - 0.86 = 1.148

100 100
SE = σ = 1.148 = 0.1148
√N √ 100
Z = | X - µ | = | 3.86 -5 | = 9.93
SE 0.1148
Zc = 9.93 > 1.65 = Zt
4.2.15 ISSUE SIZE
Table 4.2.15 Issue size
1
5 15 75 2 30 4 60
4 61 244 1 61 1 61
3 7 21 0 0 0 0
2 14 28 -1 -14 1 14
1 3 3 -2 -6 4 12
∑f = 100 ∑fx = 371 ∑fd = 71 ∑fd² =147
X = ∑fx = 371 = 3.71

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.71
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
58
= 147 - 71 * 1 = 1.47 - 0.71 = 0.8717
100 100
SE = σ = 0.8717 = 0.08717
√N √ 100
Z = | X - µ | = | 3.71 -5 | = 14.79
SE 0.08717
Zc = 14.79 > 1.65 = Zt
4.2.16 UNDERWRITER
Table 4.2.16 Underwriter
1
5 1 5 2 2 4 4
4 14 56 1 14 1 14
3 66 198 0 0 0 0
2 13 26 -1 -13 1 13
1 6 6 -2 -12 4 24
∑f = 100 ∑fx = 291 ∑fd = -9 ∑fd² =55
X = ∑fx = 291 = 2.91

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =2.91
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 55 - (-9) * 1 = 0.55 +0.09 = 0.8544
59
100 100
SE = σ = 0.8544 = 0.08544
√N √ 100
Z = | X - µ | = | 2.91 -5 | = 24.46
SE 0.08544
Zc = 24.46 > 1.65 = Zt
4.2.17 INFLATION
Table 4.2.17 Inflation
1
5 5 25 2 10 4 20
4 26 104 1 26 1 26
3 52 156 0 0 0 0
2 10 20 -1 -10 1 10
1 7 7 -2 -14 4 36
∑f = 100 ∑fx = 312 ∑fd = 12 ∑fd² =92
X = ∑fx = 312 = 3.12

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.12
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 92 - 12 * 1 = 0.92 -0.12 = 0.8944

100 100
SE = σ = 0.8944 = 0.08944
√N √ 100
60
Z = | X - µ | = | 3.12 -5 | = 21.019
SE 0.08944
Zc = 21.019 > 1.65 = Zt
4.2.18 INTEREST RATES OF OTHER INVESTMENT AVENUES
Table 4.2.18 Interest Rates of other Investment Avenues
1
5 9 45 2 18 4 36
4 36 144 1 36 1 36
3 40 120 0 0 0 0
2 12 24 -1 -12 1 12
1 3 3 -2 -6 4 12
∑f = 100 ∑fx = 336 ∑fd = 36 ∑fd² =96
X = ∑fx = 336 = 3.36

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.36
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 96 - 36 * 1 = 0.96 -0.36 = 0.7745

100 100
SE = σ = 0.7745 = 0.07745
√N √ 100
Z = | X - µ | = | 3.36 -5 | = 21.174
61
SE 0.07745
Zc = 21.174 > 1.65 = Zt
INTERPRETATION
Since null hypothesis is rejected in case of all the Factors so sample mean > population
mean.
Investors evaluate an IPO maximum from Promoters of the company & Issue Size of the IPO
and minimum from Suppliers of the company.
62
Please specify views about investing in an IPO:
Neither
S. Strongly Disagree Nor Strongly
NO. FACTORS Agree Agree Agree Disagree Disagree
Involvement of Co. in
4.2.19 Legal Hassels 18 52 10 12 8
Duration of Co. in
4.2.20 Business 21 12 39 18 10
Foreign Collaboration of
4.2.21 Co. 16 37 19 20 8
Prevailing Trend of the
4.2.22 Market 65 21 5 4 5
4.2.23 Co. is MNC or Not 16 23 26 20 15
4.2.24 Recent IPO Performance 50 11 9 18 12

Top Fund Managers
4.2.25 Opinion 11 27 31 22 9
4.2.26 Ratings of IPO 14 49 10 21 6

Listing in well known
4.2.27 Stock Exchanges 8 21 23 41 7
4.2.28 Past Performnce of IPO 13 38 28 16 5
4.2.29 Media Advertisements 1 11 24 45 19
4.2.30 Market Volatility 27 39 6 18 10
63
Z TEST:
70
60
NO. OF PERSONS
50
40
30
20
10
0
Involvement of D uration of Foreign Prevailing C o. is MNC or Recent IPO
C o. in Legal C o. in C ollaboration Trend of the Not Performance
Hassels Business of C o. Market
FAC TOR S
Strongly Agree Agree Neither A gree Nor D isagreeD isagree Strongly D isagree
60
50
NO. OF PERSONS
40
30
20
10
0
Listing in well
Ratings of IPO
Managers
Top Fund
Market Volatility
known Stock
Performnce of
Advertisements
Exchanges
Opinion
Past
Media
IPO
64
FACTORS
4.2.19 Involvement of Co. In Legal Hassels
Table 4.2.19 Involvement of Co. in legal Hassels
1
5 18 90 2 36 4 72
4 52 208 1 52 1 52
3 10 30 0 0 0 0
2 12 24 -1 -12 1 12
1 8 8 -2 -16 4 32
∑f = 100 ∑fx = 360 ∑fd = 60 ∑fd² =168
X = ∑fx = 360 = 3.60

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.60
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 168 - 60 * 1 = 1.68 – 0.60 = 1.039

100 100
SE = σ = 1.039 = 0.1039
√N √ 100
Z = | X - µ | = | 3.60 -5 | = 13.4745
SE 0.1039
65
Zc = 13.4745 > 1.65 = Zt
4.2.20 Duration of Co. in Business
Table 4.2.20 Duration of Co. in Business
1
5 21 105 2 42 4 84
4 12 48 1 12 1 12
3 39 117 0 0 0 0
2 18 36 -1 -18 1 18
1 10 10 -2 -20 4 40
∑f = 100 ∑fx = 316 ∑fd = 16 ∑fd² =154
X = ∑fx = 316 = 3.16

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.16
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 154 - 16 * 1 = 1.54 – 0.16 = 1.1747

100 100
SE = σ = 1.1747 = 0.11747
√N √ 100
Z = | X - µ | = | 3.16 -5 | = 15.6636
SE 0.11747
Zc = 15.6636 > 1.65 = Zt
Ho is rejected and H1 is Accepted
66
4.2.21 Foreign Collaboration of Co.
Table 4.2.21 Foreign Collaboration of Co.
1
5 16 80 2 32 4 64
4 37 148 1 37 1 37
3 19 57 0 0 0 0
2 20 40 -1 -20 1 20
1 8 8 -2 -16 4 32
∑f = 100 ∑fx = 333 ∑fd = 33 ∑fd² =153
X = ∑fx = 256 = 3.33

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.33
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 153 - 33 * 1 = 1.53 - 0.33 = 1.095

100 100
SE = σ = 1.095 = 0.1095
√N √ 100
Z = | X - µ | = | 3.33 -5 | = 15.251
SE 0.1095
Zc = 15.251 > 1.65 = Zt
4.2.22 Prevailing Trend of the Market
67
Table 4.2.22 Prevailing Trends of the Market
1
5 65 325 2 130 4 260
4 21 84 1 21 1 21
3 5 15 0 0 0 0
2 4 8 -1 -4 1 4
1 5 5 -2 -10 4 20
∑f = 100 ∑fx = 437 ∑fd = 137 ∑fd² =305
X = ∑fx = 437 = 4.37

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =4.37
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 305 - 137 * 1 = 3.05 -1.37 = 1.2961

100 100
SE = σ = 1.2961 = 0.12961
√N √ 100
Z = | X - µ | = | 4.37 -5 | = 4.86
SE 0.12961
Zc = 4.86 > 1.65 = Zt
4.2.23 Co. is MNC or Not
Table 4.2.23 Co. is MNC or Not
68
1
5 16 80 2 32 4 64
4 23 92 1 23 1 23
3 26 78 0 0 0 0
2 20 40 -1 -20 1 20
1 15 15 -2 -30 4 60
∑f = 100 ∑fx = 305 ∑fd = 5 ∑fd² =167
X = ∑fx = 305 = 3.05

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.05
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 167 - 5 * 1 = 1.67 - 0.05 = 1.273

100 100
SE = σ = 1.273 = 0.1273
√N √ 100
Z = | X - µ | = | 3.05 -5 | = 15.318
SE 0.1273
Zc = 15.318 > 1.65 = Zt
4.2.24 Recent IPO Performance
Table 4.2.24 Recent IPO Performance
1
69
5 50 250 2 100 4 200
4 11 44 1 11 1 11
3 9 27 0 0 0 0
2 18 36 -1 -18 1 18
1 12 12 -2 -24 4 48
∑f = 100 ∑fx = 369 ∑fd = 69 ∑fd² =277
X = ∑fx = 369 = 3.69

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.69
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 277 - 69 * 1 = 2.77 - 0.69 = 1.442

100 100
SE = σ = 1.442 = 0.1442
√N √ 100
Z = | X - µ | = | 3.69 -5 | = 9.085
SE 0.1442
Zc = 9.085 > 1.65 = Zt
4.2.25 Top Fund Managers Opinion
Table 4.2.25 Top Fund Managers Opinion
1
5 11 55 2 22 4 44
4 27 108 1 27 1 27
70
3 31 93 0 0 0 0
2 22 44 -1 -22 1 22
1 9 9 -2 -18 4 36
∑f = 100 ∑fx = 309 ∑fd = 9 ∑fd² =129
X = ∑fx = 309 = 3.09

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.09
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 129 - 9 * 1 = 1.29 - 0.09 = 1.9055

100 100
SE = σ = 1.9055 = 0.1905
√N √ 100
Z = | X - µ | = | 3.09 -5 | = 10.026
SE 0.1905
Zc = 10.026 > 1.65 = Zt
4.2.26 Ratings of IPO
Table 4.2.26 Rating of IPO
1
5 14 70 2 28 4 56
4 49 196 1 49 1 49
3 10 30 0 0 0 0
2 21 42 -1 -21 1 21
1 6 6 -2 -12 4 24
∑f = 100 ∑fx = 344 ∑fd = 44 ∑fd² =150
71
X = ∑fx = 344 = 3.44
∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.44
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 150 - 44 * 1 = 1.50 - 0.44 = 1.029

100 100
SE = σ = 1.029 = 0.1029
√N √ 100
Z = | X - µ | = | 3.44 -5 | = 15.16
SE 0.1029
Zc = 15.16 > 1.65 = Zt
4.2.27 Listing in well known Stock Exchanges
Table 4.2.27 Listing in well known Stock Exchanges
1
5 8 40 2 16 4 32
4 21 84 1 21 1 21
3 23 69 0 0 0 0
2 41 82 -1 -41 1 41
1 7 7 -2 -14 4 28
∑f = 100 ∑fx = 282 ∑fd = -18 ∑fd² =122
X = ∑fx = 282 = 2.82

∑f 100
72
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =2.82
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 122 - (-18) * 1 = 1.22 + 0.18 = 1.1832

100 100
SE = σ = 1.1832 = 0.11832
√N √ 100
Z = | X - µ | = | 2.82 -5 | = 18.42
SE 0.11832
Zc = 18.42 > 1.65 = Zt

4.2.28 Past Performance of IPO
Table 4.2.28 Past Performance of IPO
1
5 13 65 2 26 4 52
4 38 152 1 38 1 38
3 28 84 0 0 0 0
2 16 32 -1 -16 1 16
1 5 5 -2 -10 4 20
∑f = 100 ∑fx = 338 ∑fd = 38 ∑fd² =126
X = ∑fx = 338 = 3.38

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
73
X =3.38
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 126 - 38 * 1 = 1.26 - 0.38 = 0.9381

100 100
SE = σ = 0.9381 = 0.09281
√N √ 100
Z = | X - µ | = | 3.38 -5 | = 17.27
SE 0.09381
Zc = 17.27 > 1.65 = Zt
4.2.29 Media Advertisements
Table 4.2.29 Media Advertisement
1
5 1 5 2 2 4 4
4 11 44 1 11 1 11
3 24 72 0 0 0 0
2 45 90 -1 -45 1 45
1 19 19 -2 -38 4 76
∑f = 100 ∑fx = 230 ∑fd = -70 ∑fd² =136
X = ∑fx = 230 = 2.30

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =2.30
SE = σ
√N
74
σ= ∑ fd² - ∑fd * i
∑f ∑f
= 136 - (-70) * 1 = 1.36 +0.70 = 1.4353

100 100
SE = σ = 1.4353 = 0.14353
√N √ 100
Z = | X - µ | = | 2.30 -5 | = 18.81
SE 0.14353
Zc = 18.81 > 1.65 = Zt

4.2.30 Market Volatility
Table 4.2.30 Market Volatility
1
5 27 135 2 54 4 108
4 39 156 1 39 1 39
3 6 18 0 0 0 0
2 18 36 -1 -18 1 18
1 10 10 -2 -20 4 40
∑f = 100 ∑fx = 355 ∑fd = 55 ∑fd² =205
X = ∑fx = 355 = 3.55

∑f 100
Z TEST
N =100 Ho: Xs ≤ Xp
µ =5 H1: Xs > Xp
X =3.55
SE = σ
√N
σ= ∑ fd² - ∑fd * i
∑f ∑f
75
= 205 - 55 * 1 = 2.05 -0.55 = 1.2247
100 100
SE = σ = 1.2247 = 0.12247
√N √ 100
Z = | X - µ | = | 3.55 -5 | = 11.84
SE 0.12247
Zc = 11.84 > 1.65 = Zt
INTERPRETATION
Since null hypothesis is rejected in case of all the Factors so sample mean > population
mean.
Investors evaluate an IPO maximum from prevailing Market Trend & Recent IPO
performance and minimum from Listing in Well Known Stock exchanges & Media
Advertisements.
CHAPTER 5
FINDINGS AND CONCLUSION
From the forgoing analysis followings were the findings:
 Immediate performance of IPO can be relied upon for the equity in the long run was
rejected. It was proved from the fact that over last five years, there existed
statistically insignificant positive correlation between percentage change in the issue
76
price & list price of the IPO and percentage change in the issue price & current
market price of the same. Therefore, We can conclude that immediate performance of
a particular IPO can not be relied upon for the equity in the long run.
 More the subscription (times of issue size) of the IPO, more is the immediate
performance, was accepted. As there existed statistically significant positive
correlation between subscription (times of issue size) of the IPO and its immediate
performance at the time of listing. Thus, we can judge that the IPO will give high
immediate returns, by the times of its oversubscription.
 Out of 100, 53 investors i.e. Maximum Investors are in share trading for 2 to 10 years.
 Out of 100, 62 investors i.e. Maximum Investors are investing Less than Rs. 1,00,000
in the share market.
 Out of 100, 43 investors i.e. Maximum Investors are interested in investing
Secondary Securities than IPOs.
 Maximum of the Investors who have yearly income less than Rs. 2,00,000 opt for
Margin Funding.
 Maximum of the Investors who have yearly income between Rs. 2,00,000 to Rs.
5,00,000 opt for Hybrid Type of Investment consisting of margin funding and self.
 Maximum of the Investors who have yearly income more than Rs. 5,00,000 opt for
self.
 Out of 100, 77 investors i.e. maximum of the Investors invest in IPOs for Listing
Gains.
77
 Out of 100, 69 investors i.e. maximum of the Investors who invest in the share market
have Professional Knowledge about Share Market.
 Since null hypothesis is rejected in case of all the Factors so sample mean >
population mean.
 Investors evaluate an IPO maximum from Promoters of the company, prevailing
Market Trend & Recent IPO performance & Issue Size of the IPO and minimum from
Suppliers of the company, Listing in Well Known Stock exchanges & Media
Advertisements..
RECOMMENDATIONS
 Initial return given by the IPO should not be treated as indication of its success or
failure in the long run.
 Investors of the secondary market must take part in the primary markets as it has been
seen that IPO activity in Indian Stock Market has been tremendously growing. And
IPO is the safest stock market investment.
 Over subscription should be treated as indication of success of the issue.
78
 Whole amount for shares applied should be received in advance from QIB’s just like
retail investor so that they can quote real worth of the company in terms of money
that they are ready to pay for it.
 Investors must analyze all the sectors before investing in the IPO, in order to get
maximum returns.
 Investors should take into consideration the promoters of the business, the prevailing
market trend & Recent IPO performance before investing in an IPO.
QUESTIONNAIRE
Dear Mam/Sir,
This information provided by you will be utilized in completion of my MBA project
report on “IPO in India: Performance Evaluation & Investors Perception” which will
enable me to study the factors affecting IPO purchase decision of retail investors.
_______________________________________________________________________
____
PERSONAL DETAILS
Name: Mr./Ms________________
Address: ________________________________
________________________________
Contact Number: _________________
Gender:
Male Female
Age Group:
79
18-25 Years 26-40 Years 40+ Years
Yearly Income:
< Rs 2, 00,000
Rs. 2, 00,000 – Rs. 5, 00,000
> Rs. 5, 00,000
1. How long have you been active in the market (In terms of trade done in years)?
0-1 2-10 10+
2. Average Yearly Investment:
Up to Rs.1, 00,000 Rs.1, 00,000+
3. Primary Area of Interest
IPO Secondary Securities Others __________________
4. Type of Investment:
Margin funding Self hybrid
5. Purpose of IPO Investment:
Listing gains Long Term gains
6. I have professional knowledge in Stock Markets: Yes No
Please specify your views about investing in an IPO:

5:-Stronly Agree 4:-Agree 3:-Neither Disagree nor Agree 2:-Disagree 1:-Stronly
Disagree
5 4 3 2
1
7. I look at the Financial statements of the company.
8. I look at the business of the company.
9. I look at the suppliers of the company.
10. The reputation of the promoters doesn’t affect my decision.
11. I look at the Past growth of the Industry.
12. I look at the Future Prospects of the Industry.
13. I consider the objective of the issue very important.
14. The price band is an important consideration for me.
15. I consider the issue size very important for IPO.
80
16. I consider the underwriter of the issuing company.
17. Inflation is an important consideration.
18. I tend to invest more in IPOs when interest rates in other
investments are lower.
Please specify your views about investing in an IPO:

5:-Stronly Agree 4:-Agree 3:-Neither Disagree nor Agree 2:-Disagree 1:-Stronly
Disagree
5 4 3 2
1
19. Involvement of companies in legal hassles does not affect
my purchase decision of its IPOs.
20. The duration for which the company has been in business
does not affect my purchase decision of IPOs.
21. Foreign collaborations of a company do not matter when
I decide for purchasing IPOs.
22. I do not focus on the prevailing trend (uptrend/downtrend)
of the market before investing in an IPO.
23. I prefer to invest in IPO of an MNC.
5 4 3 2
1
24. Recent IPO performances does not affect my decision of
investing in an IPO.
25. I get influenced by Top Fund managers’ opinions of an IPO.
26. I follow the ratings provided by a research analyst
before investing in IPO.
27. Listing in well known Stock exchanges (like BSE, NSE)
influences my decision in investing for an IPO.
28. The performance of IPOs in the market in recent past
is a good indicator of future.
81
29. My purchases are greatly affected by media advertisements.
30. Market volatility is not an important factor to me to make
my purchase decision of IPOs.
I am thankful for the time and effort you have spent in filling this questionnaire.
________________________________________________________________________
82

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CHAPTER: 1

THE INDIAN CAPITAL MARKET - AN OVERVIEW

and in economic development by channeling funds for investment in productive assets,

as a source of finance to raise in the capital market.

are desirous of buying securities purchase securities through registered brokers/sub-brokers

made an appearance in India.

Exchange, Over-the-Counter Exchange of India (OTCEI) and Inter Connected Stock

1.1 CAPITAL MARKET PARTICIPANTS:

Depositories are capital market intermediaries that provide important infrastructure

services for both primary and secondary markets.

passed from time to time to meet this objective.

93 on account of a variety of regulations and administered prices including barriers to

Board of India (SEBI).

governing the capital markets:

controlled the pricing of issues.

3. The Securities Contracts (Regulation) Act, 1956, which regulates transactions in

have substantial bearing on the working of the securities market.

preferences shares, debentures or global depository receipts. The main objectives of a

capital issue are given below:

• To promote a new company

• To expand an existing company

• To diversify the production

• To meet the regular working capital requirements

• To capitalize the reserves

the help of the lead managers and brokers to the issue.

1.3.2 FACTORS CONSIDERED BY THE INVESTORS:

Promoter’s Promoter’s past performance with reference to the companies

Project Details The credibility of the appraising institution or agency.

Product Reliability of the demand and supply projections of the product.

Financial Data Accounting policy.

Litigation Pending litigations and their effect on the profitability of the

Investor Service Promptness in replying to the enquiries of allocation of shares,

1.4 INITIAL PUBLIC OFFERINGS:

1.4.1 PARTIES INVOLVED IN THE IPO:

effectively in the public issue. The various parties involved are:

• The manager to the issue,

• The registrars to the issue,

• Financial Institutions and

The Managers To The Issue:

campaign. Their main duties are:

• Preparing the budget of expenses related to the issue

• Suggesting the appropriate timings of the public issue

• Assisting in marketing the public issue successfully

• Advising the company in the appointment of registrars to the issue, underwriters,

brokers, bankers to the issue, advertising agents etc.

• Directing the various agencies involved in the public issue.

The merchant banking division of the financial institutions, subsidiary of commercial

Consultant Ltd. ICICI Securities & Finance Company Ltd., etc.

The Registrar To The Issue

the necessary infrastructure like Computer, Internet and telephone.

approach the registrars for redressal of their complaints.

Underwriting is a contract by means of which a person gives an assurance to the issuer to

supporters and underwriting is done for a commission. Underwriting provides an insurance

• Financial Institutions and Banks

• Brokers and approved investment companies.

underwriter the total number of shares/debentures under subscribed, the number of

shares/debentures required to be taken up by the underwriter. The underwriter would take

suffered by the company for his denial.

The Bankers To The Issue:

hoardings/press release or a combination of all.

The Financial Institutions

in the revised draft.

Government And Statutory Agencies

• Securities Exchange Board of India