A STUDY ON

MERCHANT
BANKER
WITH SPECIAL
REFERENCE TO
IPOS

Submitted by:
Silky Mittal
A0106406306E-49

Submitted to:
Mrs. Puja Agrawal
 ASB, AU
ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful

completion of any task remains incomplete without mentioning the
person who make it possible.

I feel delighted to express a few words of gratitude and response to the

distinguished personality of my mentor who have guided and inspired
me for the successful completion of this report.

I have gratification in expressing my sincere thanks to Mrs. Puja

Agrawal my mentor for providing the necessary advice and support
during the course of this work. I express my sincere gratitude for the
continuous guidance and encouragement that she has provided me to
carry out the project work.

Last I pay sincere thanks to my family members and to all my friends

who have helped me directly or indirectly during the completion of
work.
Table of content
AN EXECUTIVE SUMMARY

This report contain in detail about Initial Public Offer and how
merchant banker perform its function in facilitating so.

It explains how and when the company has to go for public, what all
factors need to be consider ,how IPO come into picture, what are its
need, hoe its help the company in long term and answer to many such
questions. When a business entity needs money the general course of
action that it follows is that it goes to the bank. However banks may not
be ready to provide huge finance for a long time especially if the
returns are not fixed. The best way to raise money is through offer of
shares. The securities which the companies issue for the first time to
the public and other financial institutions either after incorporation or
on conversion from private to public company is called “INITIAL
PUBLIC OFFER” or “IPO”.

Also this report explain the role of merchant banker in facilitating the
initial public issue. It show how merchant banker act as an
intermediary between investor and Initial Public Offer. So, in short it
explains the role of merchant bank in IPO.

so, this report helps us to gain insight into overall functioning of IPO
and the role of merchant banker in IPO.
INTRODUCTION

The smooth functioning of any firm is dependant upon efficiency in

raising its funds. So, the study was undertaken on this to have a
detailed knowledge of the financial aspects of the business.

The reason for doing this study was to orient one with overall
knowledge of how to raise funds from public and to convert private
company into a public limited company. Efficiency in raising fund form
the heart of any organization.

An analysis about IPO in India and role of merchant banker has high
scope because it is the most hot and upcoming issue. Due to scarcity of
funds and increases in competition there is necessity to raise funds
from public.

Basic problem was that all the information has to be collected from
secondary sources like internet, journals etc so, reliability factor was
missing. And it a problem to sought out most apt information from
piles of information

Objective of this study was to understand in detail about how firm

raise funds from general public and what all specification does it meet
in doing so. And also to know the role of merchant banker in
performing this function. The objective was also to broaden our
knowledge about topic concern.
RESEARCH METHODOLOGY
Merchant banking- an overview

A merchant banker, according to securities and exchange broad of

india (merchant bankers) regulations, 1992 “is a person who is engaged
in the business of issue management either by making arrangements
regarding selling, buying or subscribing to securities as manager,
consultant, adviser or rendering corporate advisory services in relation
to such issue management.”

In banking, a merchant bank is a financial institution primarily

engaged in offering financial services and advice to corporations and
wealthy individuals on how to use their money. The term can also be
used to describe the private equity activities of banking

Merchant banking is the financial intermediation that matches the

entities that need capital and those that have capital. It is a function
that facilitates the low of capital in the market.

Merchant banking is a service-oriented industry specializing in

investment and financial decision making, assisting in making
corporate strategies, assessing capital needs and helping in procuring
the equity and debt funds for corporate sectors and ultimately helping
establishing favorable economic environment.

Merchant banker renders services to meet the needs of trade and

industry and investors, by performing as intermediary, consultant and
a liason.

Companies raise capital by issuing securities in the market. Merchant

bankers act as intermediaries between the issuers of capital and the
ultimate investors who purchase these securities.

Their primary sources of income are PIPE financings and international

trade. Their secondary income sources are consulting, Mergers &
Acquisitions help and financial market speculation. Because they do
not invest against collateral, they take far greater risks than traditional
banks. Because they are private, do not take money from the public and
are international in scope, they are not regulated. Anyone considering
dealing with any merchant bank should investigate the bank and its
managers before seeking their help.

Scope of merchant banking activities

Merchant banking activity helps:

• In channelising the financial surplus of the general public into

productive investment avenues.
• To coordinate the activities of various intermediaries to the share
issue such as the registrar, bankers, advertising agency, printers,
underwriters, brokers etc.
• To ensure the compliance with rules and regulations governing
the securities market

SERVICES OFFERED BY MERCHANT BANKER

Merchant banks offer many of the following services:

o Consulting advice on going public and international business.

o Advice and help in taking your company public. If they are
unwilling to supply Investment Banking bridge loans, they have a
low cost strategy for taking your company public.
o The do PIPE (Private Investment in Public Equities) financings.
o They can advise or help with a company’s M&A strategy.
o They are essential advisors for companies seeking to become
multinational corporations.
o They off pragmatic general business advice for real world
situations.

In providing advice and assistance, merchant bankers must possess a

complete understanding of all facets of capital markets. This includes
every type of debt and equity financing both domestically and
internationally. Merchant bankers cognizant of capital costs, seek
optimum sources of capital. It is fundamental to acknowledge that
interest rates are not the only standard relating to capital costs.
Restrictions on funding availability, repayment terms, and operating
effectiveness often outweigh what might appear to be inexpensive
capital.

Too frequently capital costs compel a growing business to undesirable

actions. Some action might be necessary - or advantageous - but in the
long run - inordinate capital costs can be detrimental. The traditional
merchant banker understands capital limitations and is able to
structure transactions which are beneficial to all parties - not just the
capital source. A knowledgeable merchant banker knows how to
substitute one kind of capital for another - sometimes utilizing internal
sources by way of either asset or corporate repositioning or equity
creation. Above all, a merchant banker fully comprehends the "risk"
versus "return" element necessary to complete the capital procurement
process.

Modern practices

The definition of merchant banking has changed greatly since the days
of the Rothschilds. The great merchant banking families dealt in
everything from underwriting bonds to originating foreign loans.
Bullion trading and bond issuing were some of the specialties of the
Rothschild family.

The modern merchant banks, however, tend to advise corporations and

wealthy individuals on how to use their money. The advice varies from
counsel on Mergers and acquisitions to recommendation on the type of
credit needed. The job of generating loans and initiating other complex
financial transactions has been taken over by investment banks and
private equity firms.

Today there are many different classes of merchant banks. One of the
most common forms is primarily utilized in America. This type initiates
loans and then sells them to investors. Even though these companies
call themselves "Merchant banks," they have few if any of the
characteristics of former Merchant banks.
 A bank that deals mostly in (but is not limited to) international finance,
long-term loans for companies and underwriting. Merchant banks do
not provide regular banking services to the general public.

Functions of a merchant banker

The following comprise the main functions of a merchant banker:

• Management of debt and equity offerings- This forms the

main function of the merchant banker. He assists the companies in
raising funds from the market. The main areas of work in this regard
include: instrument designing, pricing the issue, registration of the offer
document, underwriting support, marketing of the issue, allotment and
refund, listing on stock exchanges.

• Placement and distribution- The merchant banker helps in

distributing various securities like equity shares, debt instruments,
mutual fund products, fixed deposits, insurance products, commercial
paper to name a few. The distribution network of the merchant banker
can be classified as institutional and retail in nature. The institutional
network consists of mutual funds, foreign institutional investors, private
equity funds, pension funds, financial institutions etc. The size of such a
network represents the wholesale reach of the merchant banker. The
retail network depends on networking with investors.

• Corporate advisory services- Merchant bankers offer

customised solutions to their clients financial problems. The following
are the main areas in which their advice is sought:
Financial structuring includes determining the right debt-equity ratio
and gearing ratio for the client, the appropriate capital structure theory
is also framed. Merchant bankers also explore the refinancing
alternatives of the client, and evaluate cheaper sources of funds.
Another area of advice is rehabilitation and turnaround management.
In case of sick units, merchant bankers may design a revival package in
coordination with banks and financial institutions. Risk management is
another area where advice from a merchant banker is sought. He advises
the client on different hedging strategies and suggests the appropriate
strategy.

• Project advisory services- Merchant bankers help their

clients in various stages of the project undertaken by the clients. They
assist them in conceptualising the project idea in the initial stage. Once
the idea is formed, they conduct feasibility studies to examine the
viability of the proposed project. They also assist the client in preparing
different documents like the detailed project report.

• Loan syndication- Merchant bankers arrange to tie up loans

for their clients. This takes place in a series of steps. Firstly they analyse
the pattern of the client’s cash flows, based on which the terms of
borrowings can be defined. Then the merchant banker prepares a
detailed loan memorandum, which is circulated to various banks and
financial institutions and they are invited to participate in the syndicate.
The banks then negotiate the terms of lending on the basis of which the
final allocation is done.

• Providing venture capital and mezzanine financing-

Merchant bankers help companies in obtaining venture capital financing
for financing their new and innovative strategies.

Registration of merchant bankers

Registration with SEBI is mandatory to carry out the business of

merchant banking in India. An applicant should comply with the
following norms:

• The applicant should be a body corporate

• The applicant should not carry on any business other than those
connected with the securities market
• The applicant should have necessary infrastructure like office
space, equipment, manpower etc.
• The applicant must have at least two employees with prior
experience in merchant banking
• Any associate company, group company, subsidiary or
interconnected company of the applicant should not have been a
registered merchant banker
• The applicant should not have been involved in any securities
scam or proved guilt for any offence
• The applicant should have a minimum net worth of Rs.5 crores

MERCHANT BANKS: SOME DETAILS

o To carry on the activities of a merchant banker, an institution other

than a NBFC has to register itself with SEBI under any of these
categories

Category I

1. To carry on any activity of the issue management, which will

consist of preparation of prospectus and other information
relating to the issue, determining financial structure, tie-up of
financiers and final allotment and refund of the subscription
2. To act as adviser, consultant, manager, underwriter, portfolio
manager

Category II

To act as adviser, consultant, co-manager, underwriter, portfolio

manager.

Category III

To act as underwriter, adviser, consultant to an issue.

Category IV

To act only as adviser or consultant to an issue.

Capital Adequacy Requirement

o Category I- Rs. 5,00,00,000

o Category II-Rs. 50,00,000
o Category III-Rs. 20,00,000
o Category IV-NIL

Reasons for developing relationship with merchant bank

The reason that businesses should develop a working relationship with

a merchant bank is that they have more money than venture
capitalists. Their advice tends to be more pragmatic than venture
capitalists. It is rare for a merchant bank to fail. The last major failure
was Barings Bank (1992). It failed because of unsupervised trading of
copper futures contracts and buybacks. When the DotCom Bubble
burst in 2001, scores of venture capital firms failed. The greatest
merchant bank failure in history was the Knights Templar. After the
Crusades, the Order became immensely wealthy controlling and
funding the trade between the Middle East and Western Europe. They
foolishly loaned money to the French Government. To avoid repaying
the money, King Louie had the Pope declare the Order heretics.
Thousands of monks lost their lives, but France balanced its budget.

History

Merchant banks, now so called, are in fact the original

"banks".
To understand Merchant Banks, you should know something of their
history.

o Formally initiated into the Indian capital markets when

grindlays bank received the license from reserve bank in 1967.

o Grindays started with management of capital issue, but soon

recognized the needs of an emerging class of entrepreneurs for
 diverse financial services ranging from production planning and
system design to market research.

o Following grindlays bank, Citibank set up its merchant banking

division in 1970.

1. the division took up the task of assisting new

entrepreneurs and existing units in the evaluation of new
projects.
2. raising funds through borrowing and issue of equity.
3. management consultancy services were also offered

o consequent to the recommendations of banking commission in

1972, the Indian banks should start merchant banking services as
a part of the multiple services they could offer their clients, state
bank of India started the merchant banking division in 1972.

o The other commercial banks followed SBI among the

development banks. ICICI started merchant banking activities in
1973, followed by IFCI in 1986 and IDBI in 1991.

o Increased in importance after the repeal of capital issues

(control) act 1947, in 1992.

o Protection of investor interest and promotion of the development

and regulation of the market activity became the responsibility of
SEBI.
SPECTRUM OF SERVICES OFFERED BY MERCHANT
BANKERS :

• Equity Issue (Public/Rights) Management

• Debt Issue Management
• Private Placements
• Project Appraisals
• Monitoring Agency Assignments
• IPO Funding
• Security Trustee Services
• Agriculture Consultancy Services
• Corporate Advisory Services
• Mergers and Acquisitions
• Buy Back Assignments
• Share Valuations
• Syndication

ISSUE MANAGEMENT SERVICES :

• Project Appraisal
• Capital structuring
• Preparation of offer document
• Tie Ups (placement)
• Formalities with SEBI / Stock Exchange / ROC etc.,
• Underwriting
• Promotion /Marketing of Issues
• Collecting Banker / Banker to an issue
• Post Issue Management
• Refund Bankers
• Handling of Dividend Warrant/Interest Warrant Payments
• Debenture Trusteeship
ROLE OF MERCHANT BANKER/INVESTMENT BANKER IN
IPO

A company selects an investment bank to be lead manager of a

securities offering; responsibilities include leading the due diligence
and drafting the prospectus. The lead manager forms a team of third-
party specialists, including legal counsel, accounting and tax
specialists, financial printers and others.

In addition, the lead manager invites other banks into an underwriting

syndicate as co-managers. The lead and co-managers will allot
portions of the shares to be offered among themselves. Because their
underwriting fees derive from how much of the issue they sell, the
competition for lead manager and senior allotment positions is quite
intense.

When a company issues publicly traded securities for the first time
through an initial public offering (IPO), the lead manager
appoints a research analyst to write a research report and begin
ongoing coverage of the company. The report will contain an economic
analysis of the business and its prospects given the market for its
products and services, competition and other factors. Once the analyst
initiates coverage, he or she will make ongoing recommendations to
the bank's clients to buy, hold or sell shares based on the perceived fair
value relative to current share price.

Distribution begins with the book-building process. The

underwriting syndicate builds a book of interest during the offering
period, usually accompanied by a road show, in which the issuer's
senior management and syndicate team members meet with potential
investors (mostly institutional investors such as pension funds,
endowments and insurance companies). Potential investors receive a
red herring, a preliminary prospectus that contains all materially
significant information about the issuer but omits the final issuing
price and number of shares.

At the end of the road show, the lead manager sets the final offering
price based on the prevailing demand. Underwriters seek to have the
offering oversubscribed (create more demand than available shares). If
they succeed, they will exercise a 15% overallotment option, called a
greenshoe, which is named after the Green Shoe Company, the first
issuer of such an option. This permits the underwriters to increase the
number of new shares issued by up to 15% (from the number stated in
the prospectus) without going through any additional registration.

The new issue market is called the primary market. The Securities
and Exchange Commission (SEC) registers the securities prior to their
primary issuance, then they start trading in the secondary market
on the New York Stock Exchange, Nasdaq or other venue where the
securities have been accepted for listing and trading.

SOME EXAMPLE OF BANKS HAVING MERCHANT

BANKING DIVISION

PUNJAB NATIONAL BANK

Punjab National Bank, India’s one of the Leading
Nationalized Bank established in 1895, serving over 3.5 crore
customers through 4520 branches and 439 extension counters is the
largest amongst Nationalized Banks. The Bank has recently been
ranked 21st among top 500 companies and 9th among top 50 brands by
the Economic Times. All the Branches of the Bank have been
computerized. The Bank has a concept of "Any Time, Any Where
Banking" through the introduction of Centralized Banking Solution
(CBS) and over 2511 offices have already been brought under its ambit.

The Bank is registered with SEBI as Category – I Merchant Banker for

providing all the major Merchant Banking services.
Their gamut of Merchant Banking services includes:

• Issue Management Services – to act as Book Running Lead

Manager/Lead Manager for the IPOs/FPOs/Right issues/Debt
issues
• Project appraisal
• Corporate Advisory Services
• Underwriting of equity issues
 • Banker to the Issue/Paying Banker
• Refund Banker
• Monitoring Agency
• Debenture Trustee
• Marketing of the issue through a strong network of
QIBs/HNIEs/Corporates and Retail investor. The Bank itself is
one of the major investor in the market having a treasury of
45000 crores.

Their Software for handling the Refund Banker is one of the best
systems in the industry. Its unique features provides online payment of
the instrument by our 2470 branches in 733 centers, online status of
paid instruments, 100% reconciliation at any point of time etc.

The Bank has an exclusive and specialized Capital Market Service

Branch at New Delhi for providing Merchant Banking Services to the
Corporate.

Depository Services

Bank offers Depository Services to its clients and has designated large
network of branches to cater to their demat requirements through
Depository Participant of NSDL and CDSL depositories. We also
provide the Speed –e facility to demat account holders to submit their
delivery instructions through Internet. The Bank has recently launched
“online securities trading facility” in strategic alliance with IDBI
Capital Market Services Ltd.

CANARA BANK
AN INTRODUCTION:
Canara Bank is also one of the leading Merchant Bankers in India,
offering specialised services to Banks, PSUs, State owned Corporations,
Local Statutory bodies and corporate sector.

They are SEBI registered Category I Merchant Banker / Underwriter to

carry on Issue Management (Public / Rights / Private Placement
Issues), Underwriting, Consultancy and Corporate Advisory Services
etc.

They also hold SEBI registration Certificate to act as "Bankers to an

Issue" with network of exclusive Capital Market Service Branches to
handle "Capital Market" related assignments.

They undertake "project appraisals" with resource raising plans from

Capital Market/ Debt Markets and facilitate tie-ups with Banks /
Financial Institutions and Potential Investors.

Their uniqueness is extending services under single window concept

covering the following areas:

1. Merchant Banking
2. Commercial Banking
3. Investments
4. Bankers to Issue - Escrow Bankers
5. Underwriting
6. Loan Syndication

As leading Merchant Bankers in India, we have associated with issues

ranging from Rs.1 crore to Rs.1500 crores, involving various types of
industries, banks, statutory Bodies etc. and have an edge in handling
Private Placement issues – both retail & HNIs.
INTRODUCTION TO INITIAL PUBLIC OFFER (IPO)

IPO

It is the process of offering securities generally common or preferred

stock or bonds of a privately owned company for sale to the general
public.
The First time these securities are offered is referred to as
an Initial Public Offering or IPO.

An IPO in which a company sells its unissued securities and receives all
the proceeds in the form of additional capital is called a primary
offering. A securities sale in which securities held by the owners of the
company are sold, and from which the owners receive the proceeds, is
called a secondary offering.
IPOs are almost always primary offerings, but may include a small
number of shares held by the present owners.

IPO in India means the new offer of a company's shares to the

public in the country's capital markets. Initial Public Offer (IPO) in
India is done through various methods like method of book building,
method of fixed price or a mixture of both.
Raising money through IPO is a very complex process. It requires
analysis and implementation of various commercial laws applicable to
IPO-Prospectus.

A merchant banker is nominated as a book runner by the

Issuer of the IPO.
The company that is issuing the Initial Public Offering (IPO) decides the number of
shares that it will issue and also fixes the price band of the shares. All these information
are mentioned in the company's red herring prospectus.

During the company's Initial Public Offering (IPO) in India, an electronic book is opened
for at least five days. During this period of time, bidding takes place which means that
people who are interested in buying the shares of the company make an offer within the
fixed price band. Once the book building is closed then the issuer as well as the book
runner of the Initial Public Offering (IPO) evaluate the offers and then determine a fixed
price. The offers for shares that fall below the fixed price are rejected. The successful
bidders are then allotted the shares.

Main objectives of new IPO:

The main objectives of New Initial Public Offer (IPO) are to use the
proceeds from the issue to fund the company's plans for the expansion
of operations and to meet the expenses of the issue.

Further the main objectives of New Initial Public Offer (IPO) in India
are to use the proceeds from the issue to meet the company's
requirements for working capital and also for general corporate
purposes.
Major IPOs in India are:

• Reliance Power IPO

• Wockhardt Hospital IPO
• KNR Constructions Ltd. IPO
• Manjushree Extrusions Ltd IPO
• J Kumar Infraprojects Ltd. IPO
• Future Capital Holding Ltd IPO
• Cords Cable IPO

REASONS FOR GOING PUBLIC

Some of the reasons for going public are as follows:

 To raise money for expansion of operations

 To increase market value
 To acquire other companies
 To attract and retain employees
 To diversify and liquefy personal holdings
 To provide liquidity for shareholders
 To implement an estate tax-planning strategy
 To enhance the company’s reputation
 To raise funds for financing capital expenditure needs like
expansion diversification etc.
 To finance increased working capital requirement
 As an exit route for existing investors
 For debt financing
Other reasons may be private and personal. It is truly
important to recognize your reasons and to keep your goals in
mind throughout the going-public process.

ADVANTAGES OF GOING PUBLIC

• Stock holder 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 offer, 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 to 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 sock 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. Even if a buyer is located there is no
establishes price at which to complete the transaction. 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. It helps to
increase company and personal prestige.

• Other advantages
Additional incentive for employees in the form of the companies
stocks. This also helps to attract potential employees. It commands
better valuation of the company & Better situated for making
acquisitions

DISADVANTAGES OF GOING PUBLIC

Costs of Reporting
A publicly owned company must file quarterly reports with the
Securities and exchange Board of India. These reports can be costly
especially for small firms.

Disclosures
Management may not like the idea or reporting operating data, because
such data will then be available to competitors.

Self dealings
The owner’s managers of closely held companies have many
opportunities for self-transactions, although legal they may not want to
disclose to the public.

Inactive market low price

If a firm is very small and its 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.

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 invest.

FINANCIAL MARKETS AND THE IPO

The Financial Market is an amorphous set of players who come

together to trade in financial assets.

Financial Markets in any economic system that acts as a conduit

between the organizations who need funds and the investors who wish
to invest their money into profitable opportunity. Thus, it helps
institutions and organizations that need money to have an access to it
and on the other hand, it helps the public in general to earn savings.

Thus they perform the crucial function of bringing together

the entries who are either financially scarce or who are
financially slush.

This helps generally in a smoother economic functioning in the sense

that economic resources go to the actual productive purposes. In
modern economic systems Stock Exchanges are the epicenter of the
financial activities in any economy as this is the place where actual
trading in securities takes place.

Modern day Stock Exchanges are most of the centers to trade in the
existing financial assets. In this respect, they have come a long way in
the sense that these days, they act as a platform to launch new
securities as well as act as most authentic and real time indicator of the
general economic sentiment.

As such, Financial Markets are functionally classified as having two

parts, namely,

1. The Primary Market

2. The Secondary Market

Primary Market comprises of the new securities which are offered to

the public by new companies. It is the mechanism through which the
resources of the community are mobilized and invested in various
types of industrial securities. Whenever a new company wants to enter
the market it has to first enter the primary market.

Secondary Market comprises of further issues which are floated by

the existing companies to enhance their liquidity position. Once the
new issues are floated and subscribed by the public then these are
traded in the secondary market. It provides easy liquidity,
transferability and continuous price formation of securities to enable
investors to buy and sell them with ease. The volume of activity in the
Secondary Market is much higher compared to the Primary Market

PRIMARY MARKET-GENESIS AND GROWTH

When a business entity needs money the general course of action that
it follows is that it goes to the bank. However banks may not be ready
to provide huge finance for a long time especially if the returns are not
fixed.

The best way to raise money is through offer of shares and

for this: PRIMARY MARKET is the answer
The Primary Market deals with the new securities which were
previously not tradeable to the public.

The main function is to facilitate the transfer of resources from savers

to entrepreneurs seeking to establish or to expand and diversify
existing events. The mobilization of funds through the Primary Market
is adopted by the state government and corporate sector.
In other words the Primary Market is an integral part of the capital
market of a country and together with the securities market. The
development of security as well as the scope for higher productive
capacity and social welfare depends upon the efficiency of the Primary
Market.

GROWTH OF IPO’s IN INDIA

HISTORY OF PRIMARY MARKET

Indian capital market was initiated with establishing the Bombay stock
exchange in the year 1875 at that time the main function of stock
exchange was to provide place for trading in the stocks. Now the
exchange has completed more than 25 years. It has undergone several
changes.

Initially the IPO was called ‘New Issue’ and the issues in the Primary
Market were controlled by CCI (Controller of capital issue). It was
working as a department of MOF (ministry of finance). There were very
few issues every year. CCI was highly conservative and hardly allowed
any premium issues. Also, the regulatory framework was inadequate to
control several issues relating to Primary Market. Therefore, in the year
1992 it was abolished.
There was no awareness of new issues among the investing public.

In fact, during 1950s-1960s, the investment in stock market was

considered to be gambling. It was prerogative to highly elite business
community to participate in new issues. More than 99% of Indian
population never participated in any issue during CCI regime.

There was tremendous growth in capital market in U.S.A. and Western

Europe. In these markets they had established Security Exchange
Commission (SEC). It is most powerful autonomous body. The
Government of India realized the importance of a similar body in India
for healthy and fast growth of Capital Market. Thus Security Exchange
Board of India (SEBI) was established with headquarters in Mumbai in
1992.SEBI is the most powerful body in India.

SEBI has come up with the guidelines for disclosures and investors
protection. SEBI has framed rules for various intermediaries
like Merchant Bankers, Underwriters, Brokers, Bankers,
Registrars and Transfer Agents, Depositories, Stock
Exchanges etc. These rules are on the line of similar rules in western
world. This has attracted foreign institutional and individual investors
to invest money in India. This has resulted in exponential growth of
Capital Market in this last decade.

POPULARISING THE NEW ISSUE.

Late Shri, Dhirubhai Ambani can be considered as

‘Bhishmapita’ of new issues, though initially he also had to
struggle to get subscribers but he always used innovative ides for
marketing IPOs. It is said that investor never lost money in his pricing
methods. There are several incidences of the common man participated
in his issues, got allotment, sold shares and created fabulous wealth for
themselves. As on 31-12-2003, Reliance Group has more than 3.5
million shareholders.

The first public offer of securities by a company after its inception is

known as Initial Public Offer. Going public is a process by which
a business owned by one or several individuals is converted
in to a business owned by many. It involves the offer of part
ownership of the company to the public through the sale of equity
securities (stock).

IPO dilutes the ownership stake and diffuses corporate control as it

provides ownership to investors in the form of equity shares. It can be
used as exit strategy and finance strategy.
As a financing strategy, its main purpose is to raise funds for the
company. When used as an exit strategy, existing investors can offload
equity holdings to the public.

Things to consider before going public

A company usually begins to think about going public when the

funding required to meet the demands of business expansion begins to
exceed its ability to raise additional private/venture capital funding or
debt capacity.
Below are the following points which need to be considered.

1. Company attractive track record

Generally, a company that outpaces the industry average in growth will

have a better chance of attracting prospective investors than one with
marginal or inconsistent growth. Some underwriters consider a
company to be an IPO candidate if it has annual revenues of at least
$50 million and profitability of $1 million or more.

2. Has company received venture capital funding

Many early-stage companies that do not have a proven track record

increase credibility and can validate their business concept, product, or
service before they go public by selling a portion of their equity to
venture capitalists.
Investment from venture capital sources is viewed as “smart money”
which can also help increase valuation leading up to an IPO.
 3. company prospects for maintaining a strong sales and
earnings growth trend in the future

Many companies that have successfully gone public have shown market
support for their product or service that would sustain an increasing
annual growth rate for a five-year period. This growth potential should
be even larger if institutional investors are expected to buy significant
blocks of shares in the company.

4. company’s products or services visibility and of interest

to the consuming and investing public

The established company can answer this question with historical sales
data, while the early-stage company must use market research
projections and demonstrated product superiority. In fact, the early-
stage company usually qualifies as an IPO candidate because of the
uniqueness of its product or service.

5. Management capability and commitment

In any public offering, the quality of the management team is a key

factor.
To have credibility with the investing public, the organization must
have experienced leadership. In addition, ownership by management
demonstrates to investors that it has a vested interest in the company’s
future. In order to have a successful IPO, management must be
committed to the time and effort involved in meeting registration
requirements, conducting analysts’ meetings, and providing financial
reports required for both the SEC and shareholders on a timely basis.

6. Benefits vs. the costs of going public

Selling equity represents a permanent forfeiture of a portion of the

returns associated with corporate growth. Also, raising equity capital in
the public markets can entail substantial costs, such as the
underwriting discount, plus other fees and expenses.

7. Is the market right?

The demand for initial public offerings can vary dramatically,
depending on overall market strength, the market’s opinion of IPOs,
industry economic conditions, technological changes, and many other
factors.

PREPARATION OF THE SUCCESS OFFERING

“Preparation is the secret to success”

The planning process can start on the day your company is

incorporated or as late as 90 days before a public offering. It is
recommend that an orderly plan can be accomplished over a one- to
two-year period.
This gives company time to think, act, and perform as a public
company.

Develop a deep management team

As a company prepares for its IPO, it must expand its management

capabilities.
The investment community wants to be sure that management running
your company is not a “one-man band.” This may require adding
individuals with public company experience in marketing, operations,
development, and finance.

Develop budgets and measure performance

Throughout the IPO process, underwriters and analysts will ask mature
companies for projections, and will compare your historical
performance to past budgets. Accordingly, company should get in the
habit of preparing aggressive, but attainable, budgets and be able to
articulate why variances have occurred.
Create an audit committee

Audit committees have an essential role in ensuring the integrity and

transparency of corporate reporting. Investors now expect that
published information has been subject to objective, board-level
review.
Some of the key requirements are that audit committees: Be
composed entirely of independent directors

Have and disclose at least one member who is a “financial expert”,

defined as:
1) Having experience as a principle financial or accounting officer,
controller, accountant, or auditor.
2) Having experience overseeing or assessing the performance of
companies with respect to the evaluation of
the financial statements
3) Other relevant experience

Evaluate corporate governance principles and practices

Both the NYSE and NASDAQ recently approved new corporate

governance listing standards that need to be addressed in connection
with an initial public offering and listing of a company’s equity
securities.
These listing standards address matters such as board composition,
structure, and process – including nomination of directors,
compensation practices, and similar matters.

Build a positive public image

A positive image can enhance the initial sales effort and maintain the
public’s interest in the stock in the aftermarket. Accordingly, most
companies will need to enhance or create such an image with those
who will buy the company’s stock and with those who influence that
buying decision
Other ways your company can enhance its public image include adding
analysts and business press editors to your mailing lists, participating
in trade shows and conferences that are attended by analysts, and
publicizing key employee appointments.

Establish incentive compensation plans

Development of a long-term incentive compensation plan is critical to

keeping management and employees motivated.
Many investment bankers like to see preexisting option plans in place
with options issued to the management team. If much of an
individual’s wealth is associated with the growth of the company and
the value of the unexercised options, the underwriter will see a
long-term commitment, and this may help the valuation of
your company.

EVOLUTION OF IPO

PERFORMANCE IN 90s
The general development of the Primary Markets in the nineties. There
have been many regulatory changes in the regulation of primary
market in order to save investors from fraudulent companies. The most
path breaking development in the primary market regulation has been
the abolition of CCI (Controller of capital issues). The aim was to give
the freedom to the companies to decide on the pricing of the issue and
this was supposed to bring about a self-managing culture in the
financial system. But the move was hopelessly misused in the years of
1994-1995 and many companies came up with issues at sky-high prices
and the investors lost heavily. That phase took a heavy toll on the
investor’s sentiment and the result was the amount of money raised
through IPO route.

1993-96: SUNRISE, SUNSET.

With controls over pricing gone, companies rushed to tap the Primary
Market and they did so, with remarkable ease thanks to overly
optimistic merchant bankers and gullible investors. Around Rs20000
crores were raised through 4053 issues during this period. Some of the
prominent money mobilizes were the so called ‘sunrise sectors’-
polyester, textiles, finance, aquaculture. The euphoria spilled over to
the Secondary Market. But reality soon set in. Issuers soon failed to
meet projections, many disappeared or sank. Result: the small investor
deserted both markets-till the next boom!

1998-2000: ICE ON A HOT STREAK

As the great Indian software story played itself out, software stocks led
a bull charge on the bourses. The Primary Market caught up, and issues
from the software markets flooded the market. With big IPOs from
companies in the ICE (Information Technology, Communication and
Entertainment) sectors, the average issue price shot up from Rs.5 crore
in 1994-96 to Rs.30 crore. But gradually, hype took over and valuations
reached absurd levels. Both markets tanked.

2001-2002-ALMOST CLOSED
There were hardly any IPOs and those who ventured, got a lukewarm
response. A depressed Secondary Market had ensured that the doors
for the Primary Market remained closed for the entire FY 2001-
2002.There were hardly any IPOs in FY 2001-2002.

2002: QUALITY ON OFFER.

The Primary Market boom promises to be different. To start with, the
cream of corporate India is queuing up, which ensures quality. In this
fragile market, issue pricing remains to be conservative, which could
potentially mean listing gains. This could rekindle the interest of small
investors in stocks and draw them back into the capital market. The
taste of gains from the primary issues is expected to have a spillover
effect on the secondary market, where valuations today are very
attractive.

2003: IPO-IMPROVED PERFORMANCE OVERALL

Even as the secondary market moved into top gear in 2003 the primary
market too scripted its own revival story, buoyed largely by the Maruti
IPO which was oversubscribed six and a half times.
In 2003 almost all primary issues did well on domestic bourses after
listing, prompting retail investors to flock to IPO’s.
All IPO’s, including Indraprastha Gas and TV Today Network
which was oversubscribed 51 times showed the growing
appetite for primary issues.

Initially, the Maruti share price was considered steep at Rs125 per
share for a Rs5 paid-up share. By the end of the year, the stock had
climbed to over Rs355.
In overseas listings, the only notable IPOs were Infosys Technology's
secondary ADR offer and the dull debut of Sterlite Group company
Vedanta on the London Stock Exchange.

After the phenomenal success of Maruti issue, a number of companies

have approached the capital market and a lot more are waiting for
SEBI approval.
SEBI has taken enough care to force companies to make relevant
disclosures for the investor to judge the quality of new issues. Besides,
the companies themselves have been careful not to over-price the
shares. On the contrary, some of the companies have deliberately
under-priced them to let the issue get over-subscribed and to let the
investor share some of the capital gain after listing. With the care taken
by SEBI and the companies it is unlikely that the experience of 1995
will be repeated.

Leading IPOs in India

Some of the leading IPOs in India include Reliance Power Limited
IPO, Tulsi Extrusions Limited IPO, Onmobile Global Limited IPO,
EMAAR MGF IPO, Future Capital Holdings Limited IPO and many
more.

All these IPOs have opened their subscriptions in 2008. India has
saved almost 3.3 billion proceeds in the global IPO market through
eight deals which has made it the largest IPO market across the
globe.
Reliance Power IPO has been the biggest contributor in this regard.

The IPO market in India has been growing at a massive pace for the
past few years. With the advent of some leading IPOs in India, the
country has become the largest IPO market across the globe so far.

Leading IPOs in India which Opened for Subscription in

2008
Some of the leading IPOs in India which opened for subscription in
the current year 2008 are as follows:

• Reliance Power Limited

• Tulsi Extrusions Limited
• Onmobile Global Limited
• Future Capital Holdings Limited
• Shriram Epc Limited
• Manjushree Extrusions Limited
• J. Kumar Infraprojects Limited
• Bang Overseas Limited
 • Cords Cable Industries Limited
• Knr Constructions Limited

• Irb Infrastructure Developers Limited

A SHORT NOTE ON SOME OF LEADING IPO’S

1.) Reliance Power IPO

reliance power IPO has been issued by Reliance Power Limited.
Reliance Power IPO was issued on 15th January, 2008 and closed on
18th January, 2008. Reliance Power Limited Company is planning to
generate capital worth Rs. 11, 700 crores through the IPO. This makes
it the largest IPO in the country as on 17th January, 2008. The price
band of the equity shares of Reliance Power IPO has been fixed at Rs.
405- 450 per equity share.

The total size of Reliance Power IPO is around 26 crores equity shares.
Reliance Power IPO will be listed on the National Stock Exchange
(NSE) and also on the Bombay Stock Exchange (BSE). The lead
bankers of Reliance Power IPO are Enam Securities, Kotak Mahindra
Capital Co, ABN Amro Rothschild, ICICI Securities, JP Morgan Chase
& Co, UBS AG and Deutsche Bank AG.
Main objective of Reliance Power IPO:
The main objective of Reliance Power IPO is that the proceeds from the
issue will be used to fund the power generation projects that the
company plans to carry out.

2.) Future Capital Holding Ltd IPO

It has been issued by the company Future Capital Holdings Limited
which is under the Future Group. Future Capital Holding Ltd IPO was
issued on 11th January, 2008 and closed on 16th January, 2008.

Future Capital Holding Ltd. IPO has been issued by Future Capital
Holdings Limited. It was issued on 11th January, 2008 and closed on
16th January, 2008. Future Capital Holding Ltd IPO consists of
6,422,800 equity shares of about Rs. 10 each. The price band of Future
Capital Holding Ltd IPO has been fixed between Rs. 700 to Rs. 765.
The registrar of Future Capital Holding Ltd IPO is Intime Spectrum
Registry Ltd.
The lead managers of Future Capital Holding Ltd IPO are UBS
Securities India Private Limited, Kotak Mahindra Capital Company
Limited, JM Financial Consultants Private Limited, and Enam
Securities Private Limited. Future Capital Holdings Limited is hoping
to raise around Rs. 450 crore to Rs. 490 crore through Future Capital
Holding Ltd IPO. Future Capital Holding Ltd IPO has been listed on
the National Stock Exchange and Bombay Stock Exchange.
Main objective of Future Capital Holding Ltd IPO:
The main objective of Future Capital Holding Ltd IPO is that the
proceeds from the issue will be used to fund the company's retail
financing services.

3.) IRB Infra Developers Ltd. IPO

IRB Infra Developers Ltd. expects to raise around Rs. 11.23 billion from
its Initial Public Offering (IPO). The company has plans of focusing on
transportation developmental projects in parts of western India and
also taking part in real estate development projects.

The company registered net profit of Rs. 300 million in March 2007 on
a revenue of Rs. 3.1 billion. IRB will use the proceeds from the IPO for
repaying loans worth Rs 7.2 billion and invest in a subsidiary, which is
constructing 65 km of the Bharuch-Surat toll road project.

IRB Infra Developers Ltd. IPO - Facts

• The total number of equity shares offered is 51,057,666 at Rs 10

each through 100% book building process.
• Up to 125,000 equity shares are reserved for subscription by the
employees.
• The price band of the equity shares are fixed at Rs 185 to Rs 220.
• The equity shares would be listed on the BSE and the NSE.
• The global coordinator of the issue is the Deutsche Equities India
Private Ltd.
Upcoming IPOs in India

The Upcoming IPOs in India are being issued by those

private companies that want to sell their shares in
the country's capital markets. Many companies
are planning to launch their IPOs in the financial
year 2008-2009.
Various companies issuing upcoming IPOs in
India as on 3rd March, 2008 are:

• UTI Asset Management Company Ltd whose lead manager is

Sbicap Securities Ltd.
• Madhana Industries Ltd whose lead manager is Edelweiss
Securities Ltd.
• Pipavav Shipyard Ltd whose lead manager is Citigroup Global
Markets India Pvt. Ltd.
• Mahindra Holidays & Resorts India Ltd whose lead manager is
HSBC Securities And Capital Markets India Pvt. Ltd.
• Gammon Infrastructure Projects Ltd whose lead manager is
Sharekhan Ltd.
• Resurgere Mines & Minerals India Ltd whose lead manager is
Motilal Oswal Securities Ltd.
• National Hydroelectric Power Corporation Ltd whose lead
manager is Enam Securities Pvt. Ltd.
• Kiridyes and Chemicals Ltd whose lead manager is Centrum
Capital Ltd.
• Neel Metal Products Ltd whose lead manager is ICICI
Securities Ltd.
• Jhaveri Flexo India Ltd whose lead manager is SREI Capital
Markets Ltd.
• Gokul Refoils And Solvent Ltd whose lead manager is
Intensive Fiscal Services Pvt. Ltd.
• Pride Hotels Ltd. whose lead manager is Edelweiss Securities
Ltd.
• Oil India Ltd. whose lead manager is Citigroup Global Markets
India Pvt, Ltd.
Largest IPO in India

The Largest IPO in India, as per records till January 2008, is the
Reliance Power IPO. It was issued by the Reliance Power Limited
Company. The issue comprised of 26 crores of equity shares which
were worth around US$ 3 billion. The company Reliance Power
Limited had fixed the price band of Reliance Power IPO between Rs.
405 and Rs. 450 for each share. Majority of the bids for the Initial
Public Offering (IPO) of Reliance Power came at the higher end of
the price band that is Rs. 450 and this helped to make it the Largest
IPO in India.

The response to Reliance Power IPO by the investors was excellent for the issue got
subscribed fully within a minute of its opening on 15th January, 2008. By the time
bidding closed for Reliance Power IPO on 18th January, 2008, it had been subscribed
52 times and had received a commitment of around Rs. 145,080 crores. This huge
response to the issue of Reliance Power IPO made it the Largest IPO in India till then.
The total proceeds from Reliance Power IPO are estimated to be around Rs.
11,700 crores.

JM Financial, JP Morgan, Deutsche Equities, Enam Securities, Kotak Mahindra Capital,

ABN AMRO, ICICI Securities and UBS are the lead managers of Reliance Power IPO.
The company Reliance Power Limited plans to use the proceeds from the IPO to set up
power plants all over India.

IPO SCAMS

IPO Scams are well structured game played by the absolute

opportunists consisting of intermediaries, financiers and bank
employees, who make a lot of money by controlling shares meant for
retail investors in Initial Public Offer (IPO), as the per the statement
of the Securities Exchange Board of India. In the last few years, the
capital market in India went through a rapid transformation. The
increased use of information technology and the integration of
financial markets have stepped up the risk profile of the capital
market.
The two major IPO scams in the Indian Capital market :

1.) The Harshad Mehta scam in the year 1992: Harshad

Mehta was an Indian stockbroker and is alleged to have engineered
the rise in the BSE stock exchange in the year 1992. Exploiting
several loopholes in the banking system, Harshad and his associates
siphoned off funds from inter-bank transactions and bought shares
heavily at a premium across many segments, triggering a rise in the
Sensex. When the scheme was exposed, the banks started
demanding the money back, causing the collapse. He was later
charged with 72 criminal offenses and more than 600 civil action
suits were filed against him. He died in 2002 with many litigations
still pending against him.

2.) The Ketan Parekh scam in the year 2001: Ketan Parekh
was a Mumbai-based stock broker. He hails from a well-to-do
Gujarati family involved in share trading, and Ketan was involved in
the shares scam of 2000-2001 on the Indian Stock Market.

Companies, when raising money from the stock market, rope in

brokers to back them in raising the share price. Ketan formed a
network of brokers from smaller exchanges like the Allahabad Stock
Exchange and the Calcutta Stock Exchange, and used benami, or
share purchases, in the name of poor people living in the shanty
towns of Mumbai. Ketan rose to fame at the same time as the
worldwide dot-com boom (1999-2000) and he relied primarily on
the shares of ten companies for his dealings. Ketan had large
borrowings from Global Trust Bank. He got a Rs 250 crore loan
from Global Trust Bank.

Ketan's modus operandi was to ramp up the shares of select firms in

collusion with promoters. Interestingly, around the time when Ketan
started taking long positions in his favorite K-10 scrips, the
Securities and Exchange Board of India (SEBI) concluded a 3-year
old case against Harshad Mehta, who had colluded with the
managements of BPL, Sterlite and Videocon to ramp up their shares.

In Ketan's case, SEBI found prima facie evidence of price rigging in

the scrips of Global Trust Bank, Zee Telefilms, HFCL, Lupin
Laboratories, Aftek Infosys and Padmini Polymer.

Discovery and arrest

With the prices of selective shares constantly going up due to his

rigging, innocent investors who had bought the shares at high
prices, thinking the market as genuine, lost heavily. Soon after the
discovery of the scam, the prices of these stocks came down to a
fraction of the values at which they were bought, causing even banks
to lose large sums of money.

Ketan Parekh was arrested on December 2, 2002 in Kolkata.

The IPO Scams opened up the latent loopholes in the

Indian capital market

IPO Scams - Causes

• Two of the most common factors of the major IPO scams in

India were the tacit consent of the banks and the poor
surveillance techniques.
• The Depository Participants must be provided the proof of
identity and proof of address as a routine check for the
opening demat accounts. This was not followed.
• Numerous dematerialized accounts and bank accounts had
been opened under false names and the IPO applications were
made in non existing names.

IPO Scams - How it was done?

• At first bank accounts were opened up in fictitious or "benami"

names, which allowed these fictitious account holders to open
demat accounts.
• The master account holders, the person who had executed the
planning acts as an intermediary on behalf of the financiers.
• The shares acquired at the IPOs were disposed on the date of
listing at a premium to get more than the amount of money
invested.
 • The banks played an important part by means of opening bank accounts and
giving loans to the fictitious entities for the purpose of earning fee incomes.

IPO FUNDING
Rules for IPO Fundings Change by RBI-
The entire scenario of IPO Fundings went through radical changes
in the year 2007 as per the directives of the Reserve bank of India.
According to RBI, the lending limit for one investor would come
down from Rs. 20 lacs to Rs. 10 lacs against any convertible bonds,
equity-mutual funds, convertible debentures, PSU bonds and Equity
shares. The loan limit set for each investor to invest in IPOs is Rs. 10
lacs and it has been strictly stated by the Reserve Bank of India that
no single investor would be allowed loans more than the limit for
investing in the IPOs.

Before 2007, the IPO market in India was rising heavily in terms of
booking subscriptions which accounted for the lining up of at least
two issues every week.

The market players were allowed to invest in at least five IPOs in

India to make quick profits as it takes only 15 days after the closing
date of the subscription of the company's IPO. The speculators will
get a bit affected by the new set of rules being implemented for the
IPO fundings. However, the chances of retail investors
being affected by the same are much less. The banks are allowed to
use up to 40 percent of their net worth for capital market related
exposures.

ICICI Bank, Kotak Mahindra Bank and HDFC Bank are not entitled
to direct exposure in terms of investing in their own subsidiaries,
shares, joint ventures and regional rural banks. The fundings in IPO
are issued to the investors with the aim to meet the investment
requirements in public issues and other projects.

Buying IPO
 Buying IPO needs sound knowledge about the capital market and
its working. The IPO helps the company to raise funds from the
public by means of issuing shares to the various investors.
Buying IPO - Overview
Before Buying IPO one must be sure what an IPO is.

All companies need to raise funds for various operations and one of
the best options is raising funds through issue of shares. The
investors are interested as they earn dividends from the shares.
Buying IPO - Advantages
The investors can seek the primary market for buying IPO. At an
IPO, shares can be bought directly from the company issuing it.
Investors may also buy shares in the secondary market, which is the
Stock Exchange, by the help of the brokers. Buying IPO is
advantageous as the price of the shares are cheaper, but later on the
prices go up when the shares are listed in the Stock Exchange as they
are listed at a premium. Once the price goes up one can sell those
shares or retain them in case the company is growing rapidly and
have acute chances of performing very well in the future. This can
increase the price further or help in earning fat dividends. The IPO
helps the investors to take part in the prosperity of the company.
The increase in the price of the shares after listing is the main
advantage of buying IPO in the primary market.
Important considerations in Buying IPO
While buying IPO, the investors must be careful about choosing the
company as there are numerous number of not-so-good companies.
The investors must keep your eyes and ears open. It is advised that
the investors seek help from professionals in this field rather than
handling critical decisions on their own.

Steps involved in buying IPO Stocks in India:

An investor, before buying Initial Public Offering (IPO) Stocks in India

must consider certain things in order to make sure that his
investments are safe. The steps involved in buying IPO Stocks in
India are to check out the company's business area and also the
 structure of the share holders before buying the IPO Stocks of a
company. Another important step that is involved before buying
IPO stocks of a company is to check out the financial performance
of the company over the past three to five years.

New IPO in India

New IPOs are being issued almost every day in the capital markets
of India. New IPO in India is launched through various different
methods like book building method, fixed price method or a
combination of both. New IPOs in India generally have a registrar
and also lead managers.

Major new IPOs in India are:

• IRB Infrastructure Developers Ltd IPO

• Wockhardt Hospitals Limited IPO
• Manjushree Extrusion Limited FPO
• Tulsi Extrusions Limited IPO
• Emaar MGF Land Limited IPO
• SVEC Constructions Limited IPO
• Reliance Power IPO
• Future Capital Holding Ltd IPO
• Cords Cable IPO

• Globus Spirit Ltd. IPO

IPO GRADING

The main objective of issuance of Initial Public Offering (IPO) is to

invest the corpus so accumulated, for either establishing of a new
company or expansion of an existing private company. The shares
held by such financer or investors give them the rights of the
company and to its future profits, which are categorically mentioned
in the offer document. The process of underwriting determines the
issue size and type, offer price and best time of introduction into the
market is called "underwriting". The underwriting is generally done
by the investment bankers. These underwriting firms or investment
bankers are allotted some specified numbers of shares to sell to the
general investor before the share is being traded on an exchange.

IPO Grading also called Rating is a process by which the back ground of an IPO
issuing company is verified. The main objective of such verification of track record is to
provide higher security to the money of the investor. The IPO Grading process does not
involve any "pricing suggestion" related to buying or selling price. The rating
agency only does the IPO Grading on the previous track record of the
company which has issued such IPO. The IPO Grading process mainly checks-for any
negative factor in the track record of the IPO issuing company. Further, IPO Grading
also arrests scrupulous or fictitious company from entering in to the market and run-
away with investor's money.

IPO ALLOTMENT STATUS

A new company can launch IPO to raise capital to initiate its

business. Moreover, Initial Public Offering can also be launched to
raise money for expansion or other important operations of an
existing company. The sale of stock through such Initial Public
Offering (IPO) is meant for the individual and corporate investors.
The aim of such issuance of Initial Public Offering is to invest the
accumulated corpus for, either opening -up of a company or
expansion of an existing company.

Thus, effectively, an Initial Public Offering pools investments and

utilizes it in building or expansion of the said company. The shares
held by such investors give them the rights of the company and to its
future profits. The process which involves determination of the issue
size and type, offer price and best time of introduction into the
market is called "underwriting". The underwriting is generally done
by the investment bankers. These underwriting firms or
investment bankers are allotted some specified numbers of
shares to sell, which is called as IPO Allotment Status.

In other words, IPO Allotment Status can also be defined as the number of stocks which
an investment banker is permitted to sell to the general investor before the share is
being traded on an exchange. The excess shares are then allotted to other investment
bankers which are eligible to sell such shares. In India, the main governing body that
determines such eligibility criteria and the IPO Allotment Status is the Securities and
Exchange Board of India (SEBI).
PRICING OF ISSUE

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.

During the booming period stock market issues got oversubscribed

beyond imagination. Number of companies came in with stiff premium
and faced investor resistance. This resulted in cautious approach by the
merchant bankers and underwriters for taking up underwriting of the
future issues.

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
recommended prices. Once, 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
refunded. The company looses money it has spent on IPO.

Thus pricing is most 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.

BOOK BULIDING
THE LATEST AVTAAR OF PRICE DISOVERY

The basic motto of Book Building is that “the market knows the best”.
Ever since SEBI allowed companies with no profitability record to
come up with IPO via Book Building route, there has been a good rush
of such issues.

What is Book Building?

Book Building is basically a capital issuance process used in Initial
Public Offer (IPO), which aids price and demand discovery. IT is a
process used for marketing a public offer of equity shares of a company
and is a common practice in most developed countries. Book Building
is so-called because the collection of bids from investors is entered in a
"book". These bids are based on an indicative price range. The issue
price is fixed after the bid closing date.

Persons Involved in the Book-Building Process

The principal intermediaries involved in the Book Building process are
the company; Book Running Lead Managers (BRLM) and syndicate
members who are intermediaries registered with SEBI and are eligible
to act as underwriters. Syndicate members are appointed by the BRLM.

How is the book built?

A company that is planning an initial public offer appoints a category-I
Merchant Banker as a book runner. Initially, the company issues a
draft prospectus which does not mention the price, but gives other
details about the company with regards to issue size, past history and
future plans among other mandatory disclosures. After the draft
prospectus is filed with the SEBI, a particular period is fixed as the bid
period and the details of the issue are advertised. The book runner
builds an order book, that is, collates the bids from various investors,
which shows the demand for the shares of the company at various
prices. For instance, a bidder may quote that he wants 50,000 shares at
Rs.500 while another may bid for 25,000 shares at Rs.600. Prospective
investors can revise their bids at anytime during the bid period that is,
the quantity of shares or the bid price or any of the bid options.

Basis of Deciding the Final Price

On closure of the book, the quantum of shares ordered and the
respective prices offered are known. The price discovery is a function of
demand at various prices, and involves negotiations between those
involved in the issue. The book runner and the company conclude the
pricing and decide the allocation to each syndicate member.

Payment for the shares

The bidder has to pay the maximum bid price at the time of bidding
based on the highest bidding option of the bidder. The bidder has the
option to make different bids like quoting a lower price for higher
number of shares or a higher price for lower number of shares. The
syndicate member may waive the payment of bid price at the time of
bidding. In such cases, the issue price may be paid later to the
syndicate member within four days of confirmation of allocation.
Where a bidder has been allocated lesser number of shares than he or
she had bid for, the excess amount paid on bidding, if any will be
refunded to such bidder.

Advantage of the Book Building process versus the Normal

IPO marketing process
Unlike in Book Building, IPO’s are usually marketed at a fixed price.
Here the demand cannot be anticipated by the merchant banker and
only after the issue is over the response is known. In book building, the
demand for the share is known before the issue closes. The issue may
be deferred if the demand is less.
This process allows for price and demand discovery. Also, the cost of
the public issue is reduced and so is the time taken to complete the
entire process.

Features Fixed Price Process Book Building Process

 Pricing Price at which the Security is offered/allotted is known in

advance to the investor. Price at which the Security will be
 offered/allotted is not known in advance to the investor. Only an
indicative price range is known.
 Demand for the securities offered is known only after the closure
of the issue. Demand for the securities offered can be known
everyday as the book is built.
 Payment if made at the times of subscription wherein refund is
given after allocation Payment only after allocation.

Guidelines for Issues to be made through 100% Book

Building Route

SEBI had issued guidelines in October 1997 for book building which
were applicable for 100% of the issue size and for issues above Rs.100
Crore.
The guidelines were revised subsequently to reduce the limit to issues
of Rs.25 crore to encourage the use of this facility. However, no issuer
used this facility.
SEBI modified the framework for Book Building further in October
1999 to make it more attractive.

The modified framework does not replace the existing guidelines.

The issuer would have option to issue securities using book building
facility under the existing framework:

1. The present requirement of graphical display of demand at bidding

terminals to syndicate members as well as the investors has been made
optional.
2. The 15% reservation for individual investors bidding for up to 10
marketable lots may be merged with the 10% fixed price offer.
3. Allotment for the book built portions shall be made in demat form
only.
4. The issuer may be allowed to disclose either the issue size or the
number of securities to be offered to the public.
5. Additional disclosure with respect to the scheme for making up the
deficit in the sources of financing and the pattern of deployment of
excess funds shall be made in the offer document.
Is the process followed in India different from abroad?
Unlike international markets, India has a large number of retail
investors who actively participate in IPO’s. Internationally, the most
active investors are the Mutual Funds and Other Institutional
Investors. So the entire issue is book built. But in India, 25 per cent of
the issue has to be offered to the general public. Here there are two
options to the company. According to the first option, 25 per cent of the
issue has to be sold at a fixed price and 75 per cent is through Book
Building. The other option is to split the 25 per cent on offer to the
public (small investors) into a fixed price portion of 10 per cent and a
reservation in the book built portion amounting to 15 per cent of the
issue size. The rest of the book built portion is open to any investor.

PROCESS OF IPO

The principal steps in an IPO process are listed below.

DAYS 1-60
Holding the “all hands” meeting

The first step in the IPO process is arranging an “all hands” meeting.
This meeting should be attended by all members of the registration
team- company management, independent auditors, underwriters, and
company’s attorneys as well as the underwriters’ attorneys

The purpose of this initial organizational meeting is to

discuss the nature of the offering and the appropriate
SEC registration form, coordinate responsibilities for
sections of the registration statement, establish a timetable
for the anticipated filing date, and share information
regarding the working group’s availability.

Throughout the IPO process, additional “all hands” meetings will take
place to discuss any problems, to review drafts of the registration
statement, and to determine whether the registration process is on
schedule.

DAYS 61-90 Filing the registration statement with the SEC

Pre-filing conference with the SEC
Prior to filing the initial registration statement with the SEC, some
companies hold a pre-filing conference with the SEC.

A pre-filing conference is recommended whenever important

accounting or business issues need to be resolved and those problems
are of sufficient magnitude to warrant the meeting.

This conference is usually attended by the principal financial officer of

the company, who should articulate the company’s position, together
with representatives from the company’s independent accounting firm
and, generally, outside counsel.

The primary advantage of holding such a conference is that it may

speed up the review process as the company may avoid any last-minute
delays.
TIP
Filing and SEC review
Upon completion of the draft registration statement, it is sent to the
printer. It is common for several lengthy drafting sessions to occur at
the printer.
When the registration statement has been completed, the document,
including exhibits, is filed with the SEC by electronic transmission
through EDGAR. The registration statement must contain appropriate
signatures in typed form; each signatory must manually sign a
signature page acknowledging inclusion of his or her typed signature in
the electronic filing. This signature page must be retained by the
company for a period of five years.

The waiting period

Once the registration statement has been filed, the “waiting period” or
“cooling off” period begins and continues up to the effective date of the
registration.
During this period, there are restrictions on the activities the company
and the underwriter can undertake. During the waiting period, the
underwriters may accept “indications of interest” from potential
purchasers, but no actual sales can
be made until after the effective date.

DAYS 91-100

Responding to the SEC letter of comment and preparing the

amended registration statement

After review of the registration statement, the staff typically issues a

letter that sets forth questions, possible deficiencies, and suggested
revisions. The letter, referred to as a comment letter, is generally
mailed or faxed to the company’s legal counsel.

Each comment in the staff’s letter of comment must be addressed and

resolved in writing before the registration statement can become
effective. If revisions are necessary, they are made in an amended
registration statement that is also filed via EDGAR.

“Silent” filing.
Often a company and underwriter will agree to all the terms of an
offering, but realize that the timeframe to complete the offering will
coincide with a negative marketing environment such as summer
vacations or the end-of-the-year holidays. In order to accommodate
this problem, to help minimize certain costs, and to aid in “controlling”
the market for the company’s stock, many companies have taken
advantage of “silent” or “quiet” filings.

Prior to the mandatory use of EDGAR, these filings entailed sending a

written registration statement to the SEC for their initial review and
waiting until all SEC staff comments were resolved prior to printing the
registration statement and Prospectus.
This type of filing allows the SEC staff time to review your registration
document and usually allows your company time to complete one more
quarter of results.

Commencing the selling effort

No offering of securities, either orally or in writing, is permitted before
the registration statement is initially filed with the SEC.
COST OF PUBLIC ISSUE.

The cost of public issue is normally between 8 and 12 percent

depending on the size of the issue and on the level of marketing efforts.
The important expenses incurred for a public issue are as follows:

• Underwriting expenses: The underwriting commission is fixed at

2.5 % of the nominal value (including premium, if any) of the equity
capital being issued to public.

• Brokerage: Brokerage applicable to all types of public issues of

industrial securities are fixed at 1.5% whether the issue is underwritten
or not. The managing brokers (if any) can be paid a maximum
remuneration of 0.5% of the nominal value of the capital being issued
to public.

• Fees to the Managers to the Issues: The aggregate amount

payable as fees to the managers to the issue was previously subject to
certain limits. Presently, however, there is no restriction on the fee
payable to the managers of the issue.

• Fees for Registrars to the Issue: The compensation to he

registrars, typically based on a piece rate system, depends on the
number of applications received, number of allotters, and the number
of unsuccessful applicants.

• Printing Expenses: These relate to the printing of the prospectus,

application forms, brouchers, share certificate, allotment/refund
letters, envelopes, etc.

• Postage Expenses: These pertain to the mailing of application

forms, brochures, and prospectus to investors by ordinary post and the
mailing of the allotment/refund letters and share certificates by
register posts.

• Advertising and Publicity Expenses: These are incurred

primarily towards statutory announcements, other advertisements,
press conferences, and investor’s conferences.

• Listing Fees: This is the concerned fee payable to concerned stock

exchange where the securities are listed. It consists of two components:
initial listing fees and annual listing fees.

• Stamp Duty: This is the duty payable on share certificates issued by

the company. As this is the state subject, it tends to vary from state to
state.

BRIEF NOTE ON INTERMEDIARIES INVOLVED IN IPO

The process of IPO is highly complex and its success is extremely

important for the company. In this process it is important that all the
intermediaries should work cohesively and within a framework of law.
Any serious error by any intermediary can affect the IPO.

The following are the important intermediaries involved in

the process-

MERCHANT BANKERS

Eligibility criteria-SEBI issues an authorization letter to the finance

companies, which are eligible to work as merchant bankers. The
eligibility criteria depend on network and infrastructure of the
company. The company should not be engaged in activities that are
banned for merchant bankers by SEBI. SEBI issues authorization letter
valid for 3 years and the company has to pay necessary fees. Such
merchant banker can be appointed as lead manager for IPO.

Functions-Merchant banker can work as lead manager co lead

manager investment banker underwriter etc.

Responsibility-lead managers are fully responsible for the content and

correctness of the prospectus. They must ensure the commencement to
the completion of the IPO. Certain guidelines are laid down in section
30 of the SEBI act 1992 on the maximum limits of the intermediaries
associated with the issue.
Size of the Issue No of Lead Managers

50 cr.- 2
50-100 cr.- 3
100-200 cr.- 4
200-400 cr.-5
Above 400 cr. 1 or more as agreed by the board

The number of co managers should not exceed the number of lead

managers. There can be only 1 adviser to the issue. There is no limit on
the number of underwriters.

Informational Asymmetry-in general merchant bankers know the

market better than the issuing company. They would exploit the
superior knowledge to under price issues. This makes their job easier
and helps them earn the goodwill of investors.

BROKERS

All the recognized stock exchange members are called brokers and thus
any member of a recognized stock exchange can become a broker to the
issue.
The brokers can work as broker and underwriter or both. In India
usually a broker not only does his normal broking business buying and
selling securities for brokerage but also works as an underwriter. They
can give underwriting commitment in accordance with their net worth.
A broker offer marketing support, underwriting support, disseminates
information to investors about the issue and distributes issues
stationary at retail investor level. The brokers are governed by rules of
SEBI and the respective stock exchange.
The brokers are key to the success of the issue. The brokers appoint sub
brokers who are in direct contact with the investors.

UNDERWRITERS
The underwriter is the principle player in the IPO providing the firm
with-
Reputation-as the underwriter is legally liable and because he has on
going dealing with the customers to whom he sells shares. The
underwriter puts his reputation on the line.

Finding investors-the underwriter first puts together a syndicate of

other underwriters to distribute the shares. The syndicate finds
investors willing to put their money into the company. This has serious
implications. Will the investors be institutional or private? Is the
company widely held or are the shares concentrated with just a few
investors?

Experience-the underwriter knows the detail of the process better than

any other participant since issuing shares is one of their primary
business functions. Underwriters are the ones who provide proper
guidance.

After market support-the underwriter protects investors and thus

makes the offer more attractive. It is important for the firm to have a
clear understanding with the underwriter exactly how much support he
plans to provide if the IPO is not fully subscribed and accordingly his
underwriting commission is fixed.

Future services-a good relationship with an underwriter can save time

and money in future dealings.

Pre offer assistance-the underwriter will conduct road shows with the
company’s management distribute the prospectus and marketing of the
underwriters directly generates talk to potential investors about
appropriate pricing. Some part of the value that the potential
shareholders attach to shares.

Underwriting involves a commitment from the underwriter to

subscribe to the shares of a particular company to the extent it is under
subscribed by the public or existing shareholders of the corporate. A
commission is paid to the writers on the issue price for undertaking the
risks of under subscription. The maximum rate of underwriting
commission paid is as follows.

Nature of Issue On amount Devolving on Underwriters On amounts

subscribed by the public
Equity shares preference shares and Debentures 2.5%
Issue amount upto Rs5 lakhs 2.5%

The fees for underwriter and broker are decided by the company within
the maximum possible limit as fixed by the SEBI.
BANKERS TO THE ISSUE
Any scheduled bank registered with SEBI can be appointed as the
banker to the issue. Several commercial banks are working as bankers
to the issue. They get fees on amount collected by them.
There are no restrictions on the number of bankers to the issue. The
main function of banker involves collection of duly filed application
forms with money (cheque/drafts) maintains a daily report,
transferring the proceeds to the share application money collected with
the application forms to the registrar. The bank provides application
forms to the investors. They accept duly filled forms with cheque/
drafts. They prepare collection reports and transfer funds and
applications to the company/registrar.

REGISTRAR AND TRANSFER AGENTS

Registration with SEBI is mandatory to take on responsibilities as a
registrar or share transfer agent. The registrar provides administrative
support to the issue process. Each agent is registered with SEBI. Hey
have to maintain net worth and infrastructure criteria. They have to
renew their License periodically. He collects all application from the
bank and ensures reconciliation of funds and of application amount
and participates in process of basis of allotment. If the IPO is
oversubscribed they provide computerized program for allotment.
They manage refund orders and allotment letters. They provide the
final list of allotees to Lead Manager ROC and stock exchange. If the
company wants they also manage post issue IPO functions relating to
shareholders register for the company.

DEPOSITORIES
Since the year 2000 it’s compulsory that all fresh issue of shares must
be made only in the dematerialized format (DMAT). The Depository
institute issues unique number of every IPO or company, when shares
are allotted to the company/registrar provides shareholders register to
depository in electronic form. Thus automatically all shareholders get
allotment in their DMAT account.

LEGAL ADVISOR
Normally the company for the purpose of IPO does this appointment.
He is responsible legal compliance of IPO process. There are other
intermediaries like Advertising Agents etc. but the company governs
their role.

SEBI AND IPO

ELIGIBILITY NORMS

FOR UNLISTED COMPANIES

1. It should have a pre issue network of a¬ minimum amount of Rs1

crore in 3 out of the preceding 5 financial years. In addition the
company should compulsorily need the minimum network level
during the two immediately preceding years.

2. It should have a track record¬ distributable profits as given in

section 205 of companies act 1956 for at least 3 years in the
preceding 5 years period.

3. The issue size should not exceed an amount equal to 5 times its
pre issue worth.

FOR LISTED COMPANIES

1. It should have a track record distributable profits as given in¬

section 205 of companies act 1956 for at least 3 years in the
preceding 5 years period.

2. It should have a pre issue network of a minimum amount of Rs1¬

crore in 3 out of the preceding 5 financial years with the
minimum net worth to be met during the immediately preceding
2 years.

SEBI NORMS
SEBI has come up with Investor Protection and Disclosure Norms for
raising funds through IPO. These rules are amended from time to time
to meet with the requirement of changing market conditions.

Disclosure Norms.

• Risk Factor-The Company/Merchant Banker must specify the major

risk factor in the front page of the offer document.

• General Risk.-Attention of the investor must be drawn on these risk

factors.

• Issuers Responsibility-It is the absolute responsibility of the issuer

company about the true and correct information in the prospectus.
Merchant Banker is also responsible for giving true and correct
information regarding all the documents such as material contracts,
capital structure, appointment of intermediaries and other matters.

• Listing Arrangement- It must clearly state that once the issue is

subscribed where the shares will be listed for trading.

• Disclosure Clause- It is compulsory to mention this clause to

distinctly inform the investors that though the prospectus is submitted
and approved by SEBI it is not responsible for the financial soundness
of the IPO.

• Merchant Bankers Responsibility-Disclaimer Clause the Lead

Manager has to certify that disclosures made in the prospectus are
generally adequate and are in conformity with the SEBI Guidelines.

• Capital Structure- The company must give complete information

about the Authorised capital, Subscribed Capital with top ten
shareholders holding pattern, Promoters interest and their
subscription pattern etc. Also about the reservation in the present issue
for Promoters, FII`s, Collaborators, NRI`s etc. Then the net public
offer must be stated very clearly.

• Auditors Report- The Auditors have to clearly mention about the past
performances, Cost of Project, Means of Finance, Receipt of Funds and
its usage prior to the IPO. Auditor must also give the tax-benefit note
for the company and investors.

INVESTOR PROTECTION NORMS

• Pricing of Issue-The pricing of all the allocations for the present issue
must follow the bid system. The reservation must be disclosed for
different categories of investors and their pricing must be specified
clearly.

• Minimum Subscription- If the company does not receive minimum

subscription of 90% of subscription in each category of offer and if the
issue is not underwritten or the underwriters are unable to meet their
obligation, then fund so collected must be refunded back to all
applicants.

• Basis of Allotment- In case of full subscription of the issue, the

allotment must be made with the full consultation of the concerned
stock exchange and the company must be impartial in allotting the
shares.

• Allotment/Refund- Once the allotment is finalized, the refund of the

excess money must be made within the specified time limits otherwise
the company must pay interest on delayed refund orders.

• Dematerialisation of Shares-As per the provisions of the Depositories

Act, 1996, And SEBI Rules, now all IPO will be in Demat form only.

• Listing of Shares- It is mandatory on the part of the promoters that

once the IPO is fully subscribed, and then the underlying shares must
be listed on the stock exchange. This provides market and exit routes to
the investors.

The above are the major Guidelines for the Investor Protection and
Disclosure Norms. The SEBI has provided rules for every possible
situation.

SEBI GUIDELINES
IPO of Small Companies

Public issue of less than five crores has to be through OTCEI (Over the
Counter Exchange of India) and separate guidelines apply for floating
and listing of these issues.

Public Offer of Small Unlisted Companies (Post-Issue Paid-Up Capital

upto Rs.5 crores) Public issues of small ventures which are in operation
for not more than two years and whose paid up capital after the issue is
greater than 3 crores but less than 5 crores the following guidelines
apply.

1. Securities can be listed where listing of securities is screen based.

2. If the paid up capital is less than 3 crores then they can be listed on
the Over The Counter Exchange of India (OTCEI)
3. Appointment of market makers mandatory on all the stock
exchanges where securities are proposed to be listed.

Size of the Public Issue

Issue of shares to general public cannot be less than 25%of the total
issue. Incase of IT, Media and Telecommunication sectors, this
stipulation is reduced subject to the conditions that

1. Offer to the public is not less than 10% of the securities issued.
2. A minimum number of 20 lakh securities is offered to the public
3. Size of the net offer to the public is not less than Rs.30 crores.

Promoters Contribution

1. Promoters should bring in their contribution including premium

fully before the issue
2. Minimum promoter’s contribution is 20-25% of the public issue.
3. Minimum lock in period for promoter’s contribution is five years.
4. Minimum lock in period for firm allotment is three years.

Collection Centers for Receiving Applications

1. There should be at least 30 mandatory collection centers, which

should include invariably the places where stock exchanges have been
established.
2. For issues not exceeding Rs.10 crores the collection centers shall be
situated at:-
• The 4 metropolitan centres viz. Mumbai Delhi Calcutta Chennai
• All such centres where stock exchanges are located in the region in
which the registered office of the company is situated.

Regarding allotments of shares

1. Net Offer the general public has to be atleast 25% of the total issue
size for listing on a stock exchange.

2. 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.

3. In an issue of more than 25 crores the issuer is allowed to place the

whole issue by book-building.

4. Minimum of 50% of the Net Offer to the public has to be reserved for
the investors applying for less than 1000 shares.

5. There should be atleast 5 investors for every 1 lakh equity offered.

6. Quoting of PAN or GIR No. in application for the allotment of

securities is compulsory where monetary value of investment is
Rs.50000/- or above.

7. Indian development financial institutions and Mutual Fund can be

allotted securities upto 75% of the issue amount.

8. 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.

9. Allotment to categories of FIIs and NRIs/OCBs is upto maximum of

24%, which can be further extended to 30% by an application to the
RBI-supported by a resolution passed in the General Meeting.

Timeframes for Issue and Post-Issue Formalities

1. The minimum period for which the public issue is to be kept open is
3 working days and the maximum for which it can be kept open is 10
working days. The minimum period for right issue is 15 working days
and the maximum is 60 working days.

2. A public issue is effected if the issue is able to procure 90% of the

total issue size within 60 days from the date of the earliest closure of
the public issue.

3. In case of oversubscription the company may have he right to retain

the excess application money and allot shares more than the proposed
issue, which is referred to as “green-shoe” option

4. Allotment has to be made within 30 days of the closure of the Public

issue and 42 days in case of Rights issue

5. All the listing formalities of a Public Issue have to be completed

within 70 days from the date of closure of the subscription list.

Dispatch of Refund Orders

1. Refund orders have to be dispatched within 30 days of the closure of

the issue.
2. Refunds of excess application money i.e. non-allotted shares have to
be made within 30 days of the closure of the issue.

Other Regulations

1. Underwriting is not mandatory but 90% subscription is mandatory

for each issue of capital to public unless it is disinvestment where it is
not applicable.

2. If the issue is undersubscribed then the collected amount should be

returned back

3. If the issue size is more than Rs500 crores, voluntary disclosures

should be made regarding the deployment of funds and an adequate
monitoring mechanism put in place to ensure compliance.

4. In the event of the initial public offer being at a premium and if the
rights under warrants or other instruments have been exercised within
12 months prior to such offer, the resultant shares will be not taken
into account for reckoning the minimum promoters contribution
further, the same will also be subject to lock-in.

5. Draft prospectus submitted to SEBI should also be submitted

simultaneously to all stock exchanges where it is proposed to be listed.

Restrictions on Allotments

1. Firm allotments to mutual funds, FII and employees are not subject
to any lock-in period.
2. Within 12 months of the public issue no bonus issue should be made.
3. Maximum percentage of shares, which can be distributes to
employees cannot be more than 5% and maximum shares to be allotted
to each employee cannot be more than 200.

Relaxation of entry norms for infrastructure companies With a view

channelise greater flow of funds to infrastructure companies, SEBI
granted a number of relaxations to infrastructure companies. These
included:

 Exemption from the requirement of making a minimum public

offer of 25 percent of securities and also from the requirement of
shareholders per Rs.1 lakh of offer made.

 Exemption from the minimum subscription of 90 per cent

provided disclosure is made about the alternate source of funding
considered by the company, in the event of under-subscription in
the public issue.

 Permission to freely price the offer in the domestic market

provided8 the promoter companies along with equipment
supplier sand other strategic investors subscribe to 50 percent of
 the equity at the same price as the price offered to the public or at
a price higher than that offered to the public.

 Permission to keep the issues open for 21 days to enable the

companies to mobilize funds.

 Exemption from requirement to create and maintain a debenture

redemption reserve in case of debenture issues as provided in the
SEBI Disclosure & Investor Protection Guidelines

These concessions are available to them if these are appraised by a

Development Financial Institution, Infrastructure Development
Finance Corporation or Infrastructure Leasing and Financing Services
Ltd. and there is a minimum financial participation by them. The
minimum participation of the appraising agency, initially fixed at 10%
of project cost, was reduced to 5%. Further, the minimum participation
can be met by any of the appraising agencies, jointly or severally,
irrespective of whether they appraise the project or not.

Eligibility norms for public issues/offers for sale by companies in the

IT Sector

 Eligibility norms were modified to provide that a company in the

IT Sector going for IPO/offer for sale shall have track record of
distributable profits as per Section 205 of the Companies Act in
three out of five years in the IT business/from out of IT activities.

 It can also access the market through the alternative route of

appraisal and financing by a bank or financial institution.

 The same conditions would apply also to a listed company which

has changed its name to reflect activities in IT sector.

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 the 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 IPO’s. If these factors are favorable then the Company must
find out about the timing of other prestigious IPO’s. Normally in good
times many companies are crowding at the same time .This year more
than 29 companies are coming with IPO’s. Around Rs.25,000-30,000
crore of capital is going to be raised this year.

A question of Timing
Timing the issue is critical 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.

The Effects of Marketing on IPO’s

An investment banker’s (merchant banker) marketing campaign for an

IPO is critical. This campaign, as much as anything that precedes or
follows it, will determine the success or failure of the IPO.

The key is to stimulate investor demand for the stock so

that, the demand will exceed the supply. Through the marketing
effort, the underwriter attempts to create an imbalance in the
supply/demand equation for the issue, so that there are more buyers
than sellers when the stock is finally released for sale to the public.
Before a company gets to market through an IPO, it spends a fortune
on hype, Paperwork and publicity to create demand. The buzz is stirred
up before the shares are released. So you never get in cheap. And the
ones that are cheap are usually not worth holding five minutes.

A security’s value is an increasing function of the number of investors

who know about the security. Investor knowledge leads to greater value
consequently; the efforts taken by an investment banker to promote
awareness in a firm can affect the valuation of its stock by expanding
the investor base.

The reputation of an investment banker could expand a firm’s investor

base at a lower cost than the firm can, since the promotional efforts of
an investment banker on behalf of the firm would be more creditable.
The efforts of an investment banker to promote an IPO through
increased media coverage will increase retail interest in that stock.
The effects of an investment banker’s promotional efforts are not only
important for explaining the initial returns of some IPO’s, but also for
explaining the rankings of investment bankers.
Promoting an issue sufficiently to insure a run-up in its early
aftermarket prices attracts further investor interest catches the interest
of analysts and helps to maintain or expand the investor base of the
stock

GENERAL PROCEDURE FOR MARKETING OF IPO

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

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 investor’s 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.

PRINTING APPLICATION FORMS

Sufficient number of application forms must be printed much before
the opening of the issue. Each form must contain abridged prospectus
in SEBI approved format. Sometimes different coloured forms are
issued to FI, FII, NRI and general public. It is compulsory to provide
stationery to all underwriters and brokers. They will arrange
distribution to their sub-brokers and other clients. Sometimes,
company makes direct dispatch of forms to prospective investors.

COMPANY BACKGROUND
company background also play a very important role. The way the
company worked in previous years and the kind of reputation it
enjoyed is very crucial element to the success of the marketing of IPO’s

IPO MARKET IN INDIA

The IPO Market in India has been developing since the
liberalization of the Indian economy. It has become one of the
foremost methods of raising funds for various developmental
projects of different companies.
IPO Market in India - Overview
The IPO Market in India is on the boom as more and more
companies are issuing equity shares in the capital market. With the
introduction of the open market economy, in the 1990s, the IPO
Market went through its share of policy changes, reforms and
restructurings. One of the most important developments was the
disassembling of the Controller of Capital Issues (CCI) and the
introduction of the free pricing mechanism.

This step helped in developing the IPO Market in India, as the

companies were permitted to price the issues. The Free
pricing mechanism permitted the companies to raise funds from the
primary market at competitive price.
IPO Market in India - Regulations
The Central Government felt the need for a governed environment
pertaining to the Capital market, as few corporate houses were using
the abolition of the Controller of Capital Issues (CCI) in a negative
manner. The Securities Exchange Board of India (SEBI) was
established in the year 1992 to regulate the capital market. SEBI was
given the authority of monitoring and regulating the activities of the
bankers to an issue, portfolio managers, stockbrokers, and other
intermediaries related to the stock markets. The effects of the
changes are evident from the trend of the resources of the primary
capital market which includes rights issues, public issues, private
placements and overseas issues.
IPO Market In India - Glimpses

• The IPO Market in India experienced a boom in its activities in

the year 1994.
• In the year 1995 the growth of the Indian IPO market was 32
%.
• The growth was halted with the South East Asian crisis.

• The markets picked up speed again with the introduction of the software stocks.
IPO condition in 2007

2006 saw several successful IPO issues. Astounding economic

growth rates, large amounts of corporate profits, expansion plans,
buoyancy of the stock market, and political stability are some of the
factors that encouraged companies to opt for IPOs in 2006 and
2007 to raise funds. The strengthening position of the Indian Rupee
also added to the optimism. Further, the secondary markets for
stocks are flourishing which also is a factor that influenced
companies to participate in the primary markets. Last year, India
had the 8th largest volume of IPOs in the world with Indian
companies raising US$ 7.23 billion in the domestic stock markets!
This year the stock markets have performed even better.

2007 began on an optimistic note. Financial experts estimated

around 150 companies to turn to the stock markets to raise around
US$ 10 billion in capital through the primary market.
Some of the top Initial Public Offers during the year were:

• Orbit Corporation Ltd.

• Global Broadcast News Ltd.

• Pyramid Saimira Theatre Ltd.

• Everonn Systems India Ltd.

• Gremach Infrastructure Equipment & Projects Ltd.

• Redington (India) Ltd.

• MIC Electronics Ltd.

 • Power Grid Corporation of India Ltd.

• Allied Computers International (Asia) Ltd.

An IPO by ICICI Bank Ltd. to raise an amount of US$ 4.3 billion in

the middle of the year was oversubscribed. DLF, the real estate
giant, also had a similar experience with its equity issue around the
same time. The Central Bank of India also raised US$ 201 million
from its IPO this year.

Overall, it is the real estate sector that reaped the maximum

advantage of bullish stock market trends in 2007. Apart from DLF,
other real estate players like Housing Development and
Infrastructure Ltd., Puravankara Ltd., and Nirman Ltd. raised $3.7
billion from the primary capital markets. According to a study
conducted by PRIME, there were twelve public issues till date by
real estate companies in 2007 and these companies were able to
raise 4 times the amounts raised last year in this industry. As was
predicted, Idea Cellular Ltd. topped the IPO list in the telecom
sector.

The IPOs in 2007 were remarkable in terms both money earned

and issue of shares. The proceeds from the IPOs crossed several
billions. It was a historical feat in the Indian Capital Market.
IPO Market News in 2007 - Overview
The highlight of the IPO Market News in 2007 is that, it raised
approximately US$ 8.3 billion, by the means of 95 such initial public
offering.

In 2007 the IPO in India was the 7th largest in terms of funds raised
and 5th largest in terms of shares issued, as per the records of the
 Ernst and Young. In the year 2006 the IPOs raised US$ 7.23 billion,
by the means of 78 initial public offerings. There was an increase of
nearly US$ 1 billion.

IPO Market News in 2007 - Performance

The largest IPO in India in 2007 was DLF IPO that raised around Rs
9,187.50 crores. Some of the other important IPOs in 2007 were
Idea Cellular IPO - which raised nearly US$ 555 million, Genpact
IPO - which earned proceeds of around US$ 568 million, and Power
Finance Corporation IPO, whose proceeds from the issue of shares
amounted to US$ 226 million.
The main factors behind the success of the IPO in 2007 were the
developments in the stock market, Indian economy, private
equity and corporate profits. With the economic boom,
more and more companies are issuing equity shares in the capital
market. With the introduction of the open market economy in the
90s, IPO Market went through drastic policy alterations and
restructuring of reforms.
Top 10 gainers in IPO market in 2007

• RIIL IPO gained 178.14 %

• STCINDIA IPO gained 115.08 %
• RNRL IPO gained 90.54 %
• WALCHANNAG IPO gained 82.62 %
• REIAGRO IPO gained 79.70 %
• MRPL IPO gained 70.37 %
• IVC IPO gained 64.44 %
• AFL IPO gained 60.13 %
• KKCL IPO gained 57.87 %

• BINANIIND IPO gained 55.47 %

IPO 2007 - Facts

• The growth in the IPO in 2007 was around 10%.

• Within the first half of 2007, more than 30 companies had been
cleared by the SEBI to raise capital worth US$ 6.3 billion.
 • The year 2007 begun with the market crash in spring but later
recovered to resume the upward surge.

IPO Companies - Launches in 2007

• Aries Agro Limited

• Manaksia Limited
• Brigade Enterprises Limited
• Transformers and Rectifiers (India) Limited
• Religare Enterprises Limited
• Supreme Infrastructure India Limited
• Koutons Retail India Limited
• Consolidated Construction Consortium Limited
• Porwal Auto Components Limited
• Barak Valley Cements Limited
• Varun Industries Limited
• Allied Computers International (Asia) Limited
• Rathi Bars Limited
• Circuit Systems (India) Limited
• Saamya Biotech (India) Limited
• Motilal Oswal Financial Services Limited
• Take Solutions Limited

In2008, a larger number of IPOs are expected to be launched which

would attract different types of large, medium and small investors.

IPO’S CONDITION IN 2008

At the beginning of 2008 it looked like it was going to be another

record year for Indian IPO’s. The Bombay Exchange had been on a roll
with double digit gains, but with a slowing US economy and looming
credit crisis the Bombay Stock Exchange, 30-share sensitive index
plunged more than 25% in 2008 as panicked foreigners began selling
billions of dollars of shares.

But due to economic recession snd slowdown in an economy around 19

planned IPO issues to be postponed. Despite the clear negativity and
uncertainty, the Indian Government still plans to list the country’s
largest phone company Bharat Sanchar Nigam Ltd (stock symbol
BSNL).

The company with its 70 million subscribers most of them using

landlines will still be an important issue as it would be the largest
Indian IPO ever at $10 billion. If the government can pull off a
successful IPO it could open the way for a long line of other state run
companies to go public, if the IPO is a failure it could cause a major
blow to an already fragile Indian market.

Excluding the Reliance Power IPO, that mopped up a record three

billion dollars, the Indian IPO market fell by 52 per cent in volume in
2008 as against the same period in 2007, Dealogic said.

The three IPOs had to be withdrawn because of the low response

received from investors due to meltdown in the secondary markets
and weak global cues.

The United States IPO market has fallen and can’t get up. With tight
credit an issue, a housing nightmare that still can’t find a bottom and
investment banks looking to their own survival, most IPO’s are being
sidelined, making it possible for only the best and brightest of 2008 to
have the privilege of going public. Despite having the top Wall Street
bookmakers in the world working together on relatively small
offerings, amazingly, the last 7 out of 8 IPOs to go public in USA
opened lower — some much lower.

India and China, two of the investors’ biggest darlings not so long ago,
are among the world’s worst-performing stock markets this year, says
the Wall Street Journal (WSJ). Indian shares are down 28 percent in
2008. Chinese stocks have faced a worst fate - tumbling 46 percent, the
WSJ reported Monday.

Both countries started 2008 with stocks trading at expensive levels,

leaving them vulnerable to a correction. While economic growth goes
on apace in the two countries, it is not expected to match last year’s
superb performance. Growth could be further dented because investors
are increasingly anxious about rising inflation and government efforts
to stem it.

Foreign investors have pulled a net total of more than $5.5 billion out
of Indian stocks in 2008, according to Standard Chartered Bank.

IPO Companies - in 2008

• On Mobile Global IPO

• Wockhardt Hospitals IPO
• Globus Spirits IPO
• Shriram EPC IPO
• IRB Infrastructure IPO
• KNR Constructions IPO
• Tulsi Extrusions IPO
• Manjushree Extrusions IPO
• SVEC Constructions IPO
• Emaar MGF IPO

It has Been a Rough Year

The market for initial public offerings is on ice. In the second quarter of
2008, there were no IPOs for companies with venture capital
financing, according to the National Venture Capital Assn. (NVCA).
That's the first time a quarter has passed without an initial public
offering since 1978. This dismal performance follows an unusually slow
first quarter during which only five venture-backed companies went
public. The situation is so dire that representatives from the NVCA are
making a press tour and calling it a "capital market crisis" for the
startup community. "It will be the worst year in IPO volume in 20
years," predicts Howe.

Such a crisis, they claim, could have terrible consequences for the U.S.
economy. If the current IPO drought continues, venture capitalists fear
fewer new companies will get funded. More venture capital firms are
likely to go out of business. And without more new businesses, that
could crimp the creation of high-paying jobs that are typically
generated by the venture-backed startups.
"It is a very serious issue."

Subdued Interest

It's not only changes in the investment banking world that

are hitting the IPO market. The weak economy and poor
stock market have also dampened interest in IPOs, say VCs,
bankers, and investors. There seems to be less interest among
entrepreneurs as well for tapping the public markets.

In previous years, say VCs, successful and fast-growing companies such

as the social-networking sites Facebook or LinkedIn would consider
going public sooner rather than later.

But due in part to new government regulations enacted after the

corporate scandals at the turn of the century, it's become more costly
and time-consuming to take a company public. Two-thirds of venture
capitalists surveyed believe venture-backed companies are less likely to
want to go public than three years ago, according to the NVCA survey.

Emaar MGF Land Ltd (EMGF) is planning to relaunch its initial public
offering (IPO), which was called off in February this year due to poor
market conditions, next year once the market stabilises and its
sentiment changes for the better.

IPO condition in 2009

This year the economy is completely down and no company is coming

with an IPO because nobody is ready to take up shares of the company.
There are various companies who planned to come up with an issue but
have postponed it seeing the current market scenario.

Emaar MGF Land Ltd (EMGF) is planning to relaunch its initial public
offering (IPO), which was called off in February this year due to poor
market conditions, next year once the market stabilises and its
sentiment changes for the better.

The company, which had plans to mop up about $1.6 billion through
the IPO, however, is not considering of lowering the amount it had
proposed to raise.
“We will come out with the IPO next year. There will be no change in
the amount we had planned to raise,” Emaar MGF executive vice-
chairman and managing director Shravan Gupta said here on
Wednesday.

These hotels are coming up in Delhi, Kolkata, Hyderabad and

Amritsar. Speaking to reporters later Gupta said the IPO would come
once the market stabilises and the sentiment changes. “If it changes in
the next two months, we will come out with the IPO in two months. At
the same time, if it takes two years to stabilise the market, our IPO will
hit by that time only. As and when volume comes back to the market
and sentiment for investment and risk appetite come back, we will go
for the ipo,”

Let see how much does this capital market stabilizes by the end of this
year. “JUST HOPE FOR THE BEST”.

Two most successful IPO of India

1. Reliance –IPO
The Reliance group was established to develop, construct and operate
power projects domestically and internationally. The Company is
currently developing 12 medium and large sized power projects with a
combined planned installed capacity of 24,200 MW, one of the largest
portfolios of power generation assets under development in India. The
Company intends to sell all the power generated by these projects
under a combination of long-term and short-term Power Purchase
Agreements to state-owned and private distribution companies and
industrial consumers.

The Issue proceeds will be utilized for funding subsidiaries to part-

finance the construction and development costs of the various projects
under development and for general corporate purposes.

As on 2007, the Company had a Total Assets of Rs.20,062.7 million.

The restated net profit for FY2007 was Rs.12.7 million
Book Running Lead Managers Kotak Mahindra Capital Company
Limited, UBS Securities India Private Limited, ABN AMRO Securities (
India ) Private Limited, Deutsche Equities India Private Limited, Enam
Securities Private Limited, ICICI Securities Limited, JM Financial
Consultants Private Limited and J. P. Morgan India Private Limited
Co-Book Running Lead ManagersMacquarie India Advisory Services
Private Limited and SBI Capital Markets Limited

Indicative Issue Structure: The Net Offer to the public consisting

of 1,140,000,000 Equity Shares will be offered to the QIB, Non
Institutional and Retail categories in the ratio of minimum 60%, not
less than 10% and not less than 30% respectively.

Offering size as % of Capital The Issue will constitute 11.5% of the

post issue paid-up capital. The Net Issue to the Public constitutes
10.1% of the post issue paid-up capital with the difference accounted by
Promoters Contribution in the Issue of 160,000,000 shares

The Rs 11,700-crore IPO - the country’s biggest ever so far – was

subscribed nearly 11 times on 2007

The segment-wise break-up of the share sales available show that the
qualified institutional buyer (QIB) portion was subscribed 17 times.

Nearly 80% of the bids in the segment came from FIIs, who have
submitted bids for over Rs 81,000 crore worth of shares.

Reliance Power IPO beats expectations

India’s largest initial public offer received an overwhelming response

on day one of subscription, it seemed to be a case of ‘Reliance Power
on, Dalal Street off’.

The 22.85 crore share mega issue, looking to raise roughly Rs 11,000
crore, was fully subscribed under a minute of the start of bidding.

The qualified institutional buyers portion of the book was subscribed

16 times, the high networth individuals portion was subscribed 6.7
times, while the retail portion was subscribed 0.99 times, with over 2
lakh applications being received. All three segments put together, bids
worth Rs 1.07 lakh crore have come in so far.

2. Future capital holding ltd IPO

Future Capital Holdings (FCH), the financial services arm of the Future
Group, was incorporated by Pantaloon Retail (India) (PRIL) in 2005.
PRIL holds a 74% stake in the company, while the hedge fund Och Ziff
Capital holds 10%. FCHL is coming out with a public issue to augment
the capital base to meet its future growth, particularly to finance the
expansion of Future Money.
FCH is currently in three primary businesses: investment advisory
services, retail financial service and research.

Has limited operating history, devoid of any earning track record.

Incurred a consolidated loss of Rs 12.43 crore in the six months ended
September 2007, primarily reflecting the start-up cost of the new
Future Money business.
Many subsidiaries have generated negative cash flows in the recent
fiscal. Also, two of the subsidiaries have had a negative net worth in the
past years. Indivision Investment Advisors (IIAL) had a negative net
worth of Rs 214.25 lakh in FY 2006. Myra Mall Management Company
(MMMCL) had a negative net worth of Rs 65.41 lakh end September
2007 and Rs 28.92 lakh in FY 2007.
The new retail business focuses on consumption and personal loans as
well as credit cards. With many matured players already existing,
competition is high in the retail business. Also, these loans are
unsecured. As the group has little experience in financial services, the
delinquency ratio can shoot up in future.
Almost 76% of the total revenue came from advisory business in FY
2007. However, majority of the investments advised belong to the real-
estate and hospitality sectors, which are cyclical in nature.

Valuation

At the offer price band of Rs 700-Rs 765, P/E based on full year ended
FY 2007 EPS of 0.60 works to 1,167 (on lower band) to 1,275 (on upper
price band) times. P/E of other comparable listed players are: India
Bulls Financial Services (51.4 times), India Infoline Financial Services
(133.7 times), IL&FS Investsmart (44.2 times), and Reliance Capital
(96.6 times). At the offer price, market cap of Future Capital will stand
at Rs 4,430-4,845 crore compared to market cap of Rs 67,942.49 for
Reliance Capital, Rs 22,780 crore for India Bulls and Rs 10,108 crore
for India Infoline.
The wafer thin profit turned into losses in the first half of the current
fiscal. In H1 of FY 2008, consolidated total income was Rs 31.27 crore,
on which a net loss of Rs 12.43 crore after prior period item and share
of minority interest was incurred.

CONCLUSION & RECOMMENDATIONS

The Indian initial public offer (IPO) market has always had more than
its fair share of doomsayers. Right from the Maruti issue, which
pundits decried as being overpriced, to the ONGC and TCS issues,
where the huge sizes of the offer drew predictions of calamitous effects
on the secondary markets, the opinions of the “experts” have proved to
be wide off the mark.
Not only did the mega issues sail through, but the secondary markets
proved to be far more resilient than anybody had anticipated. It is
obvious that the Indian investor has far more appetite for equities than
most people realise.
Most of the money has been raised by big companies with a long-term
track record. A substantial number of issues—barring that of TCS—also
happened during the early part of the year, before the markets got the
shivers. The heavy oversubscriptions in many cases can also be traced
to the availability of bank finance for IPO investment.
Nevertheless, there is no denying the enormous interest retail and
other investors have shown in the primary market, perhaps even more
so than in the secondary one.
This interest has been sustained despite the lack of bounce in the
secondary market and is not confined to the big issues; even smaller
issues have sailed through with large oversubscriptions.
If investors are gung-ho about IPO’s, there are several reasons for it.
Unlike earlier IPO booms, this one is being driven by a much better
quality of offer. Missing in action so far are the fly-by-night operators
of the 1990s who made public offers only to collect the money and
vanish.
Next, most recent IPO’s have resulted in gains on listing for the
investor. The listing gains have probably initiated a kind of virtuous
cycle, tempting investors who have already made money to return to
the primary market.
There is also reason to believe that companies are pricing their issues
less aggressively this time, either due to general concerns about a
volatile market, or because of a deliberate effort to leave something on
the table for all investors.
Companies have been quick to take advantage of the investor interest
in IPO’s, and banks, broking houses, retail outfits, media houses and
government companies such as NTPC and Power Finance Corporation
are lining up issues
Even mutual funds have got into the act, and are tailoring their offer to
match current market fancies—mid-cap funds, dividend yield funds,
and what-have-you. If the government wants to get some money into
its kitty through disinvestment programmes, this is the time to make a
dash for it.
LIMITATION OF STUDY

 The data used in this report is from secondary sources only i.e.
internet, jornals, magazines etc. As the information is taken from
seconadary sources the degree of reliability is on lower side. The
data used may not be accurate therefore cannot be relied on.

 If the company is making IPO just to get securities listed on Stock

Exchange and make disinvestment promoters, then the money
will not come to company and pricing method followed will also
be different.
BIBLOGRAPHY

Internet

o www.yahoo.com
o www.google.com
o www.economictimes.com

Books and Magazine

o Indian Capital Markets

o Financial management –Prasanna Chandra
o Business World