PART A COMPANY PROFILE

INTRODUCTION Financial services are vital tools of machinery for economy and they lubricate the wheels of economic development. Indian economy has undergone a sea change in its structure; policy and regulation, due to liberalization and globalization, since 1991. The financial service sector is considered as the sunrise sector due to increasing growth and contribution towards the GDP of India. Once the economy crosses the subsistence level, financial services become more prominent and important to that economy. Financial services in current days are emerging as a crucial industry world over and are termed as a sun rise industry. The services offered by this sector not only raise the required funds, but also lead to the efficient management of funds. Today, the financial service products, as turned out to by financial services industry are innovative and paving ways for vivid opportunities for further economic development. With market sentiment turning positive due to the formation of a stable newly elected government, the ripple effect is likely to felt across all the financial services in India. The sectors, including banking and insurance, and mutual funds are all beginning to reap the benefits of a good closure for 2008-09. In 2008-09, the Indian economy is estimated to have grown by 6.7 per cent. According to the latest Central Statistical Organization (CSO) data, financial services and real estate sector rose by 9.5 per cent in the first quarter of 200910. Investing means putting your money to work for you. Essentially, it's a different way to think about how to make money. There are many different ways you can go about making an investment. This includes putting money into stocks, bonds, mutual funds, or real estate (among many other things), or starting your own business. Sometimes people refer to these options as "investment vehicles," which is just another way of saying "a way to invest."

PROFILE OF THE FINANCIAL SERVICES INDUSTRY Financial services like banking, merchant banking, factoring, Insurance, Venture capital, act as vital machinery of an economy. These financial services that facilitate financial transactions of individuals and institutional services resulting in their resources allocation activities through time. The sector that deals with such financial services is known as financial services sector. The Three pillars of Financial System are: 1. Banking 2. Insurance and Mutual Funds 3. Online Trading Financial system acts as an intermediary World Scenario The first publicly issued security can be traced back to the fourteenth century in Venice where the government made the first known issue of bonds. Merchants and landowners as investments purchased these government securities. The need for stock exchanges developed out of early trading activities in agricultural and other commodities. In and around 1750s in England, traders in the shares of early companies would commonly meet in Jonathans Coffee House to trade shares and make business deals. Early share bids and offers were written on the Coffee House walls and the trading process was highly unregulated, with insider trading forming the basis for most investment decisions. By 1773, Trading Clubs had formed, and in 1801 a group of traders raised 20,000 pounds to build the London Stock Exchange in Capel Court. A similar process was occurring in America. By the early 1790s many merchants had

begun trading shares. Just as in London, these early traders often met at coffeehouses in an informal environment.

In 1792, 24 Merchants and Brokers paid $400 each for a "trading seat" and signed the Buttonwood Tree Agreement, who decided to act as agents for other persons and give preference to each other in their negotiations. They did much of their trading under a tree at what is now 68 Wall Street. This agreement outlined the regulations under which shares Could be bought and sold. These regulations formed the basis for trading rules that still exist today and led to the formation in 1817 of the New York Stock Exchange (NYSE). Today, nearly three thousand companies from all over the world trade their stocks valued at trillions of dollars here. At that time, many stocks that were deemed not well enough for the New York Stock Exchange (NYSE) were traded outside on the curbs. This, so called curb trading has now become the American Stock Exchange (AMEX). Today much water has passed under the bridge since then and we forward all the way to late 1990s. By late 1990s, most of the stock exchanges had been automated, and the open outcry method of trading was the thing of the past. Most stock exchanges began to use computers to replace floor traders. Floor traders take phone and computer orders from brokers, and negotiate a trade with stock specialists at trading stations on the trading floor. The internet orders placed by clients are first processed and authorized through the stock brokers computer system before being automatically placed on the stock exchanges computer systems. This period saw the rise in popularity and acceptance of online stock broking. Various segments in financial services industry are as under: Insurance
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Mutual funds Stock broking

Indian Brokerage Industry The Indian broking industry is one of the oldest trading industries that have been around even before the establishment of the BSE in 1875. Despite passing through a number of changes in the post liberalization period, the industry has found its way towards sustainable growth. The securities market has essentially three categories of participants, viz., the issuer of securities, the investors in the securities and the intermediaries. The issuers are the borrowers or deficit savers, who issue securities to raise funds. The investors, who are surplus savers, deploy their savings by subscribing to these securities. The intermediaries are the agents who match the needs of users and suppliers of funds for a commission. These intermediaries function to help both the issuers and investors to achieve their respective goals. There are large variety and number of intermediaries providing various services in the Indian securities market. Need for a broker As per SEBI (Securities and Exchange Board of India.) regulations, only registered members can operate in the stock market. One can trade by executing a deal only through a registered broker of a recognised Stock Exchange or through a SEBI- registered sub-broker. The financials and investment industry is a highly competitive in nature with almost well established firms diversifying and entering into this industry. As of today there are Over 2000 brokers, 10000 sub brokers and 1 core investors. It is highly Competitive with entry of new aggressive players. Retail broking is highly fragmented industry with falling brokerages value added services and online trading, the new fad.
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Main players in the brokerage industry are India Infoline ICICI Direct Angel Broking Can Money Geojit BNP Paribus HDFC Securities Kotak Securities Reliance Money Religare Share Khan Artha Money Way to Wealth SBI Demat Bridge Securities Ltd. Motilal Oswal Anand Rathi Citi Bank Demat Deutsche Bank Frankfinn Karvy Securities Apollo Sindhuri Bangalore Stock Exchange

PROFILE OF THE IL&FS INVEST SMART LTD. Infrastructure Leasing & Financial Services Limited (IL&FS) is one of India's leading infrastructure development and finance companies IL&FS has a distinct mandate catalyzing the development of infrastructure in the country. The organization has focused on the commercialization and development of infrastructure projects and creation of value added financial services. From concept to execution, IL&FS houses the expertise to provide the complete array of services necessary for successful project completion: visioning, documentation, finance, development, management, technology and

execution. This company was started in 1980 with a major objective of financing major infrastructure and leasing services. Over the years, IL&FS has broad-based its shareholding, which today includes Life Insurance Corporation of India, ORIX Corporation Japan, Housing Development Corporation of India, Abu Dhabi Investment Authority, State Bank of India, and Central Bank of India. IL&FS Invest Smart Securities Ltd (IISL) is one of Indias leading financial services organizations. IISL, through its subsidiaries in India and Singapore, (Shown in Figure 1.1) provides a wide range of investment products to its retail and institutional banking, insurance broking & distribution, mutual funds distribution and related financing services. IISLs 2,000 employees provide a complete range of investment solutions to over 138,000 customers in India through its 88 branches and 19 franchised outlets from 133 cities and has been recognized as National Best Performing Financial Advisor Retail for two years in a row (06-07 & 07-08) BY CNBC TV 18.

IL&FS Ltd
Infrastructure Services Financial Services

IL&FS Infrastructrure Development Corp Ltd IL&FS Transportation Networks Ltd

IL&FS Investment Managers Ltd

IL&FS Investsmart Ltd

IL&FS Ecosmart Ltd

IL&FS Trust Company Ltd ORIX Auto Infrastructure Services Ltd

IL&FS Education &Technology Services Ltd IL&FS Tripura Area Development Corp Ltd Noida Toll Bridge Company Ltd

Subsidiaries of IL&FS Ltd.

IL&FS Invest Smart Securities Limited IL&FS Invest Smart Securities Limited (IISL) is one of Indias leading financial services organizations providing individuals and corporate with customized financial management solutions. At IISL, they believe in "Realizing customer goals together". One will find in them - a trusted investment partner to help customer work towards achieving investors financial goals. IL&FS institutional expertise, combined with a thorough understanding of the financial markets results in appropriate investment solutions for investors. The strong team of Relationship Managers, Customer Service Executives, Advisory Managers and Research Analysts, offers efficient execution backed by in-depth research, knowledge and expertise to customers across the country. With a pan-India presence of over 300 offices, IIL is geared to meet all the investment needs through its branches. IL&FS Invest Smarts Limited is an initiative in the field of Financial Services started by Infrastructure Leasing & Financial Services (IL&FS), an institution known for its innovative and pioneering initiatives in the areas of Infrastructure, Corporate Finance and Investment Banking. IISL was set up in October 1997 and began retail operations in September1998. IL&FS Invest Smart Securities Limited (IISL) was set up with the objective of becoming one of the leading full service brokerage houses in the country with a strong expertise in web-based technology as well as strengths in physical distribution. Today with a presence in more than 90 cities across India through more than 300 outlets, IISL has become one of the most prominent players in the Financial Services Industry with service offerings across different categories. In the year 2008 Invest Smarts securities received the Best Performing National Financial Advisor Retail Segment at the CNBC TV 18 National Financial Advisor Award.The Retail Business Division at IISL is

involved in dealing with a range of financial products offered to customers across India through multiple locations. The retail business is further categorized into various business divisions catering to varied needs of our customers. These include divisions catering to customers for Investment options such as Equity Trading, Derivatives Trading, IPO Investments, Fixed Income products, Mutual Fund Investments as well as Insurance and Home Loans Advisory services. IL&FS Invest Smart Securities leverages on its pedigree of IL&FS, which has core competency of institutional and retail financial services and products. IL&FS is a financial institution known for its innovative and pioneering initiatives in the areas of infrastructure, corporate finance and Investment Banking. Global majors E*TRADE FINANCIAL through its wholly owned subsidiary E*TRADE Mauritius Limited and Softbank Asia Infrastructure fund L.P. (SAIF) have equity participation in IL&FS Invest Smart. SAIF is a leading Asian private equity firm headquartered in Hong Kong. US based E*TRADE FINANCIAL corporation is a leading financial services organization providing financial services including brokerage, banking and lending for retail, corporate and institutional customers. It operates branded web sites in 12 countries. In particular, IL&FS have always felt the need for a successful brokerage Group to have an international capability. IL&FS believe that the strength of the HSBC Group provides a unique opportunity for Invest Smart to execute its strategic vision. It is IL&FS intention to retain a close association with Invest Smart through co-operation on a number of areas that will be mutually beneficial and on an arm's length basis Mr. Ravi Parthasarathy added, I believe that HSBC Group will provide Invest Smart employees significant opportunities to enhance the value proposition for their customers. Invest Smart employees will also benefit from the training and development infrastructure that arises from being a part of one of the worlds leading banking organizations.
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Vision Statement To become the preferred long term financial partner to a wide base of customers whilst optimizing stakeholders value! Mission Statement To establish a base of 1 million satisfied customers by 2010. We will create this by being a responsible and trustworthy partner!

Corporate Action An approach to business that reflects responsibility, transparency and ethical behavior. Respect for employees, clients & stakeholder groups.
ILLs strong team of Relationship Managers, Customer Service Executives, Advisory Managers and Research Analysts, offers efficient execution backed by in-depth research, knowledge and expertise to customers across the country. With a pan-India presence of over 300 offices, IIL is geared to meet all the customers investment needs through an office nearby. All the interested investors need to do is drop in at the nearest branch or call and ILL will be happy to do the rest! ILL says about its Customer At IIL, we believe in "Realizing your goals together". Customer will find in IL&FS a trusted investment partner to help work towards achieving financial goals of clients. IL&FS institutional expertise, combined with a thorough understanding of the financial markets results in appropriate investment solutions for clients.

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Advantages Of IL&FS Today, IL&FS Invest Smart Limited is one of Indias leading financial services organization delivering value and innovation to over 100,000 customers through more than 300 offices across the India.

7 Reasons for investing with IL&FS Invest Smart Limited is smarter. Customization: They formulate investment plans based on investors individual requirements. Expertise: They bring within customer reach, IL&FS institutional expertise and their valuable understanding of the financial markets. One-stop-shop: They cater to all investors investment needs under one roof. Trust: They enjoy the pedigree of IL&FS and share its expertise in financial services. Personalised Service: They help customer through the entire investment process, step by step, with innovative and efficient services. Unbiased & Objective Advise: They partner you in your investment process, with our team of expert investment advisors. Extensive Reach: Through a host of mediums: - offline through more than 300 offices across India. - Online through our website. Retail Business: Retail offerings of IIL seek to cover all financial planning requirements of individuals, which include providing personalised investment management services including planning, advisory and execution and monitoring of the full range of investment services. Broadly the retail services are divided into two broad categories. HSBC in India
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The HSBC Group in India is represented by several entities including The Hong Kong and Shanghai Banking Corporation Limited which offers a full range of banking and financial services to its over 2 million customers in India through its 47 branches and 170 ATMs across 26 cities. HSBC is one of Indias leading financial services groups, with over 33,000 employees in its banking, investment banking and capital markets, asset management, insurance broking, two global IT development centres and six global resourcing operations in the country. The Bank is the founding and a principal member of the HSBC Group which, with over 10,000 offices in 83 countries and territories and assets of US$2,354 billion at 31 December 2007, is one of the worlds largest banking and financial services organisations. Sale of Stake in Invest Smart to HSBC IL&FS agrees to sell its stake in Invest Smart to HSBC. Infrastructure Leasing and Financial Services Limited (IL&FS), is to sell its 29.36 percent stake in IL&FS Invest Smart Limited (Invest Smart), a leading retail brokerage house in India, to HSBC. Under the terms of the agreements, HSBC, through Group subsidiaries, proposes to acquire IL&FSs 29.36 per cent stake of Invest Smart for a consideration of INR 410 crores (approximately US$ 96.9 million). In addition, IL&FS will be paid INR 82 crores (approximately US$ 19.4 million) as part of a threeyear non-compete agreement. HSBC also proposes to acquire an additional 43.85 per cent stake in Invest Smart from E*TRADE Mauritius Limited, an indirectly wholly-owned subsidiary of E*TRADE Financial Corporation. Both IL&FS and E*TRADE Mauritius Limited will receive a price of INR200 per share for their respective stakes. HSBC will also make an open offer to acquire up to 20 per cent of the remaining shares in Invest Smart. Details of the open offer to Invest Smart shareholders will be published in the Indian press and distributed to shareholders in accordance with local regulations. Established in 1997 by IL&FS, Invest smart is a financial services firm with a strong presence in retail broking. It has a national distribution network
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comprising 88 branches, 190 franchise outlets and more than 660 terminals in 133 cities throughout India. Its 2,000 staff serves over 138,000 clients. While strong in retail broking, it also has businesses in Institutional broking, investment banking, wealth management, insurance distribution and margin financing. Ravi Parthasarathy, Chairman of IL&FS, said IL&FSs goal is to position IIL as a leader in the brokerage sector. In particular, IL&FS have always felt the need for a successful brokerage Group to have an international capability. And believe that the strength of the HSBC Group provides a unique opportunity for Invest smart to execute its strategic vision. It is IL&FS intention to retain a close association with Invest smart through co-operation on a number of areas that will be mutually beneficial and on an arm's length basis Mr. Parthasarathy added, I believe that HSBC Group will provide Invest smart employees significant opportunities to enhance the value proposition for their customers. Invest smart employees will also benefit from the training and development infrastructure that arises from being a part of one of the worlds leading banking organizations.

HSBC will be making the acquisition through Group subsidiaries, including HSBC Securities and Capital Markets (India) Private Limited, the Groups broking arm in India. The agreement and open offer are subject to regulatory and other approvals. With a market capitalization of approximately US$300 million, Invest smart is listed on the National Stock Exchange and the Bombay Stock Exchange and its Global Depository Shares are listed on the Luxembourg Stock Exchange ends/more.

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PRODUCT PROFILE All the products of ILFS can be broadly divided into the following two categories: 1. Online Trading Products 2. Advisory Services 3. Other services. 1. Online Trading Product of IL&FS Invest smart Basically IL&FS Invest smart offers three types of products to its retail customers. They are: a. Smart Start b. Smart Invest c. Smart Trade

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a. SMART START: Smart Start is a powerful browser based trading system for those who are relatively new to online investing. A unique integrated account, which

integrates customer banking, broking, and demat accounts of the clients. Smart Start trading platform allows customer the flexibility of trading on any internet capable system, with access to both the NSE and BSE

System Requirement Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled) Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of 28.8/33.6 Kbps) System: Pentium 3 or 4 GHz or best available at market RAM (Physical) 128 MB or better Operating System: Windows 98/2000 or Windows XP.

Features of Smart Start Freedom of information. Control of investors money. Access to market. Ensure the best price for investors. Offers greater transparency. Live financial news and analysis.
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Access to NSE and BSE

b. SMART INVEST Smart Invest is a browser-based system designed for customers who transact occasionally. It is ideal for investors who believe in the Buy and Hold Approach towards investment in equities. Smart Invest's capability as a browser-based trading platform gives customer the benefit of real-time streaming data with the flexibility of trading on any Internet capable system. With access to both the NSE and BSE, customers are in the driver's seat when routing their order to the best price on either of the exchanges. Smart Invest sophisticated yet easy to use point and click order entry interface allows customer to react more quickly to the markets and make better decisions. System Requirement

Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled) Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of 28.8/33.6 Kbps) System: Pentium 3 or 4 Ghz or best available at market RAM (Physical) 128 MB or better Operating System: Windows 98/2000 or Windows XP Features of Smart Invest

Instant Loading: The browser- based applet system allows customer to instant access to clients account with no wait time, unlike other system that takes a few minutes to load. Works behind a proxy: This platform can be accessed on any internetenabled network. They can be accessed even from costumer work place.
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 Live streaming quotes: Keeps an eye on the stocks of customers choice with streaming real time quotes and customizable market data. Color-coded price changes help them to spot trends and in turn help the customer to react faster. Multiple watch lists: The new watch list option allows the customer to create up to 10 groups of watch list with each group accommodating 15 scripts. Each watch list can be personalized by the customers according to their choice of scripts. NSE and BSE Access: Flexibility of trading on both NSE and BSE via a single screen. Single order form for Cash and F & O: Single order form offers the customers the convenience of transacting in various segments of the market without having to switch between multiple windows. Point and click order entry: Makes order entry quick and simple with a click on the security, the same is inserted on the order form in the trade screen. Hot key functions: Using a single keystroke (hotkey) function the customer can achieve important task very similar to a brokers terminal. Accessing important reports is also one keystroke away. Market depth window: It gives an immediate at a glance information about the stock they are following. The view provides the best 5 bids and offers quotes and the outstanding order quantities. Back office access: View segment wise ledger bills and contract notes, trades, positions, account balance, realized/unrealized profit and loss, and buying power all in real time.
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c. SMART TRADE: Smart Trade is an EXE based desktop software designed for active traders who transact frequently to capture favorable short-term price movements. The platform offers active traders the tools they need to make critical decisions with confidence. Smart Trade is designed and built from the ground up to address the needs of active traders. Smart Trade makes the most of state-of the-art technology to deliver power, speed and reliability. Through an easy-to-use interface, users are provided with the same tools and advantages that the professionals enjoy.

System Requirement

Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled) Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of 28.8/33.6 Kbps) System: Pentium 3 or 4 GHz or best available at market RAM (Physical) 128 MB or better Operating System: Windows 98/2000 or Windows XP. This account is an EXE based desktop software designed for active traders who transact frequently to capture favourable short-term price movements. The platform offers active traders the tools they need to make critical decisions with confidence. Smart Trade is designed and built from the ground up to address the needs of active traders. Smart Trade makes the most of state of the art technology to

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deliver power, speed and reliability. Through an easy to use interface, users are provided with the same tools and advantages that the professionals enjoy.

Features of Smart Trade Fully customizable display: The save desktop option allows the clients to save their created trade screen layout, so the next time they access the application the created layout is not lost. Dynamic charts with Indicators: Provides the clients a wealth of charting capabilities and timing indicators, which allow them to go right into the action with real time daily charts, and intra-day charts. Watch price movements by minutes, days or weeks. EOD Charts: Smart Trade puts up to 5 years of in depth history at their command with the power to instantly back-test any trading strategy they design, before risking one rupee of their trading capital. Real- Time market data: Get real time market data from both NSE and BSE, similar to what a professional broker gets. Advanced alert capabilities: Alert window allows the customer to be free from watching every tick. Users can be notified once a security has reached the set parameters. Multiple securities can be monitored using the set parameters. These alerts can be triggered both visually and audibly. Live order status: Tracking all their orders are made easy through the order status screen. Further drill down into all details pertaining to an order is available in the order detail sub report. Track your orders real time: Track customer stock orders and trades in real time.
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 Real time position updates: All their positions are updated automatically and instantly. The need of refresh button is avoided. Dynamic buying power: It reflects their credits and debits instantly on every trade execution. No need to refresh each statement to know their latest buying limits. Derivative chain: This feature provides with a list of all derivative contracts available for the selected security. To view derivative prices of a security just right click on the symbol and click on derivative chain. Lock terminal option: If the system is unattended, this function locks the trading platform for the customers and can be accessed again only on providing the proper login details. Message window docking: This feature enables the customers to receive trading messages, intraday trading calls and messages from both the exchanges flashed real time onto their screens.

2. Advisory Services Basically IL&FS Invest Smart offers following types of services to its retail customers. They are: a. Mutual fund advisory services. b. Portfolio management services. c. IPO Advisory and Distribution Services. d. Insurance Advisory Services. e. Investment Advisory services.

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a. Mutual Fund Advisory Services As a part of Mutual Fund Advisory Services, their team of experts across India helps investors in selecting the right scheme from over 500 offerings, matching customer needs, goals and risks. In addition to this, we also help you constantly monitor their MF portfolio, making changes according to the changing needs as per the market scenario, in order to make customers money work for investors. At IL&FS Invest Smart (IIL), their expert teams of relationship managers interact with investors on a regular basis to discern customer changing needs, in tune with the changing environment. Most of investors require some assistance in making selections appropriate to their individual needs. Investors need sound advice from people who have expertise to decipher the financial jargon of investment options available today. Their Investment Advisory Team helps customer customize and execute plans, based on their individual needs towards wealth maximization.

b. Portfolio Management Services (PMS) Financial markets today offer enormous growth potential. But managing investors own investments can be an extremely challenging task. Anticipating market trends, assessing the impact of socio-economic changes on customer investments, keeping abreast of latest corporate developments and financial analysis all adds up. Managing ones investments has become nearly a fulltime affair that requires considerable time and expertise. At IL&FS Invest Smart, they offer customer just the solution that allows clients to relax as IL&FS put their money to work through the IIL-PMS, a Discretionary Portfolio Management Service. c. IPO Advisory and Distribution Services
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IL&FS Invest Smart (IIL) is one of India's leading companies engaged in the activity IPO Advisory and Distribution. IL&FS primary markets division does a comprehensive research before recommending issues to clients. IL&FS pan India reach helps us in mobilising large number of applications across India during public offerings, this has ensured that constantly figure amongst the top ranking performers in the primary market distribution space. As a part of their online offering, customers can invest in IPO's not only through IL&FS branches but also through our website, which also

provides customer with regular updates on the IPO scenario, Open IPO's as well as all the forthcoming IPO's at any given point of time.

The primary markets distribution division works in conjunction with the retail and wholesale distribution networks, as well as IL&FS private client group. In case there are not IL&FS customers, but still want to invest in any particular IPO, IL&FS suggest client to visit any of branch locations near clients or else call us for an application form and IL&FS would courier it to customer. d. Insurance Advisory Services IL&FS Invest Smart (IIL) is customer one stop shop for all Insurance & Retirement needs. They have also been recognized as Indias Best Retail Financial Advisors at the CNBC TV18 Financial Advisory Awards 2006-07, 2007-08.

Their key service features include the following:

Risk management solutions for all Comprehensive research for all policies available on a regular basis Recommendations on a comprehensive insurance cover based on clients needs

Maintain proper records of client policies

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e. Investment Advisory Services The investment advisory team in the company helps customize plans, base on customer individual needs.

3. Other services Basically IL&FS Invest Smart offers following types of other services to its retail customers. They are: a. Online services. b. Research and Financial Analysis. c. Value added services. a. Online Services The website offers unique features such as real time news and analysis, a personal portfolio manager, research tools, corporate profiles, mutual fund and product options, IPO centres, stock alerts, investment advisory services, query solving and much more. b. Research and Financial Analysis The research team in the company thoroughly studies each asset class-equity, mutual funds, commodities and fixed income products. The qualified financial analysts in the company study the market trends and make objective recommendations, so that customers can make well-informed decisions. c. Value Added Service

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 Smart update Extensively researched monthly reports detailing the market performance of various investment options. Mutual fund Weekly updates Analysis of the Mutual Fund industry, offering an overview of Mutual Fund Schemes. Flavor of Equity Monthly reports on the change in exposure in the top 10 stocks, churning of portfolios and the entry and exit of stocks by the respective fund managers of select Mutual Fund companies. Bond Fund Snapshot Monthly reports on analysis of bond funds of select mutual fund companies. Rolling returns Monthly reports on the fundamental and technical call for equities and derivatives for short term. Market wrap Daily post market analysis. Smart trader Daily reports on the fundamental and technical call for equities and derivatives for short term. Equity Research reports Sector and company wise reports on the fundamentals, along with a recommendation of the stock. Strategy note Quarterly note on the broad equity market views, macro fundamentals and top stock picks. Result preview Pre result quarterly reports on select companies. Result update Post result quarterly reports on select companies. Event notes Implications and analysis of major corporate events like mergers and takeovers. Visit notes Notes on the companys outlook and discussion during a corporate visit.
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 Derivative Watch Weekly, sock specific technical and derivatives statistics reports. Derivative Start Daily derivatives market strategy. IPO Updates Analysis on the current IPO with support for and against it. Policy Updates Updates and analysis of important announcements and policies like the budget and monetary. Morning coffee Daily update on the Indian and International financial markets. Morning Track Monthly research reports on the debt and money markets. Commodity reports Daily and weekly commodity reports. Depository & Custodial services - Company also offers dematerialization services as the company is Depository Participant of NSDL.

Top Management A committed and formidable management team anchors the company towards its goal and provides direction in diverse areas of business strategy, operating management, regulatory reporting, human resources development, product development etc. Equipped with excellent domain knowledge and extensive experience, they drive IILs vision. Mr. Manasije Mishra MD & CEO

Mr. Avdhoot DeshpandeHead - Equity and Capital Markets Mr. Vipul Shah Mr. Dharmen shah Mr. B.S. Shashidhar Head - NBFC Vice President - Institutional Equity Head - IAIFL and General Insurance

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Mr. Jaideep Anand Dealing Mr. C. Diwakar Mr. Bhuvnesh Khanna Mr. K. Venkatesh

Senior Vice President - Institutional Sales &

Chief Information Officer (CIO) Head - Alternate Channels Head Distribution

SWOT ANALYSIS SWOT Analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and threats for a business entity. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The technique is credited to Albert Humphrey, who led a research project at Stanford University from fortune 500companies Strengths: Attributes of the organisation which are helpful to achieving the objective. in the 1960s and 1970s using data

Weaknesses: Attributes of the organisation which are harmful to achieving the objective.

Opportunities: External conditions which are helpful to achieving the objective.

Threats: External conditions which could damage the businesss performance.

SWOT ANALYSIS OF HSBC INVEST DIRECT.

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Strengths Customization: It understands the dreams, needs, aspirations, concerns and resources are unique and this is reflected in every move they do for the sake of individual customer. This is the greatest value it provide online trading products like Smart Invest and Smart Trade. Expertise: IIL brings within the customers reach their institutional expertise and the ability to effectively combine an invaluable understanding of the financial markets, with an intention of building a long-term partnership. One-stop-shop for all the investment needs: IIL gives all the types of services and products an individual investor can dream and think off. All the financial products and services are under one-roof. Unbiased and objective advice: The teams of expert investment advisors customize plans to suit the needs of investors. Extensive reach: IIL make sure that they are always accessible to customers through a host of mediums. A customer can contact them either through website or through their branches and channel partners of more than 300 offices across India. Brand image: IIL as such is a well known brand in industry. Competitive pricing: It charges less brokerage compared to its competitors.

Weaknesses Expensive products: Some of the products like Smart Trade are quite expensive. An annual charge for Smart Trade is Rs. 3000. Tedious procedures: Tedious procedures and delays in processing the data and documents of new customers.

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 Fund transfer: It has tie-ups with only 5 banks for online fund transfer, where as other competitors have more tie-ups. Attrition: High attrition rates in trainees category. Unattractive offers: Some offers of the company like Advance Subscription Plan with a deposit of Rs.50,000 to avail low brokerage charges. The low brokerage charges will be effective for the clients for a minimum turnover of Rs. 50 Crore p.a.

Opportunities Indian economy seems to be out of recession. This is the right time for inventers to re-enter the market. The company should adopt some strategies to increase the business through existing clients. The increasing number of management graduates helps to get sales force at trainee levels at less salaries or commission basis. It reduces the salaries and commissions expenses of the company. The company can tie up with reputed B Schools for trainees. Huge untapped market in rural areas, Tier2 and Tier 3 cities and towns of India can be concentrated to increase the business. Many a banks are offering fund transfer services. The company can increase the tie-ups for fund transfers at attract customers of different banks. Threats Stiff competition from existing players in the market and there is also a threat of new entrants. It has lead to cut throat competition in terms of brokerage charges and exposure.
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 Increasing awareness of mutual funds and ULIPs created by Domestic Institutional Investors has reduced the direct investment in to stock market to some extent. This automatically reduces the business of stock brokers. Changing economic scenario in India and changes in government policies will have great impact on the revenue of this company Many a investors burnt their figures during the bearish market conditions. It has turned many a trading accounts inoperative.

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Organization Chart

FINANCIAL RESULT

1.(a) BALANCE SHEET 31-Mar09 110.05 0.00 31-Mar08 110.05 0.00 31-Mar07 110.05 0.00

Particulars Equity Capital Preference Capital

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Share Capital Reserves and Surplus Loan Funds Current Liabilities Provisions Current Liabilities and Provisions Total Liabilities and Stock holders Equity Tangible Assets Net Intangible Assets Net Net Block Capital Work In Progress Net Fixed Assets Investments Inventories Accounts Receivable Cash and Cash Equivalents Other Current Assets

110.05 2395.26 4690.54 1640.92 153.32 1794.24

110.05 2096.74 2018.62 976.54 138.32 1114.86

110.05 1906.81 1929.31 891.06 89.08 980.14

9413.18

5681.25

5274.84

4032.36

2336.03

2216.15

0.00 4032.36 1251.51 5283.87 427.53 1469.96 1027.73

2.96 2338.99 281.30 2620.29 350.10 1437.63 909.58

5.96 2222.11 220.29 2442.40 484.15 1218.18 770.39

792.69

121.22

86.06

8.32

1.00

0.91

32

Current Assets Loans & Advances Miscellaneous Expenditure Other Assets Total Assets

3298.70 403.08

2469.43 241.43

2075.54 272.75

0.00

0.00

0.00

9413.18

5681.25

5274.84

1.(b) PROFIT & LOSS ACCOUNT. Particulars Profit / Loss A/C Net Sales Material Cost Increase Decrease Inventories Personnel Expenses Manufacturing Expenses Gross Profit Administration Selling and Distribution Expenses EBITDA Depreciation 1036.44 278.43
33

31-Mar09(12) Rs mn 6106.43 1432.93

31-Mar08(12) Rs mn 5208.38 1235.66

31-Mar07(12) Rs mn 4777.64 1144.08

892.62

637.49

658.80

634.85

559.67

489.15

1299.93 1846.10

1173.25 1602.31

980.61 1505.00

809.66

792.62

720.32

809.69 263.15

784.68 248.25

Depletion and Amortization EBIT Interest Expense Other Income Pretax Income Provision for Tax Extra Ordinary and Prior Period Items Net Net Profit Adjusted Net Profit Dividend Preference Dividend - Equity 401.52 516.85 286.50 298.35 291.12 291.12 -115.33 -11.85 0.00 758.01 166.36 91.45 683.10 166.25 546.54 163.03 77.64 461.15 162.80 536.43 142.52 62.24 456.15 165.03

0.00 88.04

0.00 82.54

0.00 78.41

FINANCIAL STATEMENT ANALYSIS 2 (a) RATIOS Current Ratios: The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:

34

Total Current Assets Current Ratio = ____________________ Total Current Liabilities 2009 Current Assets Current Liabilities Current Ratio 1.84 2.22 2.12 1794.24 1114.86 980.14 3298.7 2008 2469.43 2007 2075.54

Quick Ratios: The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. It is figured as shown below: Cash + Government Securities + Receivables Quick Ratio = _________________________________________ Total Current Liabilities

QUICK ASSETS Accounts Receivable Cash and Cash

2009

2008

2007

1027.73

909.58

770.39

792.69

121.22

86.06

35

Equivalents Other Current Assets Total Quick Assets CURRENT LIABILITIES QUICK RATIO 1.019228 0.925497 0.874732 1794.24 1114.86 980.14 1828.74 1031.8 857.36 8.32 1 0.91

Net Profit Margin Ratio The Net Profit Margin Ratio is calculated as follows: Net Profit before Tax Net Profit Margin Ratio = _____________________ Net Sales

2009 Gross Profit Sales Gross Margin Ratio 1846.1 6106.43 30.23207

2008 1602.31 5208.38 30.76408

2007 1505 4777.64 31.50091

36

2009 Net Profit Sales Net Profit Ratio 401.52 6106.43 6.575364

2008 286.5 5208.38 5.500751

2007 291.12 4777.64 6.093385

2009 Operating Margin Net Sales Operating Margin Ratio 6106.43 16.97293 1036.44

2008 809.69

2007 784.68

5208.38 15.54591

4777.64 16.42401

Return on Assets Ratio The Return on Assets Ratio is calculated as follows: Net Profit before Tax Return on Assets = ________________________ Total Assets

2009 Net Profit Before Tax Total Assets Return on Total Assets Ratio 9413.18 7.256846 683.1

2008 461.15

2007 456.15

5681.25 8.117052

5274.84 8.647656

37

2(b) TREND ANALYSIS (i) Trend of Net Sales Year Net Sales Mar'07 Mar'08 Mar'09 4777.64 5208.38 6106.43 Trend (%) 100 109.02 127.81

7000 6106.43 6000 5208.38 Net Sales and Trend 5000 4000 3000 2000 1000 100 0 Mar'07 Mar'08 Years Mar'09 109.02 127.81 Net Sales Trend (%) 4777.64

ANALYSIS AND INTERPRETATION From the above graph it is clear that net sales of the company have improved in the year 2009 from the previous years i.e. 2007 and 2008 respectively.

38

Sales in the year 2007 and 2008 were Rs.4, 777.64 million and Rs.5, 208.38 million and they have improved to Rs.6, 106.43 million in the year 2009. (ii) Trend of Net Profit Year Net Profit Mar'07 Mar'08 Mar'09 291.12 286.5 401.52 Trend (%) 100 98.41 137.92

450 400 350 Net Profit & Trend 300 250 200 150 100 50 0 Mar'07 Mar'08 Year Mar'09 100 98.41 137.92 291.12 286.5 401.52 Net Profit Trend(%)

ANALYSIS AND INTERPRETATION From the above graph it is clear that net profit of the company have improved in the year 2009 from the previous years i.e. 2007 and 2008 respectively. Net Profit in the year 2007 and 2008 were Rs.291.12 million and Rs.286.50 million and it has improved to Rs.401.52 million in the year 2009.
39

(iii) Trend of Earning per Share Year EPS Trend (%) Mar'07 Mar'08 Mar'09 5.3 5.2 7.3 100 98.11 137.73

160 140 120 EPS & Trend 100 80 137.73 60 100 40 20 5.3 0 Mar'07 Mar'08 Year Mar'09 5.2 7.3 98.11

EPS Trend(%)

ANALYSIS AND INTERPRETATION From the above graph it is clear that EPS of the company have improved in the year 2009 from the previous years i.e. 2007 and 2008 respectively. EPS in

40

the year 2007 and 2008 were Rs. 5.3 and Rs. 5.2 and it has improved to Rs.7.3 in the year 2009.

41

PART B

RESEARCH PROJECT REPORT

42

TITLE STUDY OF IPO IN INDIA: PERFORMANCE EVALUATION AND INVESTORS PERCEPTION

43

CHAPTER 1 INTRODUCTION

44

THE INDIAN CAPITAL MARKET - AN OVERVIEW

Capital market in any country plays an important role in supporting technological progress and in economic development by channeling funds for investment in productive assets, contributing to long term growth prospects of the economy. The direct influence of capital market is seen in the growth of corporate sector, that have reduced the dependent on bank as a source of finance to raise in the capital market. It consists of primary and secondary markets. The primary market deals with the issue of new instruments by the corporate sector such as equity shares, preference shares and debt instruments. Central and State governments, various public sector industrial units (PSUs), statutory and other authorities such as state electricity boards and port trusts also issue bonds/debt instruments. The primary market in which public issue of securities is made through a prospectus is a retail market and there is no physical location. Offer for subscription to securities is made to investing community. The secondary market or stock exchange is a market for trading and settlement of securities that have already been issued. The investors holding securities sell securities through registered brokers/sub-brokers of the stock exchange. Investors who are desirous of buying securities purchase securities through registered brokers/sub-brokers of the stock exchange. It may have a physical location like a stock exchange or a trading floor. Since 1995, trading in securities is screen-based and Internet-based trading has also made an appearance in India. The secondary market consists of 23 stock exchanges including the National Stock Exchange, Over-the-Counter Exchange of India (OTCEI) and Inter Connected Stock Exchange of India Ltd. The secondary market provides a trading place for the securities already issued, to be bought and sold. It also
45

provides liquidity to the initial buyers in the primary market to re-offer the securities to any interested buyer at any price, if mutually accepted. An active secondary market actually promotes the growth of the primary market and capital formation because investors in the primary market are assured of a continuous market and they can liquidate their investments. The securities market moved from T+3 settlement period to T+2 rolling settlement with effect from April 1, 2003

1.1 CAPITAL MARKET PARTICIPANTS: There are several major players in the primary market. These include the merchant bankers, mutual funds, financial institutions, foreign institutional investors (FIIs) and individual investors. In the secondary market, there are the stock brokers (who are members of the stock exchanges), the mutual funds, financial institutions, foreign institutional investors (FIIs), and individual investors. Registrars and Transfer Agents, Custodians and Depositories are capital market intermediaries that provide important infrastructure services for both primary and secondary markets.

1.2 MARKET REGULATION: It is important to ensure smooth working of capital market, as it is the arena where the players in the economic growth of the country come together. Various laws have been passed from time to time to meet this objective. The financial market in India was highly segmented until the initiation of reforms in 1992-93 on account of a variety of regulations and administered prices including barriers to entry. The reform process was initiated with the establishment of Securities and Exchange Board of India (SEBI).
46

The legislative framework before SEBI came into being consisted of three major Acts governing the capital markets: 1. The Capital Issues Control Act 1947, which restricted access to the securities market and controlled the pricing of issues. 2. The Companies Act, 1956, which sets out the code of conduct for the corporate sector in relation to issue, allotment and transfer of securities, and disclosures to be made in public issues. 3. The Securities Contracts (Regulation) Act, 1956, which regulates transactions in securities through control over stock exchanges. In addition, a number of other Acts, e.g., the Public Debt Act, 1942, the Income Tax Act, 1961, the Banking Regulation Act, 1949, have substantial bearing on the working of the securities market.

1.3 PRIMARY MARKET: Companies raise funds to finance their projects through various methods. The promoters can bring their own money of borrow from the financial institutions or mobilize capital by issuing securities. The funds maybe raised through issue of fresh shares at par or premium, preferences shares, debentures or global depository receipts. The main objectives of a capital issue are given below:

To promote a new company

To expand an existing company

To diversify the production

47

To meet the regular working capital requirements

To capitalize the reserves

Stocks available for the first time are offered through primary market. The issuer may be a new company or an existing company. These issues may be of new type or the security used in the past. In the primary market the issuer can be considered as a manufacturer. The issuing houses, investment bankers and brokers act as the channel of distribution for the new issues. They take the responsibility of selling the stocks to the public. 1.3.1 THE FUNCTION OF PRIMARY MARKET: The main service functions of the primary market are origination, under writing and distribution. Origination deals with the origin of the new issue. The proposal is analyzed in terms of the nature of the security, the size of the issue, timing of the issue and floatation method of the issue. Underwriting contract makes the share predictable and removes the element of uncertainty in the subscription (underwriting is given in the latter part of this chapter). Distribution refers to the sale of securities to the investors. This is carried out with the help of the lead managers and brokers to the issue. 1.3.2 FACTORS CONSIDERED BY THE INVESTORS:

Promoters Credibility

Promoters past performance with reference to the companies promoted by them earlier. The integrity of the promoters should be found out with enquiries and from financial magazines and newspapers.

48

Efficiency of the Management

The

managing

directors

background

and

experience in the field. The composition of the Board of Directors is to be studied to find out whether it is broad based and professionals are included.

Project Details

The credibility of the appraising institution or agency. The stake of the appraising agency in the forthcoming issue.

Product

Reliability of the demand and supply projections of the product. Competition faced in the market and the marketing strategy. If the product is export oriented, the tie-up with the foreign collaborator or agency for the purchase of products.

Financial Data

Accounting policy.

49

Revaluation of the assets, if any. Analysis of the data related to capital, reserves, turnover, profit, dividend record and profitability ratio.

Litigation

Pending litigations and their effect on the profitability of the company. Default in the payment of dues to the banks and financial institutions.

Risk Factors

A careful study of the general and specific risk factors should be carried out.

Auditors Report

A through reading of the auditors report is needed especially with reference to significant notes to accounts, qualifying remarks and changes in the accounting policy. In the case of letter of offer the investors have to look for the recently audited working result at the end of letter of offer.

Statutory Clearance

Investor should find out whether all the required statutory clearance has been obtained, if not, what is the current status. The clearances used to have a bearing on the completion of the project.

Investor

Promptness in replying to the enquiries of allocation

50

Service

of shares, refund of money, annual reports, dividends and share transfer should be assessed with the help of past record.

1.4 INITIAL PUBLIC OFFERINGS: The first offering of a companys shares to the public. The shares offered may be existing ones held privately, or the company may issue new shares to the public. 1.4.1 PARTIES INVOLVED IN THE IPO: The promoters also should have a clear idea about the agencies to coordinate their activities effectively in the public issue. The various parties involved are: The manager to the issue, The registrars to the issue, Underwriters, Bankers, Advertising agencies, Financial Institutions and Government /Statutory Agencies.

The Managers To The Issue: Lead managers are appointed by the company to manage the initial public offering campaign. Their main duties are: Drafting of prospectus Preparing the budget of expenses related to the issue Suggesting the appropriate timings of the public issue Assisting in marketing the public issue successfully
51

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

underwriters, brokers, bankers to the issue, advertising agents etc. Directing the various agencies involved in the public issue.

The merchant banking division of the financial institutions, subsidiary of commercial banks, foreign banks, private sector banks and private agencies are available to act as lead mangers. Such as SBI Capital Markets Ltd., Bank of Baroda, Canara Bank, DSP Financial Consultant Ltd. ICICI Securities & Finance Company Ltd., etc. The Registrar To The Issue After the appointment of the lead managers to the issue, in consultation with them, the Registrar to the issue is appointed. Quotations containing the details of the various functions they would be performing and charges for them are called for selection. Among them the most suitable one is selected. It is always ensured that the registrar to the issue has the necessary infrastructure like Computer, Internet and telephone. The Registrars normally receive the share application from various collection centers. They recommend the basis of allotment in consultation with the Regional Stock Exchange for approval. Usually registrars to the issue retain the issuer records at least for a period of six months from the last date of dispatch of letters of allotment to enable the investors to approach the registrars for redressal of their complaints. The Underwriters Underwriting is a contract by means of which a person gives an assurance to the issuer to the effect that the former would subscribe to the securities offered in the event of non-subscription by the person to whom they were offered. The person who assures is called an underwriter. The underwriters do not buy and sell securities. They stand as back-up supporters and underwriting is done for

52

a commission. Underwriting provides an insurance against the possibility of inadequate subscription. Underwriters are divided into two categories: Financial Institutions and Banks Brokers and approved investment companies.

The company after the closure of subscription list communicates in writing to the underwriter the total number of shares/debentures under subscribed, the number of shares/debentures required to be taken up by the underwriter. The underwriter would take up the agreed portion. If the underwriter fails to pay, the company is free to allot the shares to others or take up proceeding against the underwriter to claim damages for any loss suffered by the company for his denial.

The Bankers To The Issue: Bankers to the issue have the responsibility of collecting the application money along with the application form. The bankers to the issue generally charge commission besides the brokerage, if any. Depending upon the size of the public issue more than one banker to the issue is appointed. When the size of the issue is large, 3 to 4 banks are appointed as bankers to the issue. The number of collection centers is specified by the central government. The bankers to the issue should have branches in the specified collection centers Advertising Agents: Advertising plays a key role in promoting the public issue. Hence, the past track record of the advertising agency is studied carefully. Tentative program of each advertising agency along with the estimated cost are called for. After comparing the effectiveness and cost of each program with the other, a suitable advertising agency if selected in consultation with the lead managers to the issue. The advertising agencies take the responsibility of giving publicity

53

to the issue on the suitable media. The media may be newspapers/ magazines/ hoardings/press release or a combination of all. The Financial Institutions Financial institutions generally underwrite the issue and lend term loans to the companies. Hence, normally they go through the draft of prospectus, study the proposed program for public issue and approve them. IDBI, IFCI & ICICI, LIC, GIC and UTI are the some of the financial institutions that underwrite and give financial assistance. The lead manager sends copy of the draft prospectus to the financial institutions and includes their comments, if any in the revised draft. Government And Statutory Agencies The various regulatory bodies related with the public issue are: Securities Exchange Board of India Registrar of companies Reserve Bank of India (if the project involves foreign investment) Stock Exchange where the issue is going to be listed Industrial licensing authorities Pollution control authorities (clearance for the project has to be stated in

the prospectus) 1.4.2 COLLECTION CENTERS Generally there should be at least 30 mandatory collection centers inclusive of the places where stock exchanges are located. If the issue is not exceeding Rs.10 Cr (excluding premium if any) the mandatory collection centers are the four metropolitan centers viz. Mumbai, Delhi, Kolkatta and Chennai and at all such centers where stock exchanges are located in the region in which the registered office of the company is situated. The regional divisions of the various stock exchanges and the places of their locations are given in the following table:
54

Table 1.2: Collection centres Region Exchange City

Northern Region

Ludhiana Stock Exchange Delhi Stock Exchange Jaipur Stock Exchange U P Stock Exchange

Ludhiana Delhi Jaipur Kanpur

Southern Region

Hyderabad Stock Exchange Bangalore Stock Exchange Mangalore Stock Exchange Madras Stock Exchange Coimbatore
55

Hyderabad Bangalore Managlore Chennai Coimbatore Cochin

Stock Exchange Cochin Stock Exchange

Eastern Region

Calcutta Stock Exchange Gawahati Stock Exchange Magadh Stock Exchange Bhubaneswar Stock Exchange

Kolkatta Gawahati Patna Bhubaneswar

Western Region

Bombay Stock Exchange National Stock Exchange OTCEL Stock

Mumbai Mumbai Mumbai Indore Pune Vadodara

56

Exchange M P Stock Exchange Pune Stock Exchange Vadodara Stock Exchange Ahmedabad Stock Exchange Sauashtra Kutch Stock Exchange

Ahmedabad Rajkot

In addition to the collection branch, authorized collection agents may also be appointed. The names and addresses of such agent should be given in the offer documents. The collection agents are permitted to collect such application money in the form of cheques, draft, and stock-invests and not in the form of cash. The application money so collected should be deposited in the special share application account with the designated scheduled bank either on the same day or latest by the next working day.

The application collected by the bankers to the issue at different centers are forwarded to the Registrar after realization of the cheques, within a period of 2 weeks from the date of closure of the public issue. The applications
57

accompanied by stock-invests are sent directly to the Registrars to the issue along with the schedules within one week from the date of closure of the issue. The investors, who reside in places other than mandatory and authorized centers, can send their application with stock-invests to the Registrar to the issue directly by registered post with acknowledgement due card.

1.4.3 PLACEMENT OF THE IPO Initial public offers are floated through Prospectus; Bought out deals/offer for sale; Private Placement and Book Building.

OFFER THROUGH PROSPECTUS According to Companies (Amendment) Act 1985, application forms for shares of a company should be accompanied by a Memorandum (abridged prospectus). In simple terms a prospectus document gives details regarding the company and invites offers for subscription or purchase of any shares or debentures from the public. The draft prospectus has to be sent to the Regional Stock Exchange where the shares of the company are to be listed and also to all other stock exchanges where the shares are proposed to be listed. The stock exchange scrutinizes the draft prospectus. After scrutiny if there is any clarification needed, the stock exchange writes to the company and also suggests modification if any. The prospectus should contain details regarding the statutory provisions for the issue, program of public issue opening, closing and earliest closing date of the issue, issue to be listed at, highlights and risk factors, capital structure, board of directions, registered office of the company, brokers to the issue, brief description of the issue, cost of the project, projected earnings and other such details. The board, lending financial institutions and the stock exchanges in which they are to be listed should approve the prospectus. Prospectus is distributed among the stock
58

exchanges, brokers and underwriters, collecting branches of the bankers and to the lead managers.

Table 1.3: Salient Features of the Prospectus Salient Features of the Prospectus:

General Information

Name and address of the registered office of the company. The name(s) of the stock exchange(s) where applications have been made for permission to deal in and for official quotations of shares/debentures. Opening, closing and earliest closing dates of the issue. Name and address of lead managers.

Capital Structure of the Company

Issued, subscribed and paid-up capital. Size of the present issue giving separately reservation for preferential allotment to promoters and others. Paid-up capital After the present issue Details regarding the promoters contribution.

59

Terms of the Present Issue

Authority for the issue, terms of payment, procedure and time schedule for allotment, issue of certificate and rights of the instrument holders. How to apply availability of forms, prospectus and mode of payment. Special tax benefits to the company and share holders under the Income Tax Act, if any.

Particulars of the Issue

Object of the issue Project cost Means of financing (including promoters contribution).

Company, Management and Project

History, main objects and present business of the company. Subsidiary (ies) of the company, if any. Promoters and their background. Names, addresses and occupation of managing directors and other directors including nominee directors and whole-time directors. Location of the project. Plant and machinery, technological process etc. Collaboration, any performance guarantee or

60

assistance in marketing by the collaborators. Infrastructure facilities for raw materials and utilities like water, electricity etc. Schedule of implementation of the project and progress so far, giving details of land acquisition, civil works, installation of plant and machinery, trail production, consumer production etc. The Product (a) Nature of the products Consumer or Industrial and the end users; (b) Approach to marketing and proposed marketing setup; (c) Export possibilities and export obligations, if any. Future prospects expected capacity utilization during the first three years from the date of commencement of production and the expected year when the company would be able to earn cash profit and net profit.

Stock market data for shares, debentures of the company (high low price for each of the last years in consideration). Particulars regarding the other listed companies under the same management, which have made any capital issues during the last three years.

Outstanding

Details of the outstanding litigations pertaining to

61

Litigations

matters likely to affect the operations and finances of the company including disputed tax liabilities of any nature, any other default and criminal prosecution launched against the company.

Risk Factors

Management perception of risk factors like sensitivity to foreign exchange rate fluctuations, difficulty in the availability of raw materials or in marketing of products, cost, time over-run etc.

Justification of the issue premium

The justification for price is given, taking into account the following parameters: Performance of the company reflected by earnings per share and book value of shares for the past five years. Future projections in terms of EPS and book value of shares in the next three years. Stock market data. Net asset value as per the latest audited balance sheet.

If the projections are not based on the past data, appraisal made by a banker or financial institution
62

should be specifically stated.

Financial Information

Financial performance of the company for last five years should be given from the audited annual accounts in tabular form. Balance sheet date equity capital, reserves (revaluation reserve, the year of revaluation and its monetary effect on assets) and borrowings. Profit and loss data sales, gross profit, net profit, and dividend paid, if any. Any change in the accounting policy during the last three years and its effect on the profit and reserves of the company.

Statutory and other information

Minimum subscription. Details of the fee payable to Advisers, Registrar, Managers, and underwriters. Details regarding the previous issues, if any.

BOUGHT OUT DEALS (OFFER FOR SALE) Here, the promoter places his shares with an investment banker (bought out dealer or sponsor) who offers it to the public at a later date. In other works in a bought out deal, an existing company off-loads a part of the promoters capital to a wholesaler instead of making a public issue. The wholesaler is invariably a merchant banker or sometimes just a company with surplus cash. In addition
63

to the main sponsor, there could be individuals and other smaller companies participating in the syndicate. The sponsors hold on to these shares for a period and at an appropriate date they offer the same to the public. The hold on period may be as low as 70 days or more than a year.

In a bought out deal, proving is the essential element to be decided. The bought out dealer decides the price after analyzing the viability, the gestation period, promoters background and future projections. A bough out dealer sheds the shares at a premium to the public.

PRIVATE PLACEMENT In this method the issue is placed with a small number of financial institutions, corporate bodies and high net worth individuals. The financial intermediaries purchase the shares and sell them to investors at a later date at a suitable price. The stock is placed with issue house client with the medium of placing letter and other documents which taken together contribute a prospectus, giving the information regarding the issue. The special feature of the private placement is that the issues are negotiated between the issuing company and the purchasing intermediaries. Listed public limited company as well as closely held private limited company can access the public through the private placement method. Mostly in the private placement securities are sold to financial institutions like Unit Trust of India, mutual funds, insurance companies, and merchant banking subsidiaries of commercial banks and so on. Through private placement equity shares, preference shares, cumulative convertible preference shares, debentures and bonds are sold. BOOK BUILDING Book building is a mechanism through which the initial public offerings (IPOS) take place in the U.S. and in India it is gaining importance with every issue.
64

Most of the recent new issue offered in the market has been through Book Building process. Similar mechanisms are used in the primary market offerings of GDRs also. In this process the price determination is based on orders placed and investors have an opportunity to place orders at different prices as practiced in international offerings.

The recommendations given by Malegam Committee paved way for the introduction of the book building process in the capital market in Oct 1995. Book building involves firm allotment of the instrument to a syndicate created by the lead managers who sell the issue at an acceptable price to the public. Originally the potion of book building process was available to companies issuing more than Rs.100 cr. The restriction on the minimum size was removed and SEBI gave impression to adopt the book building method to issue of any size. In the prospectus, the company has to specify the placement portion under book building process. The securities available to the public are separately known as net offer to the public. Nirma by offering a maximum of 100 lakh equity shares through this process was set to be the first company to adopt the mechanism.

Among the lead managers or the syndicate members of the issue or the merchant bankers as member. The issuer company as a book runner nominates this member and his name is mentioned in the draft prospectus. The book runner has to circulate the copy of the draft prospectus to be filed with SEBI among the institutional buyers who are eligible for firm allotment. The draft prospectus should indicate the price band within which the securities are being offered for subscription. The offers are sent to the book runners. He maintains a record of names and number of securities offered and the price offered by the institutional buyer within the placement portion and the price for which the order is received to the
65

book runners. The book runner and the issuer company finalize the price. The issue price for the placement portion and offer to the public should be the same. Underwriting agreement is entered into after the fixation of the price. One day earlier to the opening of the issue to the public, the book runner collects the application forms along with the application money from the institutional buyers and the underwriters. The book runner and other intermediaries involved in the book building process should maintain records of the book building process. The SEBI has the right to inspect the records. Book building as discussed is a process of offering securities in which bids at various prices from investors through syndicate members are collected. Based on bids, demand for the security is assessed and its price discovered. In case of normal public issue, investor knows the price in advance and the demand is known at the close of the issue. In case of public issue through book building, demand can be known at the end of everyday but price is known at the close of issue.

An issuer company proposing to issue capital through book building has two options viz., 75% book building route and 100% book building route. In case of 100% book building route is adopted, not more than 60% of net offer to public can be allocated to QIBs (Qualified Institutional Buyers), not less than 15% of the net offer to the public can be allocated to non-institutional investors applying for more than 1000 shares and not less than 25% of the net offer to public can be allocated to retail investors applying for up to 1000 shares. In case 75% of net public offer is made through book building, not more than 60% of the net offer can be allocated to QIBs and not less than 15% of the net offer can be allocated to non-institutional investors. The balance 25% of the net offer to public, offered at a price determined through book building, are available to retail individual investors who have either not participated in book building or have not received any allocation in the book built portion. Allotment to retail individual or non-institutional investors is made on the basis of
66

proportional allotment system. In case of under subscription in any category, the un-subscribed portions are allocated to the bidder in other categories. The book built portion, 100% or 75%, as the case may be, of the net offer to public, are compulsorily underwritten by the syndicate members or book runners. Other requirements for book building include: etc. Bids remain open for at least 5 days. Only electronic bidding is permitted. Bids are submitted through syndicate members. Bids can be revised. Bidding demand is displayed at the end of every day. Allotments are made not later than 15 days from the closure of the issue

The 100% book building has made the primary issuance process comparatively faster and cost effective and trading can commence from T+16.

The SEBI guidelines for book building provides that the company should be allowed to disclose the floor price, just prior to the opening date, instead of in the Red herring prospectus, which may be done by any means like a public advertisement in newspaper etc. Flexibility should be provided to the issuer company by permitting them to indicate a 20% price band. Issuer may be given the flexibility to revise the price band during the bidding period and the issuers should be allowed to have a closed book building i.e. the book will not be made public. The mandatory requirement of 90% subscription should not be considered with strictness, but the prospectus should disclose the amount of minimum subscription required and sources for meeting the shortfall. The Primary Market Advisory Committee recommended the practice of green-shoe option available in markets abroad which is an over allotment option granted

67

by the issuer to the underwriter in a public offering. This helps the syndicate member to over allocate the shares to the extent of option available and to consequently purchase additional shares from the issuer at the original offering price in order to cover the over-allotments.

FIXED VERSUS BOOK BUILDING ISSUES

The main difference between offer of shares through book building and offer of shares through normal public issue can be identified on the following parameters:

Price at which securities will be allotted is not known in case of offer of

shares through Book Building while in case of offer of shares through normal public issue, price is known in advance to investor. Under Book Building, investors bid for shares at the floor price or above and after the closure of the book building process the price is determined for allotment of shares. In case of Book Building, the demand can be known everyday as the

book is being built. But in case of the public issue the demand is known at the close of the issue.

1.4.4 ON-LINE INITIAL PUBLIC OFFERS (IPO) A company proposing to issue capital to public through on-line system of the stock exchange has to comply with Section 55 to 68A of the Companies Act, 1956 and SEBI Guideline, 2000. The company is required to enter into an
68

agreement with the stock exchange(s), which have the requisite system for online offer of securities. The agreement should cover rights, duties, responsibilities and obligations of the company and the stock exchanges interse, with provision for a dispute resolution mechanism between the company and the stock exchange. The issuer company appoints a Registrar to the Issue having electronic connectivity with the stock exchanges. The issuer company can apply for listing of its securities at any exchange through which it offers its securities to public through on-line system, apart from the requirement of listing on the regional stock exchange. The stock exchange appoints brokers for the purpose of accepting applications and placing orders with the company. The lead manager would co-ordinate all the activities amongst various intermediaries connected in the system.

In addition to the above, the SEBI guidelines also provide details of the contents of the offer document and advertisement, other requirements for issues of securities, like those under Rule 19(2)(b) of SC(R) Rules, 1957. The guidelines also lay down detailed norms for issue of debt instruments, Issue of capital by designated financial institutions and preferential/bonus issues. 1.4.5 ELIGIBILITY TO ISSUE SECURITIES The issues of capital to public by Indian companies are governed by the Disclosure and Investor Protection (DIP) Guidelines of SEBI, which were issued in June 1992. SEBI has been issuing clarifications to these guidelines from time to time aiming at streamlining the public issue process. In order to provide a comprehensive coverage of all DIP guidelines, SEBI issued a compendium series in January 2000, known as SEBI (DIP) Guidelines, 2000. The guidelines provide norms relating to eligibility for companies issuing securities, pricing of issues, listing requirements, disclosure norms, lock-in period for promoters contribution, contents of offer documents, pre-and post-

69

issue obligations, etc. The guideline applies to all public issues, offers for sale by listed and unlisted companies.

Eligibility Norms: Any company issuing securities through the offer document has to satisfy the following conditions:

A company making a public issue of securities has to file a draft

prospectus with SEBI, through an eligible merchant banker, at least 21 days prior to the filing of prospectus with the Registrar of Companies (RoCs). The filing of offer document is mandatory for a listed company issuing security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lakh. A company cannot make a public issue unless it has made an application for listing of those securities with stock exchanges(s). The company must also have entered into an agreement with the depository for dematerialization of its securities and also the company should have given an option to subscribers/ shareholders/ investors to receive the security certificates or securities in dematerialized form with the depository. A company cannot make an issue if the company has been prohibited from accessing the capital market under any order or discretion passed by SEBI.

An unlisted company can make public issue of equity shares or any other

security convertible into equity shares, on fixed price basis or on book building basis, provided: (i) It has a pre-issue net worth of not less than Rs.1 crore in 3 out of the preceding 5 years and has minimum net worth in immediately preceding two years, (ii) It has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least 3 out of immediately preceding 5 years, and
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(iii) The issue size (offer through offer document + firm allotment + promoters contribution through the offer document) does not exceed five times its preissue net worth. (iv) A listed company is eligible to make a public issue, on fixed price basis or on book building basis, if the issue size does not exceed five times its preissue net worth. If the company, listed or unlisted, does not meet the above criteria, then the issue will have to be compulsorily made through book building route. In such a case, 60% of the issue size will have to be allotted to the Qualified Institutional Buyers (QIBs) failing which the full subscription money shall be refunded.

Infrastructure companies are exempt from the requirement of eligibility

norms if their project has been appraised by a public financial institution or infrastructure development finance corporation or infrastructure leasing and financing services and not less than 5% of the project cost is financed by any of the institutions, jointly or severally, by way of loan and/or subscription to equity or a combination of both. Banks and rights issues of listed companies are also exempt from the eligibility norms.

Thus the quality of the issue is demonstrated by track record/appraisal by approved financial institutions/credit rating/subscription by QIBs.

1.4.6 PRICING OF ISSUES The Controller of Capital Issues Act governed issue of capital prior to May 27, 1992 1947. Under the Act, the premium was fixed as per the valuation guidelines issued. The guidelines provided for fixation of a fair price on the basis of the net asset value per share on the expanded equity base taking into account, the fresh capital and the profit earning capacity.
71

The repealing of the Capital Issue Control Act resulted in an era of free pricing of securities. Issuers and merchant bankers fixed the offer prices. Pricing of the public issue has to be carried out according to the guidelines issued by SEBI.

At Premium: Companies are permitted to price their issues at premium in the case of the following:

First issue of new companies set up by existing companies with the track

record. First issue of existing private/closely held or other existing unlisted

companies with three-year track record of consistent profitability. First public issue by exiting private/closely held or other existing unlisted

companies without three-year track record but promoted by existing companies with a five-year track record of consistent profitability. Existing private/closely held or other existing unlisted company with three-

year track record of consistent profitability, seeking disinvestments by offers to public without issuing fresh capital (disinvestments). Public issue by existing listed companies with the last three years of

dividend paying track record.

At Par Value: In certain cases companies are not permitted to fix their issue prices at premium. The prices of the share should be at par. They are for:

First public issue by existing private, closely held or other existing unlisted

companies without three-year track record of consistent profitability and

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Existing private/closely held and other unlisted companies without three-

year track record of consistent profitability seeking disinvestments offer to public without issuing fresh capital (disinvestments).

1.4.7 How to evaluate an IPO ? Whether you are buying stock from the secondary market or subscribing to an initial public offering (IPO), make sure you have all the facts. That means going through the small print in the IPO document with a fine-toothed comb. Don't let market hike, investment trends or media reports influence you. Following these parameters should help:

Promoters. Who runs the company? Professionals or a family? If the

directors are well known, it gives a company credibility. Check the credentials of the promoters, directors and key managerial persons. See if they have at least five years' experience in the company's line of business,

Industry outlook. There should be demand for the company's product or

service, with adequate profit potential.

Business plans. Check the progress made, and the money invested in

aspects such as land/office space, plant and machinery, utilities, regulatory clearances, personnel, financing, projects in hand, sales and marketing, technical and marketing tie-ups. High investments from promoters lend credibility to the IPO plan, as do project appraisals by merchant bankers.

Financials. Check if the company is over-leveraged in terms of the equity

and debt on its books, and whether the additional issue of equity is justified. Check for consistency in revenue, profit growth and margins for at least three years before the IPO. A steady growth rate suggests a fundamentally sound company. More important, scale the historic trend into future projections: A company with
73

a PAT (profit after tax) of Rs 10 lakh will find it difficult to reach a projected PAT of Rs 15 crore. Projections are based on assumptions, which give promoters leeway to manipulate figures. A good way to check if projections are true is to see whether the assumptions are realistic, given the company's scope of operations, and check how it compares with competitors' figures.

Risk factors. This is the most relevant part of the offer document. General

risk factors are not as damaging as specific ones. Check for contingent liabilities, disputed tax claims, litigation against promoters and directors, and delay in government clearances. Assume a worst-case scenario, and see how such factors could impact the company's operations.

Key names. An issue's lead managers and merchant bankers are the

people who manage the issue, from vetting the company's prospectus to seeing the issue through. Check their track record. You could look up the Sebi website (www.sebi.com) for the issues the merchant banker has managed in the recent past to see how they fared.

Pricing. For valuation purposes, compare a company's issue price-

earnings (P/E) multiple with that of similar players. Check if the earning projections are achievable. If so, discount the issue price for the next two years to arrive at the growth-adjusted P/E multiple. You invest in a company purely for returns. In the case of primary equity issues, this can be a tricky proposition because there are no benchmarks in the form of secondary market prices to go by. When a stock is listed, market sentiment, technical factors and investor interest influence share prices. But in the medium- to long-term, fundamentals take over, which is what should matter to you if you're in for the long haul.

Listing. Ensure you have access to brokers of stock exchanges where the

company proposes to list. If you reside in, say, Delhi, and subscribe to an IPO

74

that is likely to be listed on the Hyderabad Stock Exchange, the time lag in selling can eat into your returns.

75

Need of the study When a business entity needs money, the general course of action that it follows is that it goes to the bank. However, the banks may not be ready to provide 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 the public company is called INITIAL PUBLIC OFFER or IPO. Raising equity gives boost to the economical development of the country. Raising money through IPO is a very complex process. It requires analysis and implementation of various commercial laws applicable to the IPO prospectus. These laws are Companies Act, Income Tax Act, Securities Contract Act and SEBI guidelines on Disclosure and Investor Protection. It is also necessary to implement circulars from time to time by SEBI. The introduction of SEBI attracted FIIs to invest money in stock market in India. It has also helped Indian companies to offer securities in most scientific method to Indian and foreign investors. Therefore to understand this complex subject, I decided to undertake this project

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CHAPTER 2 OBJECTIVES OF THE STUDY

77

2.1TITLE A STUDY ON IPO IN INDIA: PERFORMANCE EVALUATION AND INVESTORS PERCEPTION

2.2 OBJECTIVES OF THE STUDY To evaluate can immediate performance of an IPO be relied upon for the equity in the long run. To analyze that More the subscription (times of issue size) of the IPO, more is the immediate performance. To study the factors affecting IPO purchase decision of the Retail Investors.

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CHAPTER 3 REVIEW OF LITERATURE

79

Bodla, Yadav and Kumar (2010) in their study titled Impact of Holding Period on Risk and Return: A Study of Emerging Stock Markets analyzed

the risk-return pattern of several short as well as long holding periods over a period of twelve years. The study in the end reveals that it is good for the investors to hold investment for a long period.

Ghosh Saurabh (2009) examines IPOs from the banking sector of an emerging economy, India. In a developing country, the role of the banking sector for of economic development is undisputed. In view of its importance in economic resource allocation and its distinction from other industries in general, this paper analyses the post offering performance of banking sector IPOs in detail. The performance evaluation on the basis of stock returns did not find significant evidences of underperformances for the IPOs from the banking sector. Moreover, the study based on key accounting parameters found improvement in the performance of the banks in the post-listing period. There were no significant differences across ownership groups (public sector banks vis--vis their private counterpart) in the IPO performance.

Dolvin & Pyles (2007) in their work on Seasonal affective disorder and the pricing of IPOs found that that there is a large difference between the price at the time of issue of an Initial Public Offering (IPO) and the price when they start trading in the secondary market. These pricing disparities occur mostly when an IPO is considered hot, or in other words, when it appeals to a large number of investors. An IPO is hot when the demand for it far exceeds the supply.

Lian (2006) investigated that second time IPOs (issuers that return to the IPO market successfully after withdrawing their first IPOs) sell at a significant discount relative to similar contemporaneous first time IPOs (IPOs that succeed in their first attempts). This result indicates that the withdrawal event, which is public information, is incorporated into offer prices when withdrawn80

IPO firms come back for second IPO attempts. We also find that, 1) on the first trading day, second time IPOs experience the same magnitude of initial returns as comparable first time IPOs, 2) in the long run, second time IPOs do not underperform their contemporary first time IPOs in either stock price or operating performance. These findings suggest that the discount is appropriate and that the market fully adjusts the offer price of second time IPOs to reflect the negative information conveyed by their previous withdrawals. . Corwin & Schultz (2005) in their article on The role of IPO underwriting syndicates: Pricing, Information, Production & Competition examined that Offer prices are more likely to be revised in response to information when the syndicate has more underwriters and especially more co-managers. More comanagers also result in more analyst coverage and additional market makers following the IPO. Relationships between underwriters are critical in determining the composition of syndicates, perhaps because they mitigate free-riding and moral hazard problems. Shachmurove (2004), investigated the incredible profits of Initial Public Offerings have often been emphasized in the media as a popular investment for the public. This paper takes a few steps towards refuting such an assertion by investigating the performance of 2,895 venture capital backed IPOs between 1968 and September 1998. The paper finds that it is incorrect to assume that investors demand very high annualized and cumulative rates of return to compensate for the risks they are taking by financing ventures in different sectors of the economy. The mean rates of return are found to be, in practice, very moderate, and often, negative. Shah Ajay (2004),This article studies India's vibrant IPO market, via a data set of the 2056 IPOs which took place in the last 4.5 years. We study the overall under pricing, the delay between issue date and listing date, the timeseries of monthly volume of IPO issues and average under pricing in a given month, the cross-section of under pricing across companies, the post-listing

81

trading frequency, the long-run returns to new listings, and price discovery by the market shortly after first listing. Ranjan, Madhusoodanan (2004) examines whether the introduction of Book building has an impact on IPO pricing. The results suggest that IPOs are underpriced. The results also suggest that book built IPOs show less under pricing than fixed price issues. A more detailed study suggests that this has to do more with the size of the issue than the issue process. A model describing the IPO process in the presence of asymmetric information and

heterogeneous beliefs is presented. This model suggests that IPO under pricing can be avoided in the presence of selectively informed investors. The model includes the choices on signaling cost, homogenous and

heterogeneous beliefs among the investors, entrepreneur holding dilution and issue size that exist for a firm while coming for an IPO. The model suggests that a larger amount of money is left on the table if the entrepreneur holds a lesser amount with herself post IPO. Kutsuna (2004) in their paper on Why does Book building drive out auction methods of IPO issuance-evidence from Japan examined Book building enables more accurate valuation of firms, but gains from accurate valuation are partly redistributive. Thus book building can drive auction-method offerings from the market even if it yields no aggregate benefit. Guo, Lev, and Shi (2004) investigated the initial under pricing and long-term underperformances of IPOs generally attribute these phenomena to information asymmetry and investors misevaluations. Here, we identify a widespread source of information asymmetry and valuation uncertaintythe R&D activities of issuersand document that these activities significantly affect both the initial under pricing of IPOs (R&D is positively correlated with under pricing) and their long-term performance (R&D is positively related to long-term performance).Given the pervasiveness and constant growth of firms R&D activities in modern economies, our identification of R&D as a major

82

factor affecting IPOs performance contributes to the understanding of this important economic and capital market phenomenon. Wilbon Anthony D. (2003) Small to medium sized technology impact the national and world economy and it is paramount that the best managed firms have long term success. Empirical analysis must determine the competitive posture that will enhance performance and increase success rates. Ritter, Welch (2002) interpreted the theory and evidence on IPO activity: why firms go public, why they reward first-day investors with considerable underpricing, how underwriters choose these first-day investors, and how IPOs perform in the long run. Our perspective on the literature is three-fold: First, we believe that many IPO phenomena are not stationary. The long-run performance of IPOs is particularly sensitive to choice of sample period, but not necessarily how one would expect it to be. Second, we believe research into IPO share allocation issues is the most promising area of research in IPOs at the moment. Third, we argue that asymmetric information is not the primary driver of many IPO phenomena. Instead, we believe future progress in the literature will come from non-rational and agency conflict explanations. We describe some promising such alternatives. Pandey, A. (2002) compared fixed priced and Book Building IPOs in terms of issuers, initial returns and long run performance and found that Book Building process for IPO was associated with lower under pricing or initial returns. Keeping into consideration the present review and need of conduct of comparative study of fixed priced and Book Building tools used in pricing the issue, following specific objectives were undertaken in conducting this study: Marshal(2002) in his paper on IPO Activity, Pricing and Allocations studied the theory and evidence on IPO activity: why firms go public, why they reward first-day investors with considerable under pricing, and how IPOs perform in the long run. Martens (2002) in his paper on Mapping Risk, Strategy, and Performance in IPO Organizational Knowledge Structures investigated initial public offering prospectuses to examine institutionalized outcomes about risk and strategy
83

and test whether information about those outcomes can be used to predict firm performance. Austin (2002) found that, 1) on the first trading day, second time IPOs experience the same magnitude of initial returns as comparable first time IPOs, 2) in the long run, second time IPOs do not underperform their contemporary first time IPOs in either stock price or operating performance. These findings suggest that the discount is appropriate. Certo, Daily, and Dalton (2001) find a negative and significant relation between IPO under pricing and the size of the board of directors. I believe that banks benefit from a wide variety of directors with different business background, knowledge, and experience. Also, the larger the bank's board, the wider the bank's network that can be established with the communities it serves. TEKER, EKIT (2000) assessed that Initial public offering (IPO) may be the lowest cost financing for firms to obtain funds from small and institutional investors. The commissions, fees and other related expenses incurred are considerably small compared to those of short or long term loan or bond financing. This empirical study examines the performance of all IPOs in Istanbul Stock Exchange during the year of 2000. The study employs standard event study methodology for 34 IPOs over a 30 day event window. The empirical findings are consistent with most of the previous literature. The results support that the first two days of IPOs generally provide positive abnormal returns. Sherman (2000) in his article on IPO and Long Term relationships-an advantage of book building studied that there is a global trend in initial public offerings toward the increased use of book building. Relative to other methods such as auctions, a key feature of book building is that the underwriter has total discretion in allocating shares, allowing allocations to be based on long-term relationships between underwriters and investors.

84

Smith (1999) The studies seem to have underestimated the explanatory power of uncertainty to predict IPO returns. Nonetheless, we do find evidence in support of the asymmetric information theories of IPO under pricing.

Peter(1999) The paper finds that it is incorrect to assume that investors demand very high annualized and cumulative rates of return to compensate for the risks they are taking by financing ventures in different sectors of the economy. The mean rates of return are found to be, in practice, very moderate, and often, negative.

Knopf, Teall (2000) Numerical empirical studies of the well documented IPO under pricing anomaly have employed a variety of different proxies for risk, none of which seem able to explain a significant portion of initial trading day returns. We find that several of the risk proxies used in these studies are outperformed by the returns.

Pageno & Panetta (1998) in their paper on Why companies go Public? An empirical Analysis remarked that the likelihood of an IPO is increasing in the company's size and the industry's market-to-book ratio. Companies appear to go public not to finance future investments and growth, but to rebalance their accounts after high investment and growth. IPOs are also followed by lower cost of credit and increased turnover in control.

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CHAPTER 4 RESEARCH METHODOLOGY

86

. RESEARCH METHODOLOGY Research Methodology is a way to systematically solve the problem. It includes all those steps that are generally adopted to solve the research problem. Thus, it refers to the systematic method consisting of enunciating the problem, formulating a hypothesis, collecting the facts or data, analyzing the facts and reaching certain conclusion either in the form of solutions towards the concerned problems or in certain generalizations for some theoretical formulation.

RESEARCH DESIGN

The research design in this study is Descriptive. Descriptive research studies are those studies, which are concerned with describing the characteristics of a particular individual, or of a group. The studies concerned with narration of facts and characteristics concerning individual, group or situation are all examples of descriptive research studies. DATA COLLECTION Collection of data is a very important step because accuracy in data is a factor of the method used for data collected. Thus there are two ways of collecting appropriate data: Primary Data Secondary Data Primary Data are those, which are collected for the first time, thus happen to be original in character. For the purpose of collection of primary data personal interview of respondents were conducted. An unbiased, undisguised

87

structured questionnaire was prepared which was administered to the respondents for the purpose of getting the information.

Secondary Data are those, which have already been collected by someone else. For the purpose of the study, the data were collected from secondary sources like Websites of NSE, Economic Times & related companies,

Journals like The Chartered Accountant, the Dalal Street, The Financial Analyst, Newspapers like The Economic Times, The Times of India, The Financial Express etc. All of the 25 Companies were considered which had raised their public issues only in National Stock Exchange (NSE) from 1 January 2009 To 31 May 2010 (compiling 1 and haif years). Companys current stock price was taken as closing price at 3.30 pm on 30th June 2010. SAMPLE SIZE In this research, a sample of 100 persons is taken. SAMPLING TECHNIQUE All the respondents who were easily accessible and willing to share the information were administered the structured questionnaire to get the desired information. A non-probability sampling technique i.e. convenience sampling technique was used. STATISTICAL TOOLS USED

Different statistical tools have been used in the study. Eg. Mean, Standard Deviation, Correlation, Standard Error, , Likert Scale.

88

LIMITATIONS

The study was to be completed in a short time; the time factor put a considerable limit on the scope and the extensiveness of the study. The unsupportive attitude of the respondents while responding to the questions, requiring the qualitative information may have affected the final findings and outcomes. Because of the diversity of nature of respondents as well as due to conduction of the study on very small scale, the findings of the survey could not be generalized. It was tried very harder to include the best of information from published and unpublished sources available on internet, books and magazines but some of the data required for the detailed study was not available freely. As it is only the shares market price that played a major role in this study and market price changes with the change in Indian market condition which is depicted by two indices i.e. SENSEX & NIFTY. When the market is in bull run the market price will increase and when in bear run market price decreases. In this study, the market price is taken as on 31 st December 2007. So this study was conducted keeping apart the major decline/increase in the market trend..

89

CHAPTER 5 ANALYSIS & INTERPRETATION

90

ANALYSIS AND DISCUSSION

The whole study has been divided into 2 parts: Part I focuses on performance of the IPOs, whereas, Part-II shows the investors perception of evaluating the Initial Public Offerings.

5.1 PERFORMANCE OF THE IPO: The performance of the IPO can be determined by; I. The immediate and long run performance of the IPOs, II. The effect of subscription on immediate performance of the issue, Objective 1 5.1.1 IMMEDIATE AND LONG TERM PERFORMANCE: This segment of the study analyse the immediate and long term performance of 25 IPOs which were issued from 1st January 2009 to 31st May 2010, a tenure of 1.5 years. This section also focuses on the aspect that; Can the immediate performance of the IPO be taken as indicator of its success in secondary market? For this purpose, coefficient of correlation (Karl Pearsons coefficient of correlation) was calculated between percentage change in the issue price & list price and percentage change in the issue price & current market price of the same.

91

Table 5.1

92

93

The coefficient of correlation(Karl Pearsons coefficient of correlation) was calculated in MS Excel 2003 using correlation function. Co-efficient of correlation

( r) = 0.233 PROBABLE ERROR Here Probable Error is also introduced in order to access the significance of the degree of correlation. Probable Error is a sort of instrument which confirms and measures the reliability and dependability of the value of r, the Karl Pearsons co-efficient of correlation. Probable Error of r = 0.6745 1 r2 N

Probable error = 0.6745 1 (0.233)2 25 Probable Error = 0.1275

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Table 5.2 coefficient of correlation and probable error for immediate performance & long term performance. Number of IPO (N) Coefficient of correlation (r) Probable Error (PE)

25

0.233

0.1275

Further, using Probable Error method, significance of the degree of correlation has been tested. Results revealed that there is positive correlation between the immediate performance and the long term performance. The co-efficient of correlation was 0.233. The probable error existed at 0.1275. However degree of correlation was not significant as it was not 6 times greater than its Probable Error which was 0 .1275. As for , 6 times probable error is equal to 6 * 0.1275, gives result 0.765, Which is greater than the degree of correlation. Inference: Therefore, it can be concluded that there is no significant correlation between immediate performance and long term performance.

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Table 5.3 Listing Gains Company issue price list price Listing Gain % Listing Gain adani power ltd jindal cotex ltd oil india ltd pipavav shipyard ltd thinksoft global services india bulls power ltd den networks ltd astec life sciences ltd Cox & Kings (India) Ltd. mbl infrastructures ltd jsw energy ltd godrej prpoerties ltd infinite computer solutions pradip overseas ltd il&fs transportation persistents systems ltd shree ganesh jewellery house ltd intra soft goenka diamond Talwalkars nitesh estates Tarapur Mandhana Sjvn jaypee infra 145 135 128 54 75 130 26 102
96

100 75 1050 58 125 45 195 82 330 180 100 490 165 110 258 310 260

108 77 1096 61.1 126 45.05 195 83 343.2 185 106 511 170 115 266.6 361.6 250

8 2 46 3.1 1 0.05 0 1 13.2 5 6 21 5 5 8.6 51.6 -10

8 2.67 4.38 5.34 0.8 0.11 0 1.22 4 2.78 6 4.29 3.03 4.55 3.33 16.65 -3.85

150 124 147.95 54 75 131 27.1 98

5 -11 19.95 0 0 1 1.1 -4

3.45 -8.15 15.59 0 0 0.77 4.23 -3.92


10 15 20 0 5 -10 -5 8

Fig 5.1 Inference

2.67 5.34 4.38 4 2.78 6 1.22 0.8 0.11 0

15.59 in terms of % respectively.

depreciated and rest remained unchanged.

At the time of listing, Out of 25 shares, 19 shares appreciated, 3shares

Listing gain of Persistents Ltd and Talwalkars is maximum i.e. 16.65 and

97
-3.85 3.45 -8.15 0 0 0.77 -3.92 % Listing Gain 4.23

4.29 4.55 3.03 3.33 15.59

% Listing Gain
16.65

adani power ltd jindal cotex ltd oil india ltd pipavav shipyard ltd thinksoft global services india bulls power ltd den networks ltd astec life sciences ltd Cox & Kings (India) Ltd. mbl infrastructures ltd jsw energy ltd godrej prpoerties ltd infinite computer solutions pradip overseas ltd il&fs transportation persistents systems ltd shree ganesh jewellery house ltd intra soft goenka daimond talwalkars nitesh estates tarapur mandhana sjvn jaypee infra

Table 5.4 Long Term Gains IPO name listing date issue price list price current price

Adani power ltd Jindal cotex ltd Oil india ltd Pipavav shipyard ltd Thinksoft global services India bulls power ltd Den networks ltd Astec life sciences ltd Cox & Kings ltd Mbl infrastructures ltd Jsw energy ltd Godrej prpoerties ltd Infinite

20-08-09

100

108

127

22-09-2009

75

77

121.1

30-09-2009 9/10/2009

1050 58

1096 61.1

1442.4 100.75

26-10-2009

125

126

147.8

30-10-2009

45

45.05

31.1

24-11-2009

195

195

203.3

25-11-2009

82

83

73.65

11/12/2009

330

343.2

464.95

11-012010

180

185

230.4

4/1/2010

100

106

125.35

5/1/2010

490

511

631.95

3/2/2010
98

165

170

170.55

computer solutions Pradip overseas ltd IL&FS transportation Persistents systems ltd Shree ganesh jewellery house ltd Intra soft Goenka diamond Talwalkars Nitesh estates Tarapur Mandhana SJVN Jaypee infra 10/5/2010 13-05-2010 18-05-2010 19-05-2010 20-05-2010 21-05-2010 128 54 75 130 26 102 147.95 54 75 131 27.1 98 179.45 38.8 38.85 149.5 23.95 88.9 12/4/2010 16-04-2010 145 135 150 124 118.3 74.9 9/4/2010 260 250 113.55 06-042010 310 361.6 412 30-03-2010 258 266.6 286.5 5/4/2010 110 115 74.2

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20 60 80 0 100 -80 -60 -40 -20 40 27

Inference
Adani power ltd 61.47 Jindal cotex ltd 37.37 Oil india ltd 73.71

Fig 5.2
Pipavav shipyard ltd
18.24 Thinksoft global services -30.89 -10.18 India bulls power ltd Den networks ltd Astec life sciences ltd Cox & Kings ltd 28 Mbl infrastructures ltd Jsw energy ltd Godrej prpoerties ltd 3.36 25.35 4.26 40.89

Long term gain(%)

In long term 10 shares are depreciated and 15shares are appreciated.

Shree ganesh jewellery and Tarapur got 56.33% and48.2% depreciation.

Pipayard shipyard and Jindal cotex got 73.71% and 61.47% appreciation

100
Infinite computer solutions
Pradip overseas ltd IL&FS transportation Persistents systems ltd Shree ganesh jewellery house ltd Intra soft Goenka daimond Talwalkars Nitesh estates Tarapur Mandhana SJVN Jaypee infra

28.97

-32.55 -56.33 -44.52 -48.2 -18.41 -28.15 -7.88

11.05 15 -12.84

32.9 40.2

Long term gain(%)

Objective 2 5.1.2 SUBSCRIPTION AND IMMEDIATE PERFORMANCE. This part is devoted to the impact of over subscription of the issue on its immediate performance. Here over subscription means the times that the issue size of the IPO is being applied for. We can say that the over subscription is the times of the issue size for which application is being received. When there over subscription exists then all the applicants does not get the desired number of shares that they applied for, but the company decides to allot the shares according to PRORATA BASIS. And here immediate performance is referred to as the initial return the issue is giving at the time of its listing viz. the difference between issue price and list price.

The initial return of the issue largely depends on the demand and supply factor. Demand of the issue will only increase when the investor sees some growth opportunity in the company or its past growth. And supply of the issue is being given in the market when the company needs capital for its future projects. So all the things are interrelated.

For the purpose of this section, a total of 25 IPOs have been taken from 1 st January 2009 to 31st May 2010 (listed between these dates). Coefficient of correlation (Karl Pearsons coefficient of correlation) was calculated between percentage change in the issue price & list price and subscription of the same.

101

Table 5.5

102

103

The coefficient of correlation(Karl Pearsons coefficient of correlation) was calculated in MS Excel 2003 using correlation function. Co-efficient of correlation

( r) = 0.6347 PROBABLE ERROR Here Probable Error is also introduced in order to access the significance of the degree of correlation. Probable Error is a sort of instrument which confirms and measures the reliability and dependability of the value of r, the Karl Pearsons co-efficient of correlation. Probable Error of r = 0.6745 1 r2 N

Probable error = 0.6745 1 (0.6347)2 25 Probable Error = 0.080

104

Table 5.6

Coefficient of correlation and probable error for immediate

performance & subscription. Number of IPO (N) Coefficient of correlation (r) Probable Error (PE)

25

0.6347

0.080

Further, using Probable Error method, significance of the degree of correlation has been tested. Results revealed that there is positive moderate degree of correlation between the subscription and the immediate performance. The coefficient of correlation was 0.6347. The probable error existed at 0.080. Thus, degree of correlation was significant as it was 6 times greater than its Probable Error which was 0 .080. As for , 6 times probable error is equal to 6 * 0.0238, gives result 0.48, Which is less than the degree of correlation. Inference: Therefore, it can be concluded that there is significant positive correlation between Subscription and Immediate performance of the issue.

105

Table 5.7 Subscription of Shares

IPO Name

listing date

issue price

list price

current price 127

Subscription

adani power ltd jindal cotex ltd oil india ltd pipavav shipyard ltd thinksoft global services india bulls power ltd den networks ltd astec life sciences ltd Cox & Kings (India) Ltd. mbl infrastructur es ltd jsw energy ltd godrej prpoerties

20-08-09

100

108

21.64

22-09-09

75

77

121.1

2.2

30-09-09 9/10/09

1050 58

1096 61.1

1442.4 100.75

30.82 8.21

26-10-09

125

126

147.8

30-10-09

45

45.05

31.1

22

24-11-09

195

195

203.3

0.15

25-11-09

82

83

73.65

1.56

11/12/2009

330

343.2

464.95

6.31

11-012010

180

185

230.4

1.97

4/1/2010

100

106

125.35

1.68

5/1/2010

490

511

631.95

106

ltd infinite computer solutions pradip overseas ltd il&fs transportati on persistents systems ltd 06-04-2010 310 361.6 412 93.6 30-03-10 258 266.6 286.5 33.4192 5/4/2010 110 115 74.2 14.08 3/2/2010 165 170 170.55 43.22

shree ganesh jewellery house ltd intra soft goenka daimond talwalkars

9/4/2010

260

250

113.55

1.96

12/4/2010 16-04-10

145 135

150 124

118.3 74.9

18.95 1.07

10/5/2010

128

147.9 5

179.45

28.39

nitesh estates tarapur mandhana sjvn jaypee infra

13-05-10

54

54

38.8

1.16

18-05-10 19-05-10 20-05-10 21-05-10

75 130 26 102

75 131 27.1 98

38.85 149.5 23.95 88.9

1.74 6.32 6.64 1.24

107

 Inference

Fig 5.3

is maximum i.e. 93.6 times.

The listing gain of the Persistents Systems Ltd is 51.6 Rs.

93.6 100 90 80 70 60 43.22 50 33.4192 40 30.82 28.39 30 21.64 22 18.95 6.64 14.08 20 6.31 1.74 8.21 1.68 4 6.32 0.15 10 2.2 2 1.96 1.07 1.16 1.56 1.97 1.24 0

Out of 25 IPOs listed in 2009-10 the subscription of Persistents Systems Ltd

108

Subscription

adani power ltd jindal cotex ltd oil india ltd pipavav shipyard ltd thinksoft global services india bulls power ltd den networks ltd astec life sciences ltd Cox & Kings (India) Ltd. mbl infrastructures ltd jsw energy ltd godrej prpoerties ltd infinite computer solutions pradip overseas ltd il&fs transportation persistents systems ltd shree ganesh jewellery house ltd intra soft goenka daimond talwalkars nitesh estates tarapur mandhana sjvn jaypee infra Subscription

Objective 3

Table 5.8 Number of years the Investors have been in the market.

Option 01 2 10 10 + Total

No. of respondents 25 67 8 100

Fig 5.4

No.of years of trading

80 70 60 50 40 30 20 10 0 0 -1 years 2 - 10 years 10 + years 8 25 No.of years of trading 67

INTERPRETATION Out of total respondents 67 have been trading in the market for at least 2 to 10 years
109

Table 5.9 Average Yearly Investment Option No. of respondents Up to 1 lakh More than 1 lakh Total 70 30 100

Fig 5.5

Average yearly Investment

80 70 70 60 50 40 30 30 20 10 0 Upto 1 lakh More than 1 lakh Average yearly Investment

INTERPRETATION Out of total respondents of 100, 70 respondents invest up to 1 lakh rupees.

110

Table 5.10 Primary area of Interest Option No. of respondents IPO Secondary Securities Others Total 11 100 33 56

Fig 5.6

Primary area of interest

60 50 40 33 30 20 11 10 0 IPO Secondary Securities Others Primary area of interest 56

INTERPRETATION Out of 100 respondents, 67 respondents have secondary securities as their primary area of interest for investment

111

Table 5.11 Type of Investment

Option

No. of respondents

Margin Funding Self Hybrid Total

9 87 4 100

Fig 5.7

Type of Investment
100 90 80 70 60 50 40 30 20 10 0 Margin Funding Self Hybrid 9 4 Type of Investment 87

INTERPRETATION Maximum respondents i.e., 87 out of 100 respondents have chosen self investment as their preference
112

Table 5.12 Purpose of Investment Option Listing Gains Long Term Gains Total No. of respondents 32 68 100

Fig 5.8

Purpose of IPO Investment

80 70 60 50 40 30 20 10 0 Listing gains Long term gains 32 Purpose of IPO Investment 68

INTERPRETATION Majority of the investors invest in IPO for long term gains

113

Table 5.13 Professional knowledge in stock market

Option Yes No Total

No .of respondents 67 33 100

Fig 5.9

Professional knowledge in stock market

80 70 60 50 40 30 20 10 0 Yes No 33 Professional knowledge in stock market 67

INTERPRETATION Out of 100 respondents 67 respondents have professional knowledge in the stock market
114

Table 5.14 Factors affecting investment in IPO

S. NO. 5.2.7 5.2.8 5.2.9 5.2.10 5.2.11

FACTORS Financial statements Business Suppliers Promoters Past Growth of Industry Future Prospects of Ind. Objective of the Issue Price Band Issue Size Underwriter Inflation

Strongly Agree 7 11 4 4 10

Agree 36 43 18 29 47

Neither Disagree Nor Agree 24 24 31 29 22

Disagree 32 18 43 34 19

Strongly Disagree 1 4 4 4 2

5.2.12 5.2.13 5.2.14 5.2.15 5.2.16 5.2.17

13 6 10 8 7 17

31 52 65 49 43 56

35 30 16 37 36 23

21 12 8 5 14 4

0 0 1 1 1 0

5.2.18

Interest Rates of other Investment Avenues 25

52

17

115

Fig 5.10 Factors affecting IPO Purchase Decision of Retail Investors

50 45 40 35 30 25 20 15 10 5 0 Financial Statement Business Suppliers Promoters 7 4 1 4 4 4 4 11 24 24 18 18 36 32 31 29 29 43 43

34 Strongly Agree Agree Neutral Disagree Strongly Disagree

116

Fig 5.11 Factors affecting IPO Purchase Decision of Retail Investors

70 60 52 50 40 31 30 22 20 10 10 2 0 Past Growth Future Prospectus Objective of issue 0 19 13 6 0 21 47

65

S Agree 35 30 Agree Neutral Disagree 16 12 10 8 1 Price Band S Disagree

117

Fig 5.12 Factors affecting IPO Purchase Decision of Retail Investors

60 49 43 40 37 35

56 52

50

S Agree Agree

30 23 20 14 10 8 5 1 0 Issue Size Underwriter Inflation 7 4 1 0 17

25 17

Neutral Disagree S Disagree

3 3 Interest Rates

118

Factors affecting investment in IPO

Neither Strongly S. NO. FACTORS Agree Agree Disagree Nor Agree Disagree Strongly Disagree

Involvement of Co. in Legal 5.2.19 Hassels Duration of Co. 5.2.20 in Business Foreign Collaboration 5.2.21 of Co. Prevailing Trend of the 5.2.22 Market 0 34 28 9 9 3 30 34 28 5 3 13 41 34 9 3 17 19 44 17

Co. is MNC or 5.2.23 Not Recent IPO 5.2.24 Performance Top Fund Managers 3 17 20 50 10 16 53 22 7 2

5.2.25

25

52

19

119

Opinion 5.2.26 Ratings of IPO Listing in well known Stock 5.2.27 Exchanges Past Performance of 5.2.28 IPO Media 5.2.29 Advertisements Market 5.2.30 Volatility 13 46 Table (15) 18 19 4 4 32 39 19 6 9 28 38 26 1 9 27 37 25 2 6 23 21 50 0

Fig 5.13 Factors affecting IPO Purchase Decision of Retail Investors

50 45 40 35 30 25 20 15 10 5 0

44

41 34 30 34 28 34 28 19 13 9 10 3 5 9 S Agree Agree

17

19

17

Neutral Disagree S disagree

3 Involvement in Legal Hassles

3 Duration in Business

Foreign Collabrations

Prevaling Trend of Market

120

Fig 5.14 Factors affecting IPO Purchase Decision of Retail Investors

60 53 50 50 40 S Agree 30 22 20 10 0 IPO of an MNC Recent IPO Performance Opinion of Top Fund Managers Rating by a Research analyst 16 7 2 3 4 0 17 10 6 0 20 Agree 25 19 23 21 Neutral Disagree S Disagree 52 50

Fig 5.15 Factors affecting IPO Purchase Decision of Retail Investors

50 45 40 35 30 25 20 15 10 5 0 Infuence of listing Past Performance Media in well known a good Future Advertisements Stock(BSE,NSE) Indicator 9 2 9 1 4 27 25 28 26 19 13 6 37 36 32 39

46

S Agree 18 19 Agree Neutral Disagree 4 S Disagree

Market Volatility

121

Table 5.16 Financial Statements as a factor affecting decision to invest in IPO Strongly Agree 7 36 24 32 Agree Neutral Disagree Strongly Disagree 1 100 Total

Mean = (5*7)+(4*36)+(3*24)*( 2*32)+(1*1) /100 = 3.16 Fig 5.16

Financial Statements
1 7 32 36 Strongly Agree Agree Neutral Disagree Strongly Disagree 24

INTERPRETATION Out of 100 respondents, 36strongly agree that financial statements affect their decision of investing in IPO.

122

Table 5.17 Business of the company as a factor affecting decision to invest in IPO Strongly Agree 11 43 24 18 Agree Neutral Disagree Strongly Disagree 4 100 Total

Mean = (5*11)+(4*43)+(3*24)+(2*18)+(1*4)/100 = 3.39 Fig 5.17

Business of the company

4 18 11 Strongly Agree Agree Neutral 24 43 Disagree Strongly Disagree

INTERPRETATION Out of 100 respondents 43 i.e. maximum respondents strongly agree that the business of the company in an important factor for investing in IPO

123

Table 5.18 Suppliers as a factor affecting decision to invest in an IPO

Strongly Agree 4

Agree

Neutral

Disagree

Strongly Disagree

Total

18

31

43

100

Mean = (5*4)+(4*18)+(3*31)+(2*43)+(1*4) /100 = 2.75

Fig 5.18

Suppliers of the Company

4 4 18 Strongly Agree Agree 43 Neutral Disagree 31 Strongly Disagree

INTERPRETATION: Out of 100 respondents, 43 i.e. maximum disagree that suppliers of the company are an important factor affecting decision of investing in an IPO

124

Table 5.19 PROMOTERS

Strongly Agree 4

Agree

Neutral

Disagree

Strongly Disagree

Total

29

34

100

Mean = (5*4)+(4*29)+(3*34)+(2*4)+(1*4) /100 = 2.95 Fig 5.19

Reputation of the promoters

4 4

29 34

Strongly Agree Agree Neutral Disagree Strongly Disagree

29

INTERPRETATION Out of 100 respondents maximum respondents i.e. 34 feel that reputation of promoters does not affect their decision to invest in an IPO.

125

Table 5.20 PAST GROWTH OF THE INDUSTRY

Strongly Agree 10

Agree

Neutral

Disagree

Strongly Disagree

Total

47

22

19

100

Mean = (5*10)+(4*47)+(3*22)+(2*19)+(1*2) /100 = 3.44 Fig 5.20

Past growth of the industry

2 19 Strongly Agree Agree Neutral Disagree 22 47 Strongly Disagree 10

INTERPRETATION Out of 100 respondents maximum respondents i.e. 47 agree that past growth of the industry affect their decision to invest in an IPO.

126

Table 5.21 FUTURE PROSPECTS OF THE INDUSTRY

Strongly Agree 13

Agree

Neutral

Disagree

Strongly Disagree

Total

31

35

21

100

Mean = (5*13)+(4*31)+(3*35)+(2*21)+(1*0) /100 = 3.36 Fig 5.21

Future Prospects of the Industry

0 21 13 Strongly Agree Agree Neutral 31 Disagree Strongly Disagree 35

INTERPRETATION Out of 100 respondents maximum respondents i.e. 35 say that future prospects of the industry may or may not affect their decision to invest in an IPO.

127

Table 5.22 OBJECTIVE OF THE ISSUE

Strongly Agree 6

Agree

Neural

Disagree

Strongly Disagree

Total

52

30

12

100

Mean = (5*6)+(4*52)+(3*30)+(2*12)+(1*0) /100 = 3.52 Fig 5.22

Objective of the issue

0 12 6

Strongly Agree Agree Neutral 30 52 Disagree Strongly Disagree

INTERPRETATION Out of 100 respondents maximum respondents i.e. 52 agree that objective of the issue affect their decision to invest in an IPO.

128

Table 5.23 PRICE BAND

Strongl y Agree 10

Agree

Neutral

Disagree

Strongly Disagree

Total

65

16

100

Mean = (5*10)+(4*65)+(3*16)+(2*8)+(1*0) /100 = 3.65 Fig 5.23

Price band
0 8 16 10 Strongly Agree Agree Neutral Disagree Strongly Disagree 65

INTERPRETATION Out of 100 respondents maximum respondents i.e. 65 agree that price band affect their decision to invest in an IPO.

129

Table 5.24 ISSUE SIZE

Strongly Agree Neutral Agree 8 65 37

Disagree

Strongly Disagree

Total

100

Mean = (5*8)+(4*65)+(3*37)+(2*5)+(1*1) /100 = 3.58 Fig 5.24

Issue size
1 5 8

Strongly Agree Agree 37 Neutral Disagree 49 Strongly Disagree

INTERPRETATION Out of 100 respondents maximum respondents i.e. 49 agree that issue size is an important consideration to invest in an IPO.

130

Table 5.25 UNDERWRITERS OF THE ISSUING COMPANY

Strongly Agree 7

Agree

Neutral

Disagree

Strongly Disagree

Total

43

35

14

100

Mean = (5*7)+(4*43)+(3*35)+(2*14)+(1*1) /100 = 3.41 Fig 5.25

Underwriter of the issuing company

1 14 7

Strongly Agree Agree Neutral 43 35 Disagree Strongly Disagree

INTERPRETATION Out of 100 respondents maximum respondents i.e. 43 agree that they consider underwriter of the issuing company before investing in an IPO.

131

Table 5.26 INFLATION

Strongly Agree Neutral Agree 17 56 23

Disagree

Strongly Disagree

Total

100

Mean = (5*17)+(4*56)+(3*23)+(2*4)+(1*1) /100 = 3.86 Fig 5.26

Inflation
0 4 17 23 Strongly Agree Agree Neutral Disagree Strongly Disagree 56

INTERPRETATION Out of 100 respondents maximum respondents i.e. 56 agree inflation is an important consideration affecting their decision to invest in an IPO.

132

Table 5.27 INTEREST RATES OF OTHER INVESTMENTS Strongly Agree Neutral Agree 25 52 17 3 Disagree Strongly Disagree 3 100 Total

Mean = (5*25)+(4*52)+(3*17)+(2*3)+(1*3) /100 = 3.93 Fig 5.27

More investment in IPO when other investments carry low interest rates
3 3 17 25 Strongly Agree Agree Neutral Disagree Strongly Disagree 52

INTERPRETATION Out of 100 respondents maximum respondents i.e. 65 agree that price band affect their decision to invest in an IPO.

133

Table 5.28 LEGAL HASSEL

Strongly Agree Neutral Agree 17 19 44

Disagree

Strongly Disagree

Total

17

100

Mean = (5*17)+(4*19)+(3*44)+(2*17)+(1*3) /100 = 2.45 Fig 5.28

Legal hassels
3 17 17 Strongly Agree Agree Neutral 19 Disagree Strongly Disagree 44

INTERPRETATION Out of 100 respondents maximum respondents i.e. 44 disagree that involvement of the company in legal hassel does not affect their decision to invest in an IPO.

134

Table 5.29 DURATION FOR WHICH COMPANY HAS BEEN IN BUSINESS Strongly Agree Neutral Agree 13 41 34 9 Disagree Strongly Disagree 3 100 Total

Mean = (5*13)+(4*41)+(3*34)+(2*9)+(1*3) /100 = 2.67 Fig 5.29

Duration for which company has been in business

9 3 13 Strongly Agree Agree 34 Neutral Disagree 41 Strongly Disagree

INTERPRETATION Out of 100 respondents maximum respondents i.e. 41 say that duration for which the company has been in business may or may not affect their decision to invest in an IPO.

135

Table 5.30 FOREIGN COLLABORATIONS Strongly Agree Neutral Agree 30 34 28 5 Disagree Strongly Disagree 3 100 Total

Mean = (5*30)+(4*34)+(3*28)+(2*5)+(1*3) /100 = 2.98 Fig 5.30

Foreign Collaborations
5 3

28

30

Strongly Agree Agree Neutral Disagree Strongly Disagree

34

INTERPRETATION Out of 100 respondents maximum respondents i.e. 34 say that foreign collaborations of the business may or may not affect their decision to invest in an IPO.

136

Table 5.31 PREVAILING TREND IN THE MARKET Strongl y Agree 10 34 28 19 Agree Neutral Disagree Strongly Disagree 9 Tot al 100

Mean = (5*10)+(4*34)+(3*28)+(2*19)+(1*9) /100 = 3.17 Fig 5.31

Prevailing Trend of the market

9 10 Strongly Agree Agree Neutral 34 Disagree Strongly Disagree 28

19

INTERPRETATION Out of 100 respondents maximum respondents i.e. 34 agree that they do not consider prevailing market trend investing in an IPO.

137

Table 5.32 IPO OF AN MNC

Strongly Agree Neutral Agree 16 53 22

Disagree

Strongly Disagree

Total

100

Mean = (5*16)+(4*53)+(3*22)+(2*7)+(1*2) /100 = 3.74 Fig 5.32

IPO of an MNC
7 2 16 Strongly Agree 22 Agree Neutral Disagree Strongly Disagree 53

INTERPRETATION Out of 100 respondents maximum respondents i.e. 53 agree that they prefer to invest in an IPO of an MNC.

138

Table 5.33 RECENT IPO PERFORMANCE

Strongly Agree 17

Agree

Neutral

Disagree

Strongly Disagree

Total

20

50

10

100

Mean = (5*17)+(4*20)+(3*50)+(2*10)+(1*3) /100 = 2.53 Fig 5.33

Recent IPO Performances

10 3 17 Strongly Agree Agree Neutral 20 50 Disagree Strongly Disagree

INTERPRETATION Out of 100 respondents maximum respondents i.e. 50 disagree that recent IPO performance does not affect their decision to invest in an IPO.

139

Table 5.34 VIEWS OF TOP FUND MANAGERS Strongly Agree 25 52 19 4 Agree Neutral Disagree Strongly Disagree 0 100 Total

Mean = (5*25)+(4*52)+(3*19)+(2*4)+(1*0) /100 = 2.98 Fig 5.34

Views of Top Fund Managers

0 4 19 25 Strongly Agree Agree Neutral Disagree Strongly Disagree

52

INTERPRETATION Out of 100 respondents maximum respondents i.e. 52 agree that views of top fund managers affect their decision to invest in an IPO.

140

Table 5.35 RATINGS BY A RESEARCH ANALYST

Strongly Agree 23

Agree

Neutral

Disagree

Strongly Disagree

Total

21

50

100

Mean = (5*23)+(4*21)+(3*50)+(2*0)+(1*6) /100 = 2.85 Fig 5.35

Ratings by a research analyst

0 6

23 50

Strongly Agree Agree Neutral Disagree Strongly Disagree

21

INTERPRETATION Out of 100 respondents maximum respondents i.e. 50 disagree that their decision to invest in an IPO is affected by ratings by a research analyst.

141

Table 5.36 LISTING IN A WELL KNOWN STOCK EXCHANGE

Strongly Agree 9

Agree

Neutral

Disagree

Strongly Disagree

Total

27

37

25

100

Mean = (5*9)+(4*27)+(3*37)+(2*25)+(1*2) /100 = 3.16 Fig 5.36

Listing in a well known Stock Exchange

2 25 27 9

Strongly Agree Agree Neutral Disagree Strongly Disagree

37

INTERPRETATION Out of 100 respondents maximum respondents i.e. 37 say that listing in a well known stock exchange may or may not affect their decision to invest in an IPO.

142

Table 5.37 PERFORMANCE OF THE IPOs IN THE RECENT PAST Strongly Agree 9 28 36 26 Agree Neutral Disagree Strongly Disagree 1 100 Total

Mean = (5*9)+(4*28)+(3*36)+(2*26)+(1*1) /100 = 3.23 Fig 5.37

Performance of IPOs in the recent past

1 9 26 Strongly Agree 28 Agree Neutral Disagree Strongly Disagree 36

INTERPRETATION Out of 100 respondents maximum respondents i.e. 36 say that performance of the IPOs in the recent past may or may not affect their decision to invest in an IPO.

143

Table 5.38 MEDIA ADVERTISEMENTS

Strongly Agree 4

Agree

Neutral

Disagree

Strongly Disagree

Total

32

39

19

100

Mean = (5*4)+(4*32)+(3*39)+(2*19)+(1*6) /100 = 3.09 Fig 5.38

Media Advertisements
6 19 32 4

Strongly Agree Agree Neutral Disagree Strongly Disagree 39

INTERPRETATION Out of 100 respondents maximum respondents i.e. 39 say that media advertisements may or may not affect their decision to invest in an IPO.

144

Table 5.39 MARKET VOLATILITY Strongly Agree 4 13 46 18 Agree Neutral Disagree Strongly Disagree 19 100 Total

Mean = (5*4)+(4*13)+(3*46)+(2*18)+(1*19) /100 = 3.45 Fig 5.39

Market Volatility
4 19 Strongly Agree Agree Neutral Disagree 18 46 Strongly Disagree 13

INTERPRETATION Out of 100 respondents maximum respondents i.e. 46 agree that market volatility affect their decision to invest in an IPO.

145

CHAPTER 6 FINDINGS AND CONCLUSIONS

146

FINDINGS From the forgoing analysis followings were the findings:

Immediate performance of IPO can be relied upon for the equity in the long run was rejected. It was proved from the fact that over last 1 and Half years, there existed statistically insignificant positive correlation between percentage change in the issue price & list price of the IPO and percentage change in the issue price & current market price of the same. Therefore, It can be concluded that immediate performance of a particular IPO can not be relied upon for the equity in the long run.

More the subscription (times of issue size) of the IPO, more is the immediate performance, was accepted. As there existed statistically significant positive correlation between subscription (times of issue size) of the IPO and its immediate performance at the time of listing. Thus, It can judge that the IPO will give high immediate returns, by the times of its oversubscription.

Out of 100, 67 investors i.e. Maximum Investors are in share trading for 2 to 10 years. Out of 100, 70 investors i.e. Maximum Investors are investing Less than Rs. 1,00,000 in the share market. Out of 100, 56 investors i.e. Maximum Investors are interested in investing Secondary Securities than IPOs. Maximum of the Investors opted for self Investment. Out of 100, 68 investors i.e. maximum of the Investors invest in IPOs for Long term Gains.
147

 Out of 100, 67 investors i.e. maximum of the Investors who invest in the share market have Professional Knowledge about Share Market. Investors evaluate an IPO maximum from Promoters of the company, prevailing Market Trend & Recent IPO performance & Issue Size of the IPO and minimum from Suppliers of the company, Listing in Well Known Stock exchanges & Media Advertisements..

148

CONCLUSION

Investors today are much aware of different investment options available in the market and they take market sentiments into consideration before taking decision to invest because they want security and safety of investment principle in the long term as well as short term. Investors generally prefer to invest money in insurance and government securities followed by mutual funds. This preference is mainly because of safety of investment and monthly returns generated by this investment options.

149

CHAPTER 7 BIBLIOGRAPHY

150

BIBLIOGRAPHY

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Maini, N. and Sharma, S. (2009) Information Needs of Investors. Indian Management Studies Journal,13:45-70. N., Bharathi. (2010) Decision Making: Equity Investors. Journal of Indian Management, 7(1):34-43. Shah, R. (2010) A Season to Sow Afresh. Businessworld: 39. Singh, K., R. and Sigh, D., S. (2009) Volatility in Indian Stock Market: An Analysis of Individual Stock Listed as NSE. Journal of IPM Meerut, 10(1):110.

Singh, R. (2008) Beta Estimation in the Indian Stock Market: Stability, Stationarity and Computational Considerations. Decision, 35(2): 63-85.

151

Sudalaimuthu, S. and Kumar, S. P. (2008) A study on Investors Perception towards Mutual Funds Investment. Management Trends, 5(1):106-117. Tibrewala, S. (2010) Expect Better Returns. Businessworld: 42. Tiwari, K. R. (2008) Primary market investment decisions. Prabandhiki, 2(1):65-79. Rutten, L. (2010) Investing in the future. Businessworld: 51. Web Links http://www.bizmove.com/finance/m3b3.html

http://www.indiainfoline.com/Markets/Company/Background/KeyExecutives/HSBC-InvestDirect-India-Ltd/532653

http://www.hsbc.com/1/2/newsroom/news/2010/investdirect-results-q1-2010

http://www.moneycontrol.com/financials/hsbcinvestdirectindia/capitalstructure/HSB01

http://myiris.com/shares/company/financial.php?icode=HINSANIN

http://www.indiastockmarket.com/

http://www.sharemarketbasics.com/Terms/index.php

http://www.businessstandard.com/stockpage/stock_details.php?stk_id=500187

http://ezinearticles.com/?The-Indian-Stock-Market&id=118673

http://www.economywatch.com/stock-markets-in-world/history.html

152

http://alexmthomas.wordpress.com/2006/08/03/indian-stock-market-thebasics/

http://business.mapsofindia.com/india-market/equity.html

http://www.rupya.com

153

CHAPTER 8 ANNEXURE

154

QUESTIONNAIRE

Dear Mam/Sir, This information provided by you will be utilized in completion of my MBA project report on IPO in India: Performance Evaluation & Investors Perception which will enable me to study the factors affecting IPO purchase decision of retail investors.

PERSONAL DETAILS

Name: Mr./Ms________________ Address: ________________________________ ________________________________ Contact Number: _________________ Gender: Male Age Group: 18-25 Years Yearly Income: < Rs 2, 00,000 Rs. 2, 00,000 Rs. 5, 00,000 > Rs. 5, 00,000 26-40 Years 40+ Years Female

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1.

How long have you been active in the market (In terms of trade done in years)? 0-1 2-10 10+

2.

Average Yearly Investment: Up to Rs.1, 00,000 3. Primary Area of Interest IPO __________________ 4. Type of Investment: Margin funding 5. Purpose of IPO Investment: Listing gains Long Term gains Self hybrid Secondary Securities Others Rs.1, 00,000+

6. I have professional knowledge in Stock Markets:

Yes

No

Please specify your views about investing in an IPO: 5:-Stronly Agree 4:-Agree 3:-Neither Disagree nor Agree 2:-Disagree 1:Stronly Disagree 5 2 1 4 3

7. I look at the Financial statements of the company. 8. I look at the business of the company. 9. I look at the suppliers of the company. 10. The reputation of the promoters doesnt affect my decision.
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11. I look at the Past growth of the Industry. 12. I look at the Future Prospects of the Industry. 13. I consider the objective of the issue very important. 14. The price band is an important consideration for me. 15. I consider the issue size very important for IPO. 16. I consider the underwriter of the issuing company. 17. Inflation is an important consideration. 18. I tend to invest more in IPOs when interest rates in other investments are lower.

Please specify your views about investing in an IPO: 5:-Strongly Agree 4:-Agree 3:-Neither Disagree nor Agree 2:-Disagree 1:-Strongly Disagree 5 19. Involvement of companies in legal hassles does not affect my purchase decision of its IPOs. 20. The duration for which the company has been in business does not affect my purchase decision of IPOs. 21. Foreign collaborations of a company do not matter when I decide for purchasing IPOs. 22. I do not focus on the prevailing trend (uptrend/downtrend) of the market before investing in an IPO. 4 3 2 1

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23. I prefer to invest in IPO of an MNC.

5 24. Recent IPO performances does not affect my decision of investing in an IPO.

25. I get influenced by Top Fund managers opinions of an IPO.

26. I follow the ratings provided by a research analyst before investing in IPO. 27. Listing in well known Stock exchanges (like BSE, NSE) influences my decision in investing for an IPO. 28. The performance of IPOs in the market in recent past is a good indicator of future. 29. My purchases are greatly affected by media advertisements. 30. Market volatility is not an important factor to me to make my purchase decision of IPOs.

I am thankful for the time and effort you have spent in filling this questionnaire.

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