Investment

Through IPO/FPO
In Capital Market
Presented By

Aru Srivastava 014 Saurabh Chandra 066

Debleena Goswani 022 Shivam Dwivedi 070
Mathangi Sampath 041 Titas Banerjee 083
CAPITAL MARKET
 A capital market is a market where business enterprises
(companies and government) can raise money for long-
term investments to fund their operations (longer than 1
yr)

 Includes the stock market (equity securities) and the bond

market (debt)

 The stock market allows investors to buy and sell stocks

continuously. Stocks are a source of income for investors.
Equity Market
There are two segments in the equity market

 Primary market - Market for new issues of

securities
 Secondary market - The market where
securities are traded after they are initially
offered in the primary market.
Primary Market-Key Concepts
• Different Types of Issues:
1.Public Issue
Initial Public Offering:
Fresh Issue
Offer for Sale
Future Public Offering:
Fresh Issue
Offer for Sale
2.Right Issue
3.Preferential Allotment
What is an IPO?
 Is the first sale of stock by a private (unlisted) company to
the public
 Helps private companies to get the fund they need to
expand their businesses
 They are often issued by smaller, younger companies
seeking capital to expand, but can also be done by
large privately owned companies looking to
become publicly traded.
Parties involved in the IPO
• Issuer
• Merchant Banker
• Lawyer / Solicitor
• Auditors
• Reporting Accountants
• GSE (Government Sponsored Enterprise)
• Regulators-SEC

SECURITIES AND EXCHANGE

COMMISSION
Role of the Lead Merchant
Banker
• Usually Investment Bank
• Due diligence of the issue disclosures
• Making underwriting arrangements
• Setting up minimum number of collection centers
• Taking care of allotment, refund and dispatch of
certificates
Book Building
 Designed to ascertain demand

 for the securities at various price levels

 within a price band

 to facilitate discovery of the Issue Price

How does a company get in
on an IPO
• STEP 1: The underwriting process
• When a company wants to go public, the first thing it
does is hire a broker dealer to act as the lead broker
for the offer.
• A company could theoretically sell its shares on its
own, but rules and regulations governing the
operations of stock markets require the services of a
licensed stock broker.

SECURITIES AND EXCHANGE

COMMISSION
How does a company get in
on an IPO Cont.
• Underwriters can be said to be middlemen between
companies and the investing public.
• The company and the lead broker will first meet to negotiate
the deal.
– Items usually discussed include the amount of money a
company will raise, the type of securities to be issued, and
all the details in the underwriting agreement.

SECURITIES AND EXCHANGE

COMMISSION
How does a company get in
on an IPO Cont.
STEP 2 – PREPARATION OF THE OFFER DOCUMENT
(Prospectus)

• The lead broker and the issuer initiate the process of

preparing the offer document.

SECURITIES AND EXCHANGE

COMMISSION
IPO Example(1)
 IPO EXAMPLE(2)
Jaypee Infratech Ltd.
Sector 128, , District Gautam Budh Nagar , Noida , Uttar Pradesh - 201304
Phone: 4609000 Fax: 4609783

Public Issue of 224799496 Equity Shares of Rs 10 each for Cash at a

Premium of Rs 92 per share.

Issue Open Date Issue Closing Date Application Money Allotment Money
29/04/2010 04/05/2010 102 -

Object of the issue

The Issue comprises a Fresh Issue and an Offer for Sale. The Proceeds of Fresh Issue
.
The activities for which funds are being raised by our Company through this Issue, after
deducting the proceeds from the Offer for Sale: (i) to partially finance the Yamuna
Expressway Project; and
(ii) general corporate purposes. (collectively referred to herein as the "Objects"). In
addition, our Company expects to receive the benefits of listing of the Equity Shares on
the Stock Exchanges.
Listed at
BSE, NSE 15
What is FPO?
 An issuing of shares to investors by a public company that is
already listed on an exchange

  Popular method for companies to raise additional equity capital

 Different Types of FPO are:

 Public Issue
 Offer sale
 Composite Issue
FPO Example(1)
FPO EXAMPLE(2)
NTPC Limited (Company) enter market with FPO
FPO opens on February 03' 10

India’s largest power generation company NTPC Limited (Company) will enter
the capital markets on February 3, 2010 with its further public offer (FPO) of
412,273,220 equity shares of Rs 10 at prices to be determined through an
alternative book building process under part D of Schedule XI of the SEBI
(Issue of Capital and Disclosure Requirements) Regulations 2009. The FPO
will close on February 5, 2010.

18
Types of Issues (IPO&FPO)
There are two types of public issues:

Qualified Institutional Buyers are

those institutional investors who
are generally perceived to
possess expertise and the
financial muscle to evaluate and
invest in the capital markets
Who?(What kind of investors buy IPOs/FPOs?)
 Institutional Investors
- Organizations which pool large sums of money and invest those sums
in securities
- Include banks, insurance companies, retirement or pension
funds, hedge funds, investment advisors and mutual funds
- Act as highly specialized investors on behalf of others
- Have a lot of influence in the management of corporations
(can actively engage in Corporate Governance)
THAT CAN BE US !
 Retail Investors
- Individual investors who buy and sell securities for their personal
account
- Buy in much smaller quantities than larger institutional investors
- Beneficial Shareholder: Hold shares in a/c of bank or broker
- Registered Shareholder: Hold shares directly through the issuer or
it’s transfer agent
How?
 Any individual having a DEMAT account can make investment in IPOs in
India
 SEBI Guidelines: Cap of INR 1,00,000 on retail investors
 Required: Application form to participate in an IPO, can be obtained
from collection centers, brokers or stock exchanges
 Investor is entitled to receive a Confirmatory Allotment Note (CAN) in
case he has been allotted shares
 In case of non-allocation, the investor is entitled to refund from the issuer

??
 DeMATerialised account
 For individual Indian citizens to trade in listed stocks
 Shares are held in electronic form instead of taking actual possession of
certificates
 Is opened by the investor while registering with an investment
broker (or sub broker)
Grey Market
 Unofficial market where IPO shares are bought and sold before they
become officially available for trading on the stock exchange
 Over-the-counter market where dealers may execute orders for
preferred customers
 Done among the small set of people who trust each other as there is
no official platform or rules defined for this trading
 Grey Market Premium:
Mundra Port and SEZ Limited 
Issue Price: Rs 440 per equity share
Grey Market Premium: Rs 400 (Buyers)
This means buyers are ready to buy Mundra Port shares at 440+400 = Rs 840
 Done through grey market dealer: EXAMPLE
- A register’s for an IPO worth Rs. 100
- A thinks the share price will be lower than Rs. 100 when stock is listed
- B thinks that share price will be higher than Rs. 100 if listed
- So, A will sell to B (reducing his risk of non-allocation) at a premium
through the grey market dealer
Benefits of Investing in
IPOs/FPOs
 Easy way to make a good return in a short period of time

 Shares offered are usually priced very low

 If invested in a growing market, IPOs generally offer high returns

– Ex.: Investing in Renewable Energy IPOs

 FPOs investment involves lesser risk

Associated Risks
 Non-allocation of shares – locked up money
 Listed price might turn out to be lower
 IPO trading is for quick profit - initial buying may pipe
up prices but selling later might bring them down
 Company issuing FPO may look good now, but future
remains uncertain
 Companies might release manipulated prospectus or
balance sheets, Ex.: Enron
 Insider selling after lock-in period might pull the market
down
Reduce Risk – After all it’s
your money!
 Research the company: Balance sheets, management policies,
future plans
 Brokers associated with the IPO/FPO launch: Prefer an IPO
being underwritten by Bajaj Capital, Yes bank, etc.
 Prospectus Information: A very boring read but still needs to
be read!
 Lock-in or lock-up period: Wait till lock-up period is over to
determine if there is any potential in the stock
 Time to be skeptic: Say no to pushed stock from your broker
Thank You