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    CHAPTER I

    1.1 INTRODUCTION

    INITIAL PUBLIC OFFERING (IPO)

    Initial public offering (IPO), also referred to simply as a "public offering", is when a

    company issues common stock or shares to the public for the first time. They are often issued by

    smaller, younger companies seeking capital to expand, but can also be done by large privately-

    owned companies looking to become publicly traded. In an IPO, the issuer may obtain the

    assistance of an underwriting firm, which helps it determine what type of security to issue

    (common or preferred), best offering price and time to bring it to market. Initial Public Offering

    (IPO) in India means the selling of the shares of a company, for the first time, to the public in the

    countrys capital markets. This is done by giving to the public, shares that are either owned by

    the promoters of the company or by issuing new shares. During an Initial Public Offer (IPO) the

    shares are given to the public at a discount on the intrinsic value of the shares and this is the

    reason that the investors buy shares during the Initial Public Offering (IPO) in order to make

    profits for themselves.

    IPO in India is done through various methods like book building method, fixed pricemethod, or a mixture of both. The method of book building has been introduced in the country in

    1999 and it helps the company to find out the demand and price of its shares. A merchant banker

    is nominated as a book runner by the Issuer of the IPO. The company that is issuing the Initial

    Public Offering (IPO) decides the number of shares that it will issue and also fixes the price band

    of the shares. All these information are mentioned in the companys red herring prospectus.

    During the company's Initial Public Offering (IPO) in India, an electronic book is opened for at

    least five days. During this period of time, bidding takes place which means that people who are

    interested in buying the shares of the Company makes an offer within the fixed price band. Once

    the book building is closed then the issuer as well as the book runner of the Initial Public

    Offering (IPO) evaluate the offers and then determine a fixed price. The offers for shares that fall

    below the fixed price are rejected. The successful bidders are then allotted the shares IPOs can

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    The existing shareholders will see their shareholdings diluted as a proportion of the

    company's shares. However, they hope that the capital investment will make their shareholdings

    more valuable in absolute terms.

    REASON FOR LISTING IPOs:

    Increase in the capital: An IPO allows a company to raise funds for utilizing in various

    corporate operational purposes like acquisitions, mergers, working capital, research and

    development, expanding plant and equipment and marketing.

    Liquidity: The shares once traded have an assigned market value and can be resold. This is

    extremely helpful as the company provides the employees with stock incentive packages and the

    investors are provided with the option of trading their shares for a price.

    Valuation: The public trading of the shares determines a value for the company and sets a

    standard. This works in favor of the company as it is helpful in case the company is looking for

    acquisition or merger. It also provides the share holders of the company with the present value of

    the shares.

    Increased wealth: The founders of the companies have an affinity towards IPO as it can

    increase the wealth of the company, without dividing the authority as in case of partnership.

    OBJECTS OF THE OFFERING NEW IPO

    Funds Requirement

    Funding Plan (Means of Finance)

    Schedule of Implementation

    Funds Deployed

    Sources of Financing of Funds already deployed

    Interim Use of Funds

    Basic Terms of Issue

    Basis for issue price

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    Tax Benefitsr1.3

    ADVANTAGES & DRAWBACKS OF IPO:

    The Advantages of IPO are numerous. The companies are launching more and more IPOs to

    raise funds which are utilized for undertakings various projects including expansion plans. The

    Advantages of IPO is the primary factor for the immense growth of the same in the last few

    years. The IPO or the initial public offering is a term used to describe the first sale of the shares

    to the public by any company. All types of companies with the idea of enhancing growth launch

    IPOs to generate funds to cater the requirements of capital for expansion, acquiring of capital

    instruments, undertaking new projects.

    IPO has a number of advantages. IPO helps the company to create a public awareness about the

    company as these public offerings generate publicity by inducing their products to various

    investors.

    1)The increase in the capital: An IPO allows a company to raise funds for utilizing in various

    corporate operational purposes like acquisitions, mergers, working capital, research anddevelopment, expanding plant and equipment and marketing.

    2) Liquidity: The shares once traded have an assigned market value and can be resold. This is

    extremely helpful as the company provides the employees with stock incentive packages and the

    investors are provided with the option of trading their shares for a price.

    3) Valuation: The public trading of the shares determines a value for the company and sets a

    standard. This works in favor of the company as it is helpful in case the company is looking for

    acquisition or merger. It also provides the share holders of the company with the present value of

    the shares.

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    4) Increased wealth: The founders of the companies have an affinity towards IPO as it can

    increase the wealth of the company, without dividing the authority as in case of partnership

    MERITS OF IPO:

    Low cost financing

    No commitment of fixed returns.

    No restrictions attached to financing.

    No issues such as mortgaging, hypothecation etc.

    Entire money received in one stroke without linking to any milestones.

    No issues with returning of finance

    DEMERITS:

    Success of IPO has an element of risk.

    IPO can only finance part of the project

    IPO performance post listing has also bearing.

    For new promoters and new company it is difficult to market their IPO.

    More often than not, the pricing of any IPO is what influences the decision of any

    investor. The rating agencies, in this case, will not talk about what price'' and ``what time''

    aspects of the offer. Given that the decision to invest or avoid investments in any IPO is most

    often a function of the pricing, the lack of this aspect in the present IPO grading system could

    make the whole process an unfinished task. Also, rating agencies (experienced in debt rating)

    could face trouble with rating the equities, which, unlike debt rating, is more dynamic and cannotbe standardized. Further, IPO grading mechanism is a globally-unique initiative; it could increase

    the cost of raising capital in India and urge companies to seek capital overseas.

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    Markets, in the short term, can be price-driven and not purely motivated by company

    fundamentals. That is to say that, at times, even good companies at higher price could be a bad

    investment choice, while the not-as-good ones could be a steal at lower prices.

    Despite having disclaimers, a higher graded IPO may well tempt small investors into

    falsely believing that a high premium would come about on listing.

    Similarly, investors may get deluded by a low-graded IPO, which could become a `missed

    opportunity' in the future. The purpose of introducing grading, thus, might get defeated if it leads

    to a false sense of buoyancy or alarm among investors.

    Factors Deciding IPO Price:

    Promoters and their background.

    Current National and Global economic scenario.

    Sector specific issues in which company will be operating.

    Tie up with financial institutions.

    Investors outlook for the company

    ANALYSING AN IPO INVESTMENT:

    Initial Public Offering is a cheap way of raising capital, but all the same it is not considered

    as the best way of investing for the investor. Before investing, the investor must do a proper

    analysis of the risks to be taken and the returns expected. He must be clear about the benefits he

    hope to derive from the investment. The investor must be clear about the objective he has for

    investing, whether it is long-term capital growth or short-term capital gains. The potential

    investors and their objectives could be categorized as:

    INCOME INVESTOR:

    An income investor is the one who is looking for steadily rising profits that will be distributed

    to shareholders regularly. For this, he needs to examine the companys potential for profits and

    its dividend policy.

    GROWTH INVESTOR:

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    A growth investor is the one who is looking for potential steady increase in profits that are

    reinvested for further expansion. For this he needs to evaluate the company's growth plan,

    earnings and potential for retained earnings

    IPO INVESTMENT STRATEGIES:

    Investing in IPOs is much different than investing in seasoned stocks. This is because

    there is limited information and research on IPOs, There is some of the strategies that can be

    considered before investing in the IPO;

    1) UNDERSTAND THE WORKING OF IPO:

    The first and foremost step is to understand the working of an IPO and the basics of an

    investment process. Other investment options could also be considered depending upon the

    objective of the investor.

    2) GATHER KNOWLEDGE:

    It would be beneficial to gather as much knowledge as possible about the IPO market, the

    company offering it, the demand for it and any offer being planned by a competitor.

    3) INVESTIGATE BEFORE INVESTING:

    The prospectus of the company can serve as a good option for finding all the details of

    the company. It gives out the objectives and principles of the management and will also cover

    the risks.

    4) KNOW YOUR BROKER:

    This is a crucial step as the broker would be the one who would majorly handle your

    money. IPO allocations are controlled by underwriters. The first step to getting IPO allocations is

    getting a broker who underwrites a lot of deals.

    5) MEASURE THE RISK INVOLVED:

    IPO investments have a high degree of risk involved. It is therefore, essential to measure the

    risks and take the decision accordingly.

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    6) INVEST AT YOUR OWN RISK:

    After the homework is done, and the big step needs to be taken. All that can be suggested

    is to invest at your own risk. Do not take a risk greater than your capacity

    1.1.1 NEED OF THE STUDY

    The main purpose of the study is to analyze the IPO market. It also involves in analyzing

    the risk in investing in the particular firm. This needs to understand the perception of the

    investors and the due course of market and its prominent conditions.

    This study will help to understand the market and its behavioral approach towards the

    needs of the investors. It will capture the systematic investing pattern based on the investors

    mode.

    The need of this study is to analyze what investors are expecting from IPO, how they

    make decision according to the situation, how they react for the changes that takes place in the

    Market.

    This study will helps to understand what the investor should watch out for investing in

    primary market.

    To analyze the returns of IPOs which were issued in the year 2011

    To know the return of those IPOs.

    To know the market rate of return for the same period.

    To find out the companies which like to adopt this technique and Spread awareness about

    this process.

    To find out the factors which influence the IPO Listing Process.

    What the companies are looking from Open New IPOs in India?

    Analysis between Share Holder and IPO Companies post/present/future Prospects

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    1.1.2 SCOPE OF THE STUDY

    The study was conducted on INDIABULLS SECURITIES LTDChennai. It is useful

    to both the investors and others to reduce risk. It is useful to analyze the thinking of people, their

    ideas and interest level of IPO investment. It also creates awareness among people from different

    classes. The company can suggest the preference of the investors in IPO, which can favor in

    fulfilling peoples requirements.

    Interaction with investors will be useful in finding out the company that has goodwill

    among public. This may lead us to find out the most reputed investment organization and its

    position in investors mind. This study gives a vivid picture about the investors perception level

    towards IPO. It gives a chance to buy the shares of the company directly, the reason and why

    they prefer IPO investment than others and what purpose they have invested in IPO.

    Based on this survey was conducted among equity investors to analyze the IPO listing

    pattern. It also helps to understand the benefits of investing in IPO. The study helps the company

    to understand the effective ways of distribution channel for IPO.

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    1.1.3 OBJECTIVES OF THE STUDY

    PRIMARY OBJECTIVE

    To analyze the investors perception on Initial Public Offering (IPO)

    SECONDARY OBJECTIVES

    To study the investors exposure to fundamental analysis and its impact to invest in IPO

    issued by Companies.

    To analyze the investors preference in deciding the company.

    To study the preference of different investment categories of IPO.

    To analyze the benefits of the investors while investing in IPO

    To find out which source is more effective in creating the IPO awareness.

    To get the feedback of investors on their preferences towards IPO investment.

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    1.1.4 RESEARCH METHODOLOGY

    RESEARCH:

    Defining and redefining problems, formulating hypothesis or suggested solutions;

    collecting, organizing and evaluating data; making deductions and reaching conclusions; and at

    last carefully testing the conclusions to determine whether they fit the formulating hypothesis.

    Research means;

    Search for knowledge, Systematic and self critical investigation.

    It is an art of scientific investigation.

    According to Emory defines research as, any organized inquiry designed and carried out to

    provide information for solving a problem.

    1.1.4.1 RESEARCH DESIGN:

    Research design is specification of methods and procedures for acquiring the information

    needed to structure or to solve problem.

    Research design is defined as, the arrangement of condition for collection and analysis

    of the data in a manner that aims to combined relevant to the research purpose with economy in

    procedure. During the research, descriptive and analytical research has been used.

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    The success of formal research project depends on the sound research design. As the

    main aim of the project is to identify the perception level of investors in an organization, the

    project is purely descriptive in nature. Descriptive research studies are those studies, which are

    concerned with describing the characteristic of particular individuals, or of a group.

    TYPES OF RESEARESCH DESIGN:

    TYPE OF RESEARCH DESIGN USED:

    DESCRIPTIVE RESEARCH :

    Descriptive study is a fact-finding investigation with adequate interpretation. It is the

    simplest type of research. It more specific than an exploratory study, as it has focus on particular

    Aspects or dimension of the problem studied. It is designed to gather descriptive information for

    Formulating more sophisticated studies. Describing the performance of the company and fact

    finding of different kinds.

    REARCH DESIGN

    PURE RESEARCH

    APPLIED RESEARCH

    EXPLORATORY RESEARCH

    DESCRIPTIVERESEARCH

    ANALYTICAL RESEARCH

    EVALUATION STUDIES

    ACTION RESEARCH

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    ANALYTICAL RESEARCH:

    Analytical Research is primarily concerned with testing hypothesis and specifying and

    interpreting relationships, by analyzing the facts or information already available. This type of

    research design focuses on theoretical lines, to solve the problem. An analytical research answers

    questionswhy, how, when and by whom the incident happened. It provides suitable reason. It is

    an in depth study.

    A mode of inquiry in which events, ideas, concepts, or artifacts are investigated by

    analyzing documents, records, recordings, and other media

    1.1.4.2 SOURCES OF DATA COLLECTION:

    Data collection method is an important task in every research process. There are two

    types of data is being used.

    PRIMARY DATA:

    The data are collected directly from the respondents as the information is not already

    been provided. The researcher collected information from respondents directly through

    disguised questionnaire and informal talks with employees. Under the questionnaire the

    following types of questions were asked to collect the data: open ended, close ended andmultiple choice questions.

    SECONDARY DATA:

    The data are collected from the investors, company staffs, etc. The secondary data such as

    history and various profile of the company where collected from company manuals, company

    website and verbal contact with various executives of the company. The data collection method

    should be used in this research way of analyzing the questionnaires from the investors.

    SAMPLE SIZE:

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    A part of the population selected for study is called as sample. The selection of a

    group of individuals or items from a population in such a way that this group represents the

    population is known as sample. Sample size is 120. The sample consists of 120

    investors/employees who had invested in IPO.

    SAMPLE UNIT:

    The sample unit is based on the investors/employees who had invested in IPOS.

    1.1.4.3 SAMPLING DESIGN:

    A sampling design is a definite plan for obtaining a sample frame. It refers to the technique or

    the procedure the researcher would adopt in selecting units from which inferences about the

    population is drawn. Sampling design is determined before any data are collected.

    SAMPLING TECHNIQUE:

    Non-probability convenience sampling was used in the study and sampling units are

    chosen primarily in accordance to the convenience. In this sampling does not afford any basis for

    estimating the probability that each in the population has being included in the sample. In this

    type of sampling, items for the sample are selected deliberately by the researcher.

    In this study convenience sampling type is used. This is Non-probability sampling. It

    means selecting sample units in a just hit and miss fashion.

    e.g. interviewing people whom we happen to meet. This sampling also means selecting whatever

    sampling units are conveniently available.

    1.1.4.4 RESEARCH INSTRUMENT USED:

    QUESTIONNAIRE:

    Generally, in questionnaire, the respondent can apply his own judgment and answer the

    question as he thinks right. While constructing a questionnaire the following vital points have to

    be considered: the type of questions to be asked; wording of questions and sequencing of

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    questions. Every question should be checked to evaluate its necessity in terms of fulfilling the

    research objectives. The questionnaire use different forms of questions such as:

    Open-ended questions in which acceptable responses are not provided to

    employees.

    Close-ended questions

    Multiple choice questions

    Dichotomous questions

    Questionnaire is relatively simple, quick and inexpensive method of obtaining data.

    Researcher is able to gather data from a widely scattered sample as the instrument can be mailed

    to far off places. Respondent has time to contemplate his/her response to each question.

    1.1.4.5 DESCRIPTION OF STATISTICAL TOOLS:

    In order to come out with the findings of the study, the following statistical tools are used

    in the study. The various analytical tools used in this study are;

    Percentage Analysis

    Chi-square test

    Students T-test

    One-way ANOVA

    Karl Pearsons Co-efficient of Correlation

    Kruskal-Wallis Test or H-Test

    1) PERCENTAGE ANALYSIS

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    The percentage refers to a special kind of ratio. Percentage is used in making comparison

    between two or more series of data. Percentage is used to describe relationship.

    Percentage (%) = No. Of Respondents * 100 / Total Respondents

    2) CHI-SQUARE TEST ( 2):

    The chi square test is useful for measure of comparing experimentally obtained results

    with those expected theoretically and based on the hypothesis. It is used as a test statistics in

    testing hypothesis that provides a set of theoretical frequencies with which observed frequencies

    are compared.

    The chi square test was first used in testing statistical hypothesis by Kari Pearson in the

    year 1990. It is defined as

    Where; Oi = Observed frequency of the event

    Ei = Expected frequency of the event

    3) STUDENTS T-TEST

    The t-statistic was introduced in 1908 by William Sealy Gosset, a chemist working for

    the Guinness brewery in Dublin, Ireland ("Student" was his pen name).

    A t-test is any statistical hypothesis test in which the test statistic follows a Student's t

    distribution, if the null hypothesis is supported. It is most commonly applied when the test

    statistic would follow a normal distribution if the value of a scaling term in the test statistic were

    known. When the scaling term is unknown and is replaced by an estimate based on the data, the

    test statistic (under certain conditions) follows a Student's t distribution. If using Student's

    original definition of the t-test, the two populations being compared should have the same

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    variance (testable using Levene's test, Bartlett's test, or the BrownForsythe test; or assessable

    graphically using a normal quantile plot).

    4) ANALYSIS OF VARIANCE ( ANOVA)

    It is a technique used to test equality of means when more than one populations are

    considered. This technique introduced by R.A. Fisher was originally used in different fields. It is

    a statistical technique specially designed to test whether the means of more than two quantitative

    populations are equal. There are two major types of ANOVA One-way and Two-way.

    ONE-WAY ANOVA: The observations are classified according to one factor. This is

    exhibited column-wise.

    5) KARL PEARSONS CO-EFFICIENT OF CORRELATION

    In statistics, the Pearson product-Moment Correlation Coefficient (sometimes referred to as

    the PMCC, and typically denoted by r) is a measure of the correlation (linear dependence)

    between two variablesXand Y, giving a value between +1 and 1 inclusive. It is widely used inthe sciences as a measure of the strength of linear dependence between two variables. It was

    developed by Karl Pearson from a similar but slightly different idea introduced by Francis

    Galton in the 1880s.The correlation coefficient is sometimes called "Pearson's r." If the two

    variables deviate in the same direction i.e. if the increase (or decrease) in one results in a

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    corresponding increase (or decrease) in the other, correlation is said to be direct or positive. But

    if they deviate in opposite direction i.e. if the increase (or decrease) in one results in a

    corresponding increase (or decrease) in the other, correlation is said to be negative.

    6) KRUSKAL-WALLIS TEST or H-TEST

    It is used to test the null hypothesis H0 that k independent samples are drawn from the

    identical population. This test is an alternative nonparametric test to the t-test for testing the

    equality means in the one factor analysis of variance when experimenter wish to avoid the

    assumption that the samples were selected from the normal populations. The Kruskal-Wallis test

    (Named after William Kruskal and W. Allen Wallis) is a nonparametric test to compare three

    or more samples. It tests the null hypothesis that all populations have identical distribution

    functions against the alternative hypothesis that at least two of the samples differ only with

    respect to location (median), if at all. It is the analogue to the F-test used in analysis of variance.

    While analysis of variance tests depend on the assumption that all populations under comparison

    are normally distributed, the Kruskal-Wallis test places no such restriction on the comparison.

    The approximate sampling distribution for k is chi-square with K-1 degrees of freedom when H0

    is true and if each sample consists of at least five observations.

    H =

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    1.1.5 LIMITATIONS OF THE STUDY

    The study is limited to Chennai city only. Hence, the analysis and findings are relevant to

    that area only.

    The respondents are reluctant to express their views freely and openly.

    The results are of values for only a specific period of time since the market is always

    dynamic.

    Since the analysis has been made from the information given by the respondents, the

    accuracy of the findings depends on the quality of the respondents.

    The period of study was only for 3 month, which is very short period for detailed study.

    The information recorded is based on the opinion and reaction of the respondents as on

    the date of research.

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    1.1.6 CHAPTERISATION

    CHAPTER I

    It deals with the introduction, need, scope, objectives, research methodology, research

    design, and collection of data, sampling design, research instruments and description of

    statistical tools, limitations, literature review, company profile and industry profile.

    CHAPTER II

    It deals with Descriptive analysis and inferential analysis like Chi-square -test, T-test,

    ANOVA, Correlation and Kruskal-Wallis H-test.

    CHAPTER III

    It deals with findings, suggestions and conclusions

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    1.2 REVIEW OF LITERATURE

    INVESTORS PERCEPTION ON IPO:

    The literature sets out four key stages during which private equity firm involvement

    could add value to an investee company excited through an IPO. These are: (1) screening and

    evaluation processes which identify better prospects, (2) governance and mentoring activities

    which nature investee companies and prepare them for life as a public company, (3) private

    equity firms knowledge and networks which add value around the IPO event, and (4) continued

    involvement which contributes to superior post IPO performance.

    First, Fried & Hirsch, 1994: Hall & Hofer, 1993; Hisrich & Jankowicz, 1990;

    MacMillian, Siegel,& Subbanarasimha, 1985; Tybee & Bruno, 1984 it has been argued that

    private equity firms begin to add value to their investee companies even before the initial

    investment takes place through considered evaluation and selection procedures. These

    procedures identify only the best prospects for investment and together with the imposition of

    governance and monitoring controls in investment contracts (Gompers, 1945; Sahlman, 1990)

    lead to enhanced prospects of survival and prosperity.

    Second, (Gompers & Lerner, 1998). Private equity firms have been described as active

    investors, monitoring the progress of firms, sitting on boards of directors, and meting out

    financing based on the attainment of milestones. This active investor role is demonstrated by

    buyout focused firms as well as earlier stage venture capital firms (Cao & Lerner, 2009;

    Cornelli & peck, 2001). The ways and means through which private equity firms are posited as

    potentially adding value to investee companies are myriad. Frequently cited ways include: 1)

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    assistance in finding and selecting key management team personnel; 2) solicitation of essential

    suppliers and customers; 3) strategic planning; 4) assistance in obtaining additional financing; 5)

    operational planning; and 6) replacement of management personnel when appropriate

    (MacMillian, Kulow, & Khoylian, 1988, p. 28;. Private equity firm involvement has also been

    shown to be associated with efficiency and productivity improvements, both in respect of buyout

    specialists and venture capital firms (Chemmanur, Krishnan, & Nandy, 2009; Cotter &Peck,

    2001; Cressy, Munari, & Malipiero, 2007; Munari, Cressy, & Malipiero, 2006).

    One of the key areas of interaction between private equity firms and investees is through

    participation on investee company boards. Private equity firms ordinarily require board

    representation as part of their funding agreement (Beecroft, 1994; Cotter & Peck,2001;

    Kaplan, 1989; Sahlman, 1990). Private equity firm representation on boards has been found to

    increase as the investee company moves through its developmental phases and staged investment

    increases the ownership level of the private equity firm (Smith, 2005).

    Third, private equity firms are believed to add value around the IPO event. Their familiarity with

    the process enables them to prepare the investee company beforehand, for example by

    influencing marketing and R&D expenditure to portray an appropriate balance of investment for

    the future and current profit. They may also impose appropriate governance and management

    structures to make the offer attractive to future shareholders (Campbell & Frye, 2006;

    Krishnan, Masulis, Ivanov, & Singh, 2009). Through these preparatory actions, a more

    attractive proposition is presented to the market, thereby achieving a higher price and/or

    hastening the time to IPO (Barry, Muscarella, Peavy, & Vetsuypens, 1990; Dovin & Pyles,

    2006; DuCharme, Malatesta, & Sefcik, 2001; Lin & Smith, 1998; Sandstrom &

    Westerholm, 2003; Timmons & Bygrave, 1986; Wang, Wang, & Lu,2002).

    Lerner, 1994, private equity firm experience with the IPO process and markets can

    deliver a timing benefit. Timing of an IPO to coincide with positive market conditions is a key

    consideration in going public and is associated with higher returns (Cumming, 2008; Lerner,

    1994; Ritter & Welch, 2002). Experienced private equity firms have been shown to be better at

    timing IPO exits (Lerner, 1994) and less incentivized to take investee companies public for

    ulterior motives as can be the case with younger venture capital firms who may wish to generate

    reputational benefits (Gompers, 1996).

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    Finally, private equity firms contacts within the industry can not only lead to the

    selection of superior service providers of associated functions, e.g. auditors, lawyers and

    underwriters, but can also reduce the costs of evaluating, selecting and commissioning these

    service providers (Bygrave & Timmons, 1992; Dolvin, 2005; Dolvin & Pyles, 2006; Stein &

    Bygrave, 1990).

    Fourthly private equity firms can continue to add value beyond the IPO. They commonly

    retain high degrees of ownership (Barry et al, 1990; Bradley, Jordan, Yi, & Roten, 2001;

    Brav & Gompers, 1997; Cao & Lerner, 2009; DeGeorge & Zeckhauser, 1993; Holthausen

    & Larcker, 1996; Lin & Smith, 1998; Mian & Rosenfeld, 1993 ). Consequently, their board

    representation and influence continues after the IPO event (Campball & Frye, 2006; Jain &

    Kin, 1995; Krishnan et al, 2009), which is not ordinarily the case under other exit routes

    ( Wright et al, 1990).

    Collectively, these value adding activities of private equity firms are considered to have

    lasting benefit for investee companies. An extensive study of post IPO performance by Brave &

    Gompers (1997) suggests that the knowledge, resource and network benefits private equity

    firms bring extends beyond the event of going public. In comparing post IPO share price

    performance, their sample of private equity backed firms significantly outperformed non-private

    equity backed firms despite being smaller, as measured by market capitalization.

    Conversely, buy-side analysts need to be concerned that leaner operations together with

    reduced capital expenditures ( Fox & Marcus, 1992; Kaplan, 1989) will lead to a lack of

    sustainability following the IPO. Window dressing is therefore and important aspect of private

    equity firm certification of investee firms, there is by comparison relatively little, directly

    related work on window dressing.

    In the case of reverse LBOs, accounting measures of operating performance have been

    found to peak around the time of the IPO (DeGeorge & Zeckhauser, 1993). Existing evidence

    is mixed as to whether this extends to manipulating reported performance to window dress public

    offerings. On one hand, the presence of private equity firms, other than young, inexperienced

    firms, has been found to mitigate the management of accruals (Jain & Kini, 1995; Morsfield &

    Tan, 2006). In contrast, Chou, Gombola & Liu (2006) found evidence of significant

    discretionary accruals around the IPOs of reverse LBOs.

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    Shah (1995) documents an under pricing of 3.8% weekly excess returns from a study of 2056

    IPOs that commenced trading between January 1991 and April 1995 and finds that past Sensed

    returns have an impact on the under pricing.

    In a comprehensive analysis of 1922 IPOs listed from 1992 to 1995 Madhusoodhanan and

    Thiripalraju (1997) shows that the annualized excess returns from IPOs at294.8% was higher

    than the experiences of the other countries. They also suggest book building as an alternative

    proposition to avoid mispricing.

    Kakati (1999) examined the performance of a sample of 500 IPOs that tapped the market during

    January 1993 to March 1996 and documents that the short run under pricing is to the tune of

    36.6% and in the long-run the overpricing is 40.8%.

    Krishnamurti and Kumar (2002) working on the IPOs that listed between July 1992 to

    December 1994 conclude a mean excess return of 72.34% and indicate that the time delay

    between offer approval and the issue opening as an important factor behind the under pricing.

    Majumdar (2003) also documents short run under pricing in India and observes after market

    total returns of 22.6% six months after listing. All the above mentioned studies examined IPO

    performance during the fixed price regime as book building was not in vogue at those times.

    Ranjan and Madhusoodanan (2004) from a study of 92IPOs offered during 1999-2003

    document that fixed price offers were underpriced to a larger extent than the book built issues

    though the book built issues were only figuring 24 in the sample this was the first study

    comparing the fixed price issues performance vis--vis book built issues.

    REVIEW OF SOME OF THE MOST CLOSELY-RELATED LITERATURE:

    This paper builds on previous models of the book building process by Benveniste and

    pint (1989), Benveniste and Wilhelm (1990) and Maksimovic and Pichler (2001), which

    argue that under pricing is needed to induce investors to report information once they have it,

    and Sherman (2000) and Sherman and Titman (2002), which argue that under pricing is

    needed to compensate investors for the cost of acquiring information. I extend past book building

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    models by allowing the informations accuracy to be a continuous decision variable. In a similar

    environment, Sherman and Titman explore the effects of the one price rule and of various

    participation restrictions, characterizing when such restrictions lead to informed investors

    receiving economic rents.Yung (2004) models both investor evaluation and banker screening of

    IPOs, explaining why the size of an IPO investor pool may be restricted.

    In the auction literature, relatively little work has been done on endogenous entry and

    information production in a common value setting. Notable exceptions include Hausch and Li

    (1993) and Harstad (1990), both of which consider only the single unit case. Levin and Smith

    (1994) and Bajari and Hortacsu (2003) model endogenous entry in a single-unit, endowed

    information setting. Matthews (1987) considers information production in single-unit auctions

    with risk averse buyers.Habib and Ziegler (2003) show that posted-price selling of corporate

    debt may be superior to an auction, if there is a cost to evaluation.

    Chemmanur and Liu (2003) analyze information acquisition in uniform price auctions and

    fixed price public offers. Public offers allow issuers to control price but not allocations, book

    building allows issuers to control both, and standard auctions do not allow issuers to control

    either.Chemmanur and Liu demonstrate how fixed price offers allow the issuer to induce a

    higher level of information acquisition but do not allow the offering price to reflect the

    information acquired.

    Ausubel (2002) suggests that IPOs should be sold through an ascending clock auction, which he

    shows to be efficient in an independent private values model with an exogenous number of

    bidders. Klemperer (2002) points out that a multi-unit uniform price auction is analogous to an

    ascending auction (in which every winner pays the runner-ups willingness-to-pay), since the

    lowest winning bid is typically not importantly different from the highest losing bid. With IPO

    auctions, there tend to be hundreds of bids at the market-clearing price.Ausubel recommend

    ascending auctions to reduce the winners curse, although reducing the winners curse increases

    the free rider problem if information must be produced.

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    Biais and Faugeron-Crouzet (2002) model IPO auctions, showing that a dirty Dutch auction

    can prevent tacit collusion among bidders and can truthfully elicit pre-existing information from

    investors in much the same way as book building.Parlour and Rajan (2002)also identify

    similarities between dirty auctions and book building, showing that leaving something on the

    table can reduce the winners curse, thus eliciting more aggressive bids, under a variety of

    allocation rules, including some that allow the underwriter to discriminate between bidders.

    Loughran, Ritter and Rydqvist (1994) were the first to examine global patterns for IPOs,

    showing that under pricing of IPOs exists to some extent in virtually all countries and for all

    issue methods. They were also among the first to point out the importance of considering the

    offering method when evaluating IPOs. For survey of U.S. IPO papers, see Ritter and Welch

    (2002).For a more extensive list of empirical papers on non-U.S. IPOs, seeJagannathan and

    Sherman (2004).

    Cornelli and Goldreich (CG, 2001) and Jenkins on and Jones (JJ, 2003) use unique data sets

    to examine the orders and allocations6 for investors in book building IPOs. Both find that large

    orders are favored over small orders. JJ find that early bids receive favorable allocations. This is

    consistent with underwriters trying to discourage free riders, since those that place firm, early

    bids are clearly acting on their own opinions about the issuer. However,CG do not find that early

    orders are favored in terms of allocation size.CG find that rationing varies between bidders, and

    that about 30% of bidders dont get shares at all, showing that underwriters are actively

    managing allocations (for better or for worse), rather than passively rationing everyone when

    demand is high. Both papers also find a core of frequent investors that tend to be favored in

    terms of allocations.

    Ljungqvist, Jenkinson and Wilhelm (2003) compare book building and public offer IPOs for

    many countries. They find that book building leads to lower under pricing when conducted by

    U.S. banks and/or targeted at U.S. investors.Pichler and Stomper (2003) explore the roles of

    book building and when issued forgery market trading, showing that acquiring private

    information (through book building) maybe necessary to reduce the Glosten and Milgrom

    (1985) problem. Glosten and Milgrom showed that a market may fail to open if there are

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    extreme information asymmetries. Pichlerand Stomper demonstrates that book building may

    reduce the information asymmetry regarding the value of an IPO, thus allowing the when issued

    market to open.

    Berrien (2004) models IPO under pricing as being driven by suboptimal regulation requiring

    aftermarket price support for all IPOs, in an environment in which price support would not occur

    voluntarily. The paper does not give information on which countries, if any, mandate aftermarket

    price support.

    Several researchers have focused on the particular role of market sentiment in IPO

    performance. The evidence shows that initial returns are higher when investors overreact to

    initial IPOs news. For example, Gervais and Odean (2001) find that if investors have more

    overconfidence after market gains then this is followed by increased trading volumes and market

    depth.

    Brown and Cliff (2004) use a large group of sentiment indicators to investigate the

    relationship between sentiment and near-term market returns, and find that sentiment is caused

    by equity returns. These findings are consistent with Solt and Statman (1988) that greater initial

    returns cause excessive optimism in investors and following overreaction in post-IPO market.

    The issuer can also choose when to go public]

    Odean (1998)provides evidence that the pattern of serially auto-correlated returns around IPOs

    is particularly strong during hot market periods.

    Lowry (2003) posits that market cycles and optimism are the reasons for the fluctuations in IPO

    numbers. Similar research is presented by Cornelli, Goldreich and Ljungqvist (2006), who use

    the trading behavior of retail investors on the IPO grey market and argue that the sentiments on

    this market can predict the first-day aftermarket returns.

    Purnanandam and Swaminathan (2004) compare IPO stocks with those of matching firms and

    find that stock with high growth potential increase in value on the first day. Therefore, we extend

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    these findings by examine the daily buying and selling information of institution investors, and

    we highlight how the IPO under pricing associated with each IPO method influences investment

    Sentiment, the subsequent trading behavior of investors, and long-run performance.

    Rock(1986), Beatty and Ritter (1986) document that IPO offer prices should be undervalued

    relative to fair value to avoid winners curse. However, the valuation processes of these three

    IPO methods are different; first, the value of a fixed-price offering is determined by

    underwriters, and they gauge the offerings prices by their own pricing formulas. Second, auction

    offerings are open to all bidders and therefore the value of offering is determined by market

    demand. In contrast with the fixed-price method, an auction allows potential investors to raise

    their bid prices which may lead to overpricing, and thus dramatic reverse trading would likely

    follow post-IPO. Finally, book building underwriters solicit private information from regular

    traders by road show to and then set the IPO price.

    Ritter (1998) investigates IPO mechanisms in several countries and finds that the Magnitude of

    under pricing is greater for countries with fixed-price offering than those using book building

    procedures. However, Ljungqvist and Wilhelm (2002) use worldwide IPO markets and

    document that initial returns are positively related with information production. Controlling for

    the country factor, Derrien and Womack (2003) use IPO data in French stock market, which

    have experienced these three IPO methods, and find that book building had greater under pricing

    and pricing variance than other two methods. These findings of a direct correlation between

    initial returns and information compensation are consistent with the theoretical models of

    Benveniste and Spindt (1989), Benveniste and Wilhelm (1990).

    Daniel, Hirshleifer and Subrahmanyam (1998) study the effect of biased self-attribution on

    news announcements and find that short-term momentum and long-term reversal are apparent in

    equity markets. Moreover, the trading activities of institutional investors play important roles in

    IPO markets, and the risk preference and investment sentiment toward an initial great allocation

    of shares would dominate the post-IPO performance.

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    Aggarwal (2003) documents the flipping of institutional investors is more frequently in hot

    IPOs. Investors endowed with offering shares are more likely enjoy higher initial abnormal

    returns and thus realize their gain.

    Ellis (2006) finds a significant relationship between initial IPO returns and trading volume and

    document that cold IPOs have early sell trades by insiders. However, the extent of ownership

    Changes among the IPO methods remain unknown.

    In this research, we aim to study whether the trading behavior associated with different

    IPO methods affects the short- and long-run returns of the post-IPO market. We evaluate the

    buying and selling trading activities of institutional investors to examine how investors react to

    the abnormal returns of the initial offering. Since higher sentiment causes subsequent trading

    bias, we further test whether the trading bias of institutional investors affects long-run IPO

    performance.

    From the above studies it is evident that an Initial Public Offering (IPO), referred to

    simply as an "offering" or "flotation", is when a company (called the issuer) issues common

    stock or shares to the public for the first time. They are often issued by smaller, younger

    companies seeking capital to expand, but can also be done by large privately owned

    companies looking to become publicly traded.

    In an IPO the issuer obtains the assistance of an underwriting firm, which helps

    determine what type of security to issue (common or preferred), best offering price and time to

    bring it to market. When a company lists its securities on a public exchange, the money paid by

    investors for the newly-issued shares goes directly to the company. An IPO, therefore, allows a

    company to tap a wide pool of investors to provide it with capital for future growth, repayment

    of debt or working capital. A company selling common shares is never required to repay the

    capital to investors.

    Once a company is listed, it is able to issue additional common shares via a secondary

    offering, thereby again providing itself with capital for expansion without incurring any debt.

    This ability to quickly raise large amounts of capital from the market is a key reason many

    companies seek to go public. IPOs generally involve one or moreinvestment banks known as

    http://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bank
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    "underwriters". The company offering its shares, called the "issuer", enters a contract with a lead

    underwriter to sell its shares to the public. The underwriter then approaches investors with offers

    to sell these shares.

    1.2.1 INDUSTRY PROFILE

    INDUSTRY OVERVIEW:

    Overview of the Indian Economy:

    India is a large and growing economy with rapidly expanding financial

    services sector. With a GDP of $550 billion and $2.66Trillion at Purchasing Power Parity

    (PPP), India is the worlds 12th largest economy in dollar terms and the 4th largest in PPP

    terms. The projected growth rate of real GDP is greater than 7% per annum with higher growth

    in many sectors such as financial services. India has a large and rapidly growing middle class of

    300 million people with increasing levels of discretionary income available for consumption and

    investment purposes. Foreign portfolio and direct investment inflows have risen significantly

    since economic liberalization reforms began in FY1991 and have contributed to healthy foreign

    currency reserves ($103 billion in December 2003) and a moderate current account deficit of

    about 1% in FY 2003.

    INDIAN FINANCIAL SECTOR HISTORY AND DEVELOPMENT:

    Post economic liberalization in 1991 the Indian financial services industry

    has experienced significant growth. During the last decade, there has been a considerable

    broadening and deepening of the Indian financial markets. The Indian markets have witnessed

    introduction of newer financial instruments and products over the years. Existing sectors have

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    been opened to new private players. This has given a strong impetus to the development and

    modernization of the financial services sector. The entry of new players has resulted in a more

    sophisticated range of financial services being offered to corporate and retail customers which

    has compelled the existing players to upgrade their product offerings and distribution channels.

    This is particularly evident in the non-banking financial services sector, such as brokerage

    industry, where innovative products combined with new delivery methods have helped the sector

    achieve high growth rates. The combined average daily turnover at BSE and NSE for different

    market segments has increased from approximately Rs. 4800 million in 1995-96 to

    approximately Rs. 232,094 million in April 2004. Over this period, there has also been a

    substantial growth in the market for other financial products like insurance, mutual funds etc.

    The financial services marketplace is experiencing a profound change as thirty million people in

    the middle class are entering their prime saving and investing years. These people are willing to

    use advanced communication tools, such as computers and telephones, and want to take charge

    of their personal investment decisions.

    INDIAN CAPITAL MARKET:

    The Indian capital markets have witnessed a transformation over the last

    decade. India now finds its place amongst some of the most sophisticated and largest markets of

    the world. With over 20 million shareholders, India has the third largest investor base in the

    world after the USA and Japan. Over 9,000 companies are listed on Indian stock exchanges. The

    Indian capital market is significant in terms of the degree of development, volume of trading and

    its tremendous growth potential. Over the past few years, the capital markets have also witnessed

    substantial reforms in regulation and supervision. Reforms, particularly the establishment and

    empowerment of SEBI, market-determined prices and allocation of resources, screen-based

    nation-wide trading, dematerialization and electronic transfer of securities, rolling settlement and

    derivatives trading have greatly improved both the regulatory framework and efficiency of

    trading and settlement. There are 23 recognized stock exchanges in India, including the OTCEI

    for small and new companies and the NSE, which was set up as a model exchange to provide

    nation-wide services to investors.

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    During 2002-03 the NSE and the BSE were ranked third and sixth

    respectively amongst all exchanges in the world with respect to the number of transactions. The

    year 2003, also witnessed setting up of the NCDEX, an online multi-commodity exchange for

    trading of various commodities.

    Key initiatives in recent years include:

    Depository and share de-materialization process have enhanced the

    efficiency of the transaction cycle.

    Replacing the flexible, but Often exploited, long settlement cycles

    with rolling settlement, to bring about transparency.

    IT driven stock exchanges (NSE and BSE) with a national presence

    (for the benefit of investors across locations) and other initiatives to enhance the quality of

    financial disclosures by the listed companies.

    Empowering SEBI with powers to impose higher penalties and

    establish itself as an independent regulator with adequate statutory powers.

    NSE, which in the recent past has accounted for the largest trading

    volumes, has a fully automated screen based system that operates in the wholesale debt market

    segment as well as the capital market segment

    Many new instruments have been introduced in the markets, including

    index futures, index options, derivatives and options and futures in select stocks.

    Insurance Sector:

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    With the opening up of the market for private players, various foreign and

    Indian private players have targeted the untapped market potential by providing tailor-made

    products. Some key features of the Indian insurance sector are stated below:

    The presence of a host of new players in the sector has resulted in a

    shift in approach and the launch of innovative products, services and value-added benefits.

    Foreign majors have entered the country and announced joint ventures in both life and non-life

    areas. Major foreign players include New York Life, Aviva, Tokyo Marine, Allianz, Standard

    Life, Lombard General, AIG, AMP and Sun Life among others. As a result of competition, the

    erstwhile state sector companies have become aggressive in terms of product offerings,

    marketing and distribution.

    The Insurance Regulatory and Development Authority (IRDA) have

    played a proactive role as a regulator and a facilitator in the sectors development.

    The state sector Life Insurance Corporation (LIC), the largest life

    insurer in 2000, sold close to 20 million new policies with a turnover of approximately US$ 5

    billion.

    There are four public sector and nine private sector insurance

    companies operating in general/ non-life insurance business with a premium income of over US$

    2.58 billion.

    The markets potential has been estimated to have a premium

    income of US$ 80 billion with a potential size of over 300 million people. The General Insurance

    Corporation (GIC) (which covers the non-life sector) had a total premium income of US$ 2

    billion in 2001-02. This has the potential to reach US$ 9 billion in the next five years.

    Industry Outlook:

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    Indian financial sector presents a huge retail finance opportunity. Existing low

    penetration levels, increasing affordability of credit and rising income levels have led to a

    growing demand for retail financial products. India has a large pool of retail investor base spread

    throughout the country with a huge pool of untapped surplus funds. The confidence of small

    investors has increased with

    the growing levels of education and financial awareness, and the tightening of regulatory

    systems. Exposure to global practices has made the Indian customer more discerning and

    demanding. As a result of falling interest rates, bank deposits, other traditional investment

    opportunities are losing their attraction. Thus, Indian investors are getting attracted towards

    alternate investments such as the equity markets and are looking for newer financial products.

    Huge opportunities offered in the retail financial services sector are

    coupled with several challenges. The sector requires extremely effective distribution systems that

    are capable of offering flexibility and convenience to the customer, while maintaining cost-

    efficiency. There has been a clear shift towards those entities that are able to offer products and

    services in the most innovative and cost efficient manner. The financial sector will need to adopt

    a customer-centric business focus.

    It will also have to create value for its shareholders as well as its

    customers, competing for the capital necessary to fund growth as well as for customer market

    share. The financial services industry is undergoing a consolidation with the large number of

    small players turning into few large players. In future, it is expected that the players who can

    offer a complete bouquet of financial products and services will capture the market share.

    Consolidation in the Indian Equity Trading Markets:

    As the Indian capital markets are evolving, they are undergoing rapid

    consolidation spurred primarily due to continuous increase in capital requirements, increased

    regulatory oversight, customer sophistication, availability of technology to provide high quality

    service to a large customer base and increased back-office requirements. The margin

    requirements for exposure and mark to market have increased as the regulator and major

    exchanges enhance the risk management processes and systems in order to be in line with global

    practices. Moreover the shorter settlement cycle has required stronger back office capabilities

    thus necessitating heavy capital investments. From T+5 settlement regime till 2000, markets are

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    now in T+2 regimes for the last year, and it will soon be changed to T+1 regime. These changes

    in regulatory framework have enhanced the capabilities required to stay in the business in terms

    of capital and infrastructure and have resulted in the smaller players getting driven out of the

    system. These companies strengths lie in their strong balance sheets, countrywide presence;

    strong brand awareness and highly trained sales force delivering world-class service levels to the

    retail investor.

    The retail presence in the stock markets has been growing steadily with

    the advent of dematerialization and the recent acceleration in opening of demats accounts. The

    current retail business has a 65% share of total exchange volumes, with FI/FII business having

    15% share, and proprietary trading by brokers & related parties accounting for the remaining

    20% share. The

    Retail participation is stated to grow more than 25% per annum for the next 10 years. The market

    shares of the top 5 brokers on NSE has increased from less than 5.9 % in 1996-97 to about 13%

    in the previous quarter ended December 31, 2003. The market share of the top 10 players on

    NSE has grown from 10% in 1996-97 to 16.4% in 2002-03, and the share of the top 25 players

    on NSE has grown from 19.7% in 1996-97 to 29.1% in 2002-03.

    This consolidation has markedly accelerated in the last 2 years, where the

    market share for the top 5 brokers has gone up from 7% to about 13%, due to the impact of

    regulatory changes, introduction of new technologies and increased customer sophistication. This

    development parallels, on an accelerated timeline, the development of the US markets from

    1970s to 1990s, where the top 5 brokers, like Charles Schwab, Etrade, Merrill Lynch, Dean

    Witter, and Smith Barney rapidly expanded their market share and gained control of close to

    50% of retail trading volumes. 50% Volumes done by top brokers Trading Volumes (Rs. Crores)

    Top Brokers 5 10 25 50 100 NSE Total Avg. India top 5 bulls brokers market.

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    1.2.2 COMPANY PROFILE

    Indiabulls is Indias leading Financial Services and Real Estate Company

    having over 640 branches all over India. Indiabulls serves the financial needs of more than

    4,50,000 customers with its wide range of financial services and products from securities,

    derivatives trading, depositary services, research & advisory services, consumer secured &

    unsecured credit, loan against shares and mortgage & housing finance. With around 4000

    Relationship Managers, Indiabulls helps its clients to satisfy their customized financial goals.

    Indiabulls through its group companies has entered Indian Real Estate business in 2005. It is

    currently evaluating several large-scale projects worth several hundred million dollars.

    Indiabulls Financial Services Ltd is listed on the National Stock Exchange, Bombay Stock

    Exchange and Luxembourg Stock Exchange. The market capitalization of Indiabulls is around

    USD 3,330 million (30th September 2007). Consolidated net worth of the group is around USD

    950 million (30th September 2007). Indiabulls and its group companies have attracted more than

    USD 800 million of equity capital in Foreign Direct Investment (FDI) since March 2000. Some

    of the large shareholders of Indiabulls are the largest financial institutions of the world such as

    Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley and Farallon Capital.

    GROWTH STORY:

    PROPERTIES IN MUMBAI AND DELHI:

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    India bulls have emerged as one of the leading and fastest growing

    financial company in less than two year, since its initial public offering in September 2004. It has

    a market capitalization of around 3,330 million (30th September 2007) and consolidated net

    worth of the group is around USD 950 million.

    2000-01

    Indiabulls Financial Services Ltd. established Indias one of the first trading

    platforms with the development of an in house team

    2001-03Indiabulls expands its service offerings to include Equity, F&O, and WholesaleDebt, Mutual fund, IPO distribution and Equity Research.

    2003-04

    Indiabulls ventured into Insurance distribution and commodities trading.

    Company focused on brand building and franchise model.

    2004-05

    Indiabulls came out with its initial public offer (IPO) in September 2004.

    Indiabulls started its consumer finance business.

    Indiabulls entered the Indian Real Estate market and became the first company to

    bring FDI in Indian Real Estate.

    Indiabulls won bids for landmark properties in Mumbai.

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    2005-06

    Indiabulls came out with its initial public offer (IPO) in September 2004.

    Indiabulls started its consumer finance business.

    Indiabulls entered the Indian Real Estate market and became the first company tobring FDI in Indian Real Estate.

    Indiabulls won bids for landmark properties in Mumbai.

    2006-07

    Indiabulls entered in a 50/50 joint venture with DLF, Kenneth Builders &

    Developers (KBD). KBD has acquired 35.8 acres of land from Delhi

    Development Authority through a competitive bidding process for Rs 450 crore

    to develop residential apartments.

    Indiabulls Financial Services Ltd. is included in the prestigious Morgan Stanley

    Capital International Index (MSCI).

    Farallon Capital has agreed to invest Rs. 6,440 million in Indiabulls Financial

    Services Ltd.

    Indiabulls ventured into commodity brokerage business.

    Indiabulls has received an in principle approval from Government of India for

    development of multi product SEZ in the state of Maharashtra.

    Dev Property Development plc. Has subscribed to new shares and has also

    acquired a minority shareholding from the Company.

    Indiabulls Financial Services Ltd. Board resolves to Amalgamate Indiabulls

    Credit Services Limited and demerges Indiabulls Securities Limited

    WIDE SCOPE, SKETCHY ANALYSIS:

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    THE BOOM in the market and the rush for that hidden pot of gold has led

    to a mushrooming of financial dotcoms. Everyone wants a share of the pie, and what better way

    to get it than through the medium that is all the rage. The Internet has the advantage of real time

    and gives you an opportunity to follow the market at every turn. There are a number of financial

    web sites to choose from, all aiming to give information on every aspect of finance, from

    securities to credit cards. What differentiates them is the quality and quantity of information

    provided, depth of analysis and accuracy of facts. Indiabulls.com wants to be a gateway to the

    world of finance.

    LAYOUT AND REVIEW:

    The home page of indiabulls.com is similar to most other financial web sites, as it gives

    an updated view of the main market indices, both Indian and selects foreign ones. It also offers

    news reports and newsbreaks. A real-time ticker (also available on most other sites) lists live

    quotes of stock exchange scrips. On this real-time ticker, clicking on the company links to the

    Reuters data fact-sheet on the company's price history, background and charts. The home page

    features six main modules, each on a specific investment area -- mutual funds, equity market,

    research, Portfolio, personal finance and trading.

    The mutual fund module provides useful information on individual funds. The module

    home-page has an overall fund ranking system, where one can find the top funds, according to

    one's specifications. For instance, a test-search for the top five open-ended and balanced funds

    resulted in a fact-sheet on the top five funds in that category. It also has an extensive search

    facility that works on a keyword model. The page provides a fact-sheet on the fund background,

    prospectuses and brief analysis. In a test search, however, the prospectus and analysis were

    unavailable for certain funds. Analysis of the funds is in itself not extensive, and an investor

    might be inclined to use a web-site dedicated to mutual funds rather than just a module that gives

    an overview.

    The second module relates to equity market investing and contains market reports,

    market statistics, information on board meetings and an IPO corner. The IPO corner, in an

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    innovative service, mails out forms for individual IPOs, free of cost, in response to requests via

    e-mail. Market commentary provides reports on key stocks, and the long- and short-term

    outlooks for the market.

    The third module, the research module, is well organized and comprises a considerable

    volume of information on individual companies, with a database of over 2,000 listed companies.

    The site details company results, including the profit and loss accounts and balance sheets,

    information on the company's background, ratios and investor issues, such as bonus issues and

    price history. It also gives the company's history and a comparative fact-sheet on firms in its peer

    group. The research might not, however, be enough for a seasoned investor, as there is no

    detailed analysis on the companies or the industries they operate in. There are more specialized

    sites for such information, which would be more useful.

    The portfolio module helps one keep track of personal securities portfolio. The clients

    portfolio is updated on a real-time basis and the module has a number of tools that can help him

    to manage and track the shares the owners. It is yet to include mutual fund investments, as there

    is still no facility for updating them on a real-time basis. It is, however, immensely useful for the

    investor who is a keen trader but does not want the hassle of an investment manager or costly

    portfolio-management software.

    Finally, the personal finance module, which is packed with information on taxation

    issues, credit cards and fixed deposits. An interesting tool, the tax calculator, helps calculate

    personal tax liabilities. Perhaps the most attractive feature of the site is the Stock Game, which

    allows the client to trade phantom shares and try his hand at the stock market without making

    any investment except your time. It is also a good way for an amateur to practice analytical skills

    without running the risk of losing money. Other features include a chat room, message board and

    an area related to technical analysis.

    SITE IDEA:

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    On the whole, the website is well organized. Links are well coordinated and lay out, and

    the search facilities are good. The site's main problem is that it lacks depth in analysis. While

    indiabulls.com covers a wide range of areas, aiming to give as much financial information as

    possible, it is missing out on the fine details of analysis. At present, this site is useful only for the

    amateur investor who is surfing the market but does not plan to make any firm decisions. The

    site could be far more useful if it builds on the current volume of information, and provides more

    analysis on the different areas, especially mutual funds and individual companies. This is the

    only way it can compete with the numerous other financial web sites. The concept of trading

    shares on-line is still catching on in India. The site has taken the first few steps by developing a

    phantom trading site. Therefore, it already has the advantage of a framework within which shares

    can be traded on-line. This could be further developed to cater to real trading.

    MAIN OBJECTS OF THE COMPANY:

    The main objects to be pursued by the Company on its incorporation are:

    1. To hold investments in various step-down subsidiaries for investing,

    acquiring, holding, purchasing or procuring equity shares, debentures, bonds, mortgages,

    obligations, securities of any kind issued or guaranteed by the Company.

    2. To provide financial consultancy services; to provide investment

    advisory services on the internet or otherwise; provide financial consultancy in the area of

    personal and corporate finance; publish books and CD ROMs and information related to the

    above.

    3. To conduct the business of sale, purchase, distribution and transfer of

    shares, debts, instruments and hybrid financial instruments and to perform all related, incidental,

    ancillary and allied services.

    4. To conduct depository participant services; to conduct de-

    materialization and re-materialization of shares; set up depository participant centers at various

    regions in India and to perform all related, incidental, ancillary and allied services.

    5. To operate mutual funds; receive funds from investors; equity or debt

    instrument research activity instrument in debt and/or equity instruments.

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    Indiabulls offers services across a broad array of products, including

    Stocks, Options and Futures

    Depository Services

    Commodities

    Insurance Products

    Mutual Funds

    Bonds and Debt Product

    The Company and the subsidiaries provide brokerage, services and third

    party financial products and other services through a variety of channels to retail and institutional

    clients and operate nationally in India. It is headquartered in New Delhi with a network of 70

    offices spread across 55 cities. The Company and its subsidiaries target the retail and the

    institutional segment of the market through direct and indirect channels. The direct channel for

    business is through the sales employees who operate out of the 70 offices in 55 cities.

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    The indirect channel for business is through the network of marketing

    associates, people who are not on the rolls of the companys has invested heavily in building a

    strong sales team and as on April 30, 2004 it had over 476 relationship managers in its 70 offices

    spread all over the country. With the sales and marketing team, the Company and the

    subsidiaries are able to cross sell many financial products such as insurance and mutual funds. It

    has experienced substantial growth at a CAGR of 132.97% over FY 2002 to FY 2004 in

    revenues and achieved a substantial market share in the Equity, F&O and Debt market leading to

    a combined average daily turnover of Rs. 4451.5 million for the FY 2004.

    The consolidated revenues and net profits have grown at a CAGR of

    132.97% and 118.31% respectively over last two years. The revenues have grown from Rs.

    132.55 million in FY 2002 to Rs. 266.69 million in FY 2003 and to Rs.719.48 million in FY

    2004. The net profits have increased from Rs. 40.61 million in FY 2002 to Rs. 51.05 million in

    FY 2003 and to Rs. 193.54 million in FY 2004. The total number of employees grew from 110

    as in FY 2002 to 178 as in FY 2003 and to 606 as on April 30, 2004

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    BUSINESS MODEL:

    The Company and the subsidiaries have a vast client base of 32,359 clients

    as on April 30, 2004 spread all over India and it has been augmenting its client base across the

    country, which makes the business model a low risk model as compared to a business model

    which may be dependent on very few clients. The revenues are largely based on fee/commission

    income generated through providing securities brokerage & related financial services to

    individual investors and independent advisors. The Company and the subsidiaries focus on a core

    client base of individual investors and the marketing associates who serve them. It offers the

    following products and services in the financial markets:

    Stocks

    Options and Futures25

    Depository Services

    Commodities ,Insurance Products and Mutual Funds

    DATA ANALYSIS AND INTERPRETATION

    2.1 DESCRIPTIVE ANALYSIS

    AGE GROUP OF THE RESPONDENTS

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    Table No: 2.1.1

    Chart No: 2.2.1

    INFERENCE:From

    the above table

    it is inferred

    that out of 120

    respondents 38% of the respondents age group is below 25, 41% of them are 25-35, 10% of

    them have 36-45, 8% of them were 46-55 and balance peoples are above 55.

    GENDER

    SL. NO FACTORS RESPONDENTS PERCENTAGE1 BELOW 25 46 38.3

    2 25-35 50 41.7

    3 36-45 12 10.0

    4 46-55 10 8.3

    5 ABOVE 55 2 1.7

    TOTAL 120 100

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    Table No: 2.1.2

    SL NO

    FACTORS RESPONDENTS PERCENTAGE1 MALE 69 57.5

    2 FEMALE 51 42.5

    TOTAL 120 100

    Chart No: 2.2.2

    INFERENCE:

    From the above table, it is inferred that out of 120 respondents 57.5% of the respondents

    are male and 42.5 of them are female.

    OCCUPATION

    Table No: 2.1.3

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    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 PROFESSIONAL

    19 15.8

    2 PVT.EMPLOYE

    E

    64 53.3

    3 GOVT.EMPLOYEE

    18 15.1

    4 SELFEMPLOYED

    19 15.8

    TOTAL 120 100

    Chart No: 2.2.3

    INFERENCE:

    From the above table, it is evident that out of 120 respondents 15.8% of the respondents

    are professionals, 53.3% of them are private employees, and 15.1% of them are govt. employees,

    and remaining 15.8% of them are self employed peoples.

    ANNUAL INCOME

    Table No: 2.1.4

    SL.NO FACTORS RESPONDENTS PERCENTAGE

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    1 BELOW 2LAC

    45 37.5

    2 2-5 LAC 46 38.3

    3 5-8 LAC 11 9.2

    4 8-10 LAC6 5.0

    5 ABOVE 10LAC

    12 10.0

    TOTAL 120 100

    Chart No: 2.2.4

    INFERENCE:

    From the above table , it is inferred that out of 120 respondents 37.5% of the investors are

    having below 2 lack annual income,38.3% of them are 2-5 lack income,9.2% of them are 5-8

    lack income earned, 5% of them are 8-10 lack income earned, and balance 10% of them are only

    earned above 10 lacks.

    TOTAL EXPERIENCE ABOUT INVESTMENT IN IPO

    Table No: 2.1.5

    SL.N FACTORS

    RESPONDENTS PERCENTAGE

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    O

    1 BELOW 2 YRS 65 54.2

    2 2-5 YRS 29 24.2

    3 5-8 YRS 15 12.5

    4 8-10 YRS 6 5.05 ABOVE 10 YRS 5 4.2

    TOTAL 120 100

    Chart No: 2.2.5

    INFERENCE:

    From the above table, it is inferred that out of 120 respondents 54.2% of the investors

    having below 2 years experience about investment in IPO, 24.2% of them have 2-5 years

    experience, 12.5% of them having 5-8 years experience, 5% of them having 8-10 years

    experience and balance 4.2% of them having only above 10 years experience about IPO.

    SATISFACTION WITH IPO INVESTMENT

    Table No: 2.1.6

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 HIGHLY SATISFIED 11 9.2

    2 SATISFIED 52 43.3

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    3 AVERAGE 49 40.8

    4 NOT SATISFIED 8 6.7

    TOTAL 120 100

    Chart No: 2.2.6

    INFERENCE:

    From the above table, it is evident that 9.2% of the investors highly satisfied with IPO

    investment, 43.3% of them are satisfied, 40.8% of them are giving average and balance 6.7% of

    them are not satisfied with the IPO investment.

    RATE OF RETURN ON INVESTMENT IN IPO

    Table No: 2.1.7

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 EXCELLENT 23 19.2

    2 GOOD 55 45.8

    3 AVERAGE 36 30.0

    4 POOR 6 5.0

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    TOTAL 120 100

    Chart No: 2.2.7

    INFERENCE:

    From the above table, it is inferred that out of 120 respondents 19.2% of the investors say

    that their rate of return in IPO is excellent, 45.8% are stated that it is good, 30% of the

    respondents stated that it is average, and remaining 5% of them are stated that it is poor.

    LEVEL OF KNOWLEDGE ABOUT IPOS

    Table No: 2.1.8

    SL NO FACTORS RESPONDENTS PERCENTAGE

    1 0-20% 17 14.2

    2 20-40% 55 45.8

    3 40-60% 26 21.7

    4 60-80% 13 10.8

    5 80-100% 9 7.5TOTAL 120 100

    Chart No: 2.2.8

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    INFERENCE:

    From the above table, it is evident that 14.2% of the investors have 0 to 20% knowledge

    about IPOs, 45.8% of them have 40% knowledge, 21.7% of them have 60% knowledge, 10.8%

    of them have 80% knowledge, and remaining 7.5% of them having only 100% Knowledge.

    WILLINGNESS TO TAKE RISK

    Table No: 2.1.9

    SL NO FACTORS RESPONDENTS PERCENTAGE

    1 CONSERVATIVE 22 18.3

    2 MODERATE 76 63.3

    3 AGGRESSIVE 22 18.3

    TOTAL 120 100

    Chart No: 2.2.9

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    INFERENCE:

    From the above table, it is evident that out of 120 respondents 18.3% of the investors

    stated that their risk taking level is conservative, 63.3% of them are giving moderate, and the

    remaining 18.3% of them are stated that it is aggressive.

    OPINION ABOUT THE STATEMENT IPO IS A RISKY INVESTMENT

    Table No: 2.1.10

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 AGREE 34 28.3

    2 STRONGLY AGREE 40 33.3

    3 NEITHER AGREE OR DISAGREE

    32 26.7

    4 DISAGREE 11 9.25 STRONGLY DISAGREE 3 2.5

    TOTAL 120 100

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    IPO IS A RISKY INVESTMENT

    Chart No: 2.2.10

    INFERENCE:

    From the above details we can concluded that 28.3% of the investors agree that IPO is a

    risky investment, 33.3% of them are strongly agree, 26.7% of them have undecided (neither

    agree or disagree),9.2% of them disagree and 2.5% of them have strongly disagree with this

    statement.

    MODE OF INVESTMENT IN IPO

    Table No: 2.1.11

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 ONLINE 73 60.8

    2 OFFLINE 47 39.2

    TOTAL 120 100

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    Chart No: 2.2.11

    INFERENCE:

    From the above table it is inferred that out of 120 respondents 60.8% of them are stated

    that the mode of investment is through online, remaining 39.2% of them only comes through

    offline.

    SOURCES OF INFORMATION REGARDING IPO

    Table No: 2.1.12

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 BY BROKER 25 20.8

    2 BY MEDIA 59 49.2

    3 WORD OF MOUTH 21 17.5

    4 OTHERS 15 12.5

    TOTAL 120 100

    Chart No: 2.2.12

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    INFERENCE:

    From the above table, it is inferred that out of 120 respondents 20.8% of the respondents

    stated that the source of collecting information regarding IPO is by the brokers, 49.2% of them

    are collected by the brokers, 17.5% of them are from word of mouth and the remaining 12.5% of

    them are collected through others.

    MODE OF CHOSING PARTICULAR IPO

    Table No: 2.1.13

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 SELF ANALYSIS 48 40.0

    2 WORD OF MOUTH 50 41.7

    3 ANALYSTS 15 12.5

    4 OTHERS 7 5.8

    TOTAL 120 100

    Chart No: 2.2.13

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    INFERENCE:

    From the above table, it is evident that out of 120 respondents 40% of the respondents

    stated that the mode of choosing particular IPO is by self analysis, 41.7% of them are choosing

    by word of mouth, 12.5% of them are from analysts and the remaining 5.8% of them are

    choosing through others.

    PERCENTAGE OF INCOME INVESTED IN IPO

    Table No: 2.1.14

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 100% 11 9.2

    2 75% 14 11.7

    3 50% 50 41.7

    4 25% 45 37.5

    TOTAL 120 100

    Chart No: 2.2.14

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    INFERENCE:

    From the above table, it is evident that out of 120 respondents 9.2% of them are stated

    that the percentage of income invest in IPO is 100%, 11.7% of them are giving 75%, 41.7% of

    them are stated that 50%, and the remaining 37.5% of them are stated that it is 25%.

    PROFITABILITY OF IPO COMPARING WITH OTHER INVESTMENT OPTIONS

    Table No: 2.1.15

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 AVG. RETURN 42 35.0

    2 HIGH RETURN 49 40.8

    3 LESS RETURN 24 20.0

    4 NO RETURN 5 4.2

    TOTAL 120 100

    Chart No: 2.2.15

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    INFERENCE:

    From the above table, it is evident that out of 120 respondents 35% of the investors stated

    that profitability of IPO comparing with others is only average return, 40.8% of them are stated

    that high return, 20% of them are stated that it is less return, and the remaining 4.2% of them are

    stated that it is no return.

    RISK FACTOR PREVAILING IN IPOS COMPARING WITH OTHERS

    Table No: 2.1.16

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 HIGH RISK 22 18.3

    2 MEDIUM RISK 70 58.3

    3 LESS RISK 17 14.2

    4 AVG.RISK 11 9.2

    TOTAL 120 100

    Chart No: 2.2.16

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    INFERENCE:

    From the above table, it is evident that, out of 120 respondents 18.3% of the investors are

    stated that the risk factor prevailing in IPO comparing with others is high risk, 58.3% of them are

    stated that it is medium risk, 14.2% of them are stated that it is less risk, and the remaining 9.2%

    of them are stated that it is average risk.

    INVESTING IN IPO IS SAFE FOR SMALL INVESTORS

    Table No: 2.1.17

    SL.NO FACTORS RESPONDENTS PERCENTAGE

    1 AGREE 38 31.7

    2 STRONGLY AGREE 29 24.2

    3 NEITHER AGREE OR DISAGREE

    43 35.8

    4 DISAGREE 4 3.3

    5 STRONGLY DISAGREE 6 5.0

    TOTAL 120 100

    ChartNo:

    2.2.17

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    INFERENCE:

    From the above table, it is inferred that 31.7% of the investors agree that investing in

    IPO is safe for small investors, 24.2% of them are strongly agree, 35.8% of them have unde