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7/27/2019 R M PROJECT

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INTRODUCTION

IPO stands for Initial Public Offering and means the new offer

of shares from a company which was previously unlisted. This is done by

offering those shares to the public, which were held by the promoters or the

private investors prior to the IPO. In the case when other investors or Promoter

held the shares the stake holding comes down to the extent their shares are

offered to the public. In other cases new shares are issued to the public and the

shares, which are with the promoters stay with them. In both cases the share of

the promoters in the total capital comes down.

For example say there are 100 shares in a company and 50 of these are offered

to the public in an IPO then in such a case the promoter s stake in the company

comes down from 100% to 50%. In another case the company issues 50

additional shares to the public and the stake of the promoter comes down

from 100% to 67%.

Normally in an IPO the shares are issued at a discount to what is

considered their intrinsic value and that s why investors keenly await IPOs and

make money on most of them. IPO are generally priced at a discount, which

means that if the intrinsic value of a share is perceived to be Rs.100 the shares

will be offered at a price, which is lesser than Rs.100 say Rs.80 during the

IPO. When the stock actually lists in the market it will list closer to Rs.100.The difference between the two prices is known as Listing Gains, which

an investor makes when investing in IPO and making money at the listing of

the IPO. A Bullish Market gives IPO investors a clear opportunity to achieve

long term targets in a short term phase.


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EXECUTIVE SUMMARY

As we all know IPO INITIAL PUBLIC OFFERING is thehottest topic in the current industry, mainly because of India being a developing

country and lot of growth in various sectors which leads a country to ultimate

success. And when we talk about countr ys growth which is dependent on the

kind of work and how much importance to which sector is given. And when we

say or talk about industries growth which leads the economy of country has to

be balanced and given proper finance so as to reach the levels to fulfill the

needs of the society. And industries which have massive outflow of work and a

big portfolio then its very difficult for any company to work with limited

finance and this is where IPO plays an important role.

This report talks about how IPO helps in raising fund for the

companies going public, what are its pros and cons, and also it gives us

detailed idea why companies go public. How and what are the steps taken bythe companies before going for any IPO and also the role of (SEBI) Securities

and Exchange Board of India the BSE and NSE , what are primary and

secondary markets and also the important terms related to IPO. It gives us idea

of how IPO is driven in the market and what are various factors taken into

consideration before going for an IPO. And it also tells us how we can more

or less judge a good IPO. Then we all know that scams have always been

a part of any sector you go in for which are covered in it and also few

recommendations are given for the same. It also gives us some idea about what

are the expenses that a company undertakes during an IPO.

IPO has been one of the most important generators of fundsfor the small companies making them big and given a new vision in past andit is still continuing its work and also for many coming years.
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/India


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RESEARCH OBJECTIVES OF THE STUDY

To evaluate can immediate performance of an IPO be relied upon forthe equityin the long run.

To analyze that More the subscription (times of issue size) of the IPO

more is the immediate performance.

To study the factors affecting IPO purchase decision of the Retail Investors.

Primary and Secondary markets

In the primary market securities are issued to the public and the proceeds go to the issuing company. Secondary market is term used for stock exchanges, where stocks are bought and sold after they are issued to the public.

PRIMARY MARKET

The first time that a compa nys shares are issued to the public, it is by a process called the initial public offering (IPO). In an IPO the companyoffloads a certain percentage of its total shares to the public at a certain price.

Most IPO S these days do not have a fixed offer price. Insteadthey follow a method called BOOK BUILDIN PROCESS, where the offer

price is placed in a band or a range with the highest and the lowest value (refer to the newspaper clipping on the page). The public can bid for the shares at any

price in the band specified. Once the bids come in, the company evaluates allthe bids and decides on an offer price in that range. After the offer price isfixed, the company allots its shares to the people who had applied for itsshares or returns them their money.


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SECONDRY MARKET

Once the offer price is fixed and the shares are issued to the

people, stock exchanges facilitate the trading of shares for the general public.Once a stock is listed on an exchange, people can start trading in its shares. In

a stock exchange the existing shareholders sell their shares to anyone who is

willing to buy them at a price agreeable to both parties. Individuals cannot

buy or sell shares in a stock exchange directly; they have to execute their

transaction through authorized members of the stock exchange who are also

called STOCK BROKERS.


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Why Go Public?

Basically, going public (or participating in an "initial public

offering" or IPO) is the process in which a business owned by one or several

individuals is converted into a business owned by many. It involves the

offering of part ownership of the company to the public through the sale of

debt or more commonly, equity securities (stock).

Going public raises cash and usually a lot of it. Being publicly traded also opens

many financial doors:

Because of the increased scrutiny, public companies can usually get better rates

when they issue debt.

As long as there is market demand, a public company can always issue

more stock. Thus, mergers and acquisitions are easier to do because

stock can be issued as part of the deal.

Trading in the open markets means liquidity. This makes it

possible to implement things like employee stock ownership plans,

which help to attract top talent.

Being on a major stock exchange carries a considerable amount of

prestige. In the past, only private companies with strong fundamentals could

qualify for an IPO and it wasn't easy to get listed.

The internet boom changed all this. Firms no longer needed

strong financials and a solid history to go public. Instead, IPOs were done by

smaller startups seeking to expand their businesses. There's nothing wrong

with wanting to expand, but most of these firms had never made a profit and


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didn't plan on being profitable any time soon. Founded on venture capital

funding, they spent like Texans trying to generate enough excitement to

make it to the market before burning through all their cash. In cases like this,

companies might be suspected of doing an IPO just to make the founders rich.This is known as an exit strategy, implying that there's no desire to stick

around and create value for shareholders. The IPO then becomes the end of the

road rather than the beginning.

How can this happen? Remember: an IPO is just selling stock. It's all about

the sales job. If you can convince people to buy stock in your company, you

can raise a lot of money


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INITIAL PUBLIC OFFERINGS:

The first offering of a companys shares to the public. The shares

offered may be existing ones held privately, or the company may issue new

shares to the public.

PARTIES INVOLVED IN THE IPO:

The promoters also should have a clear idea about the agencies to

coordinate their activities effectively in the public issue. The various parties

involved are:

The manager to the issue,

The registrars to the issue,

Underwriters,

Bankers,

Advertising agencies,

Financial Institutions and

Government /Statutory Agencies.


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The Managers To The Issue:

Lead managers are appointed by the company to manage the

initial public offering campaign. Their main duties are:

Drafting of prospectus

Preparing the budget of expenses related to the issue

Suggesting the appropriate timings of the public issue

Assisting in marketing the public issue successfully

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

brokers, bankers to the issue, advertising agents etc.

Directing the various agencies involved in the public issue.

The merchant banking division of the financial institutions, subsidiary of

commercial banks, foreign banks, private sector banks and private agencies

are available to act as lead mangers. Such as SBI Capital Markets Ltd., Bank

of Baroda, Canara Bank, DSP Financial Consultant Ltd. ICICI Securities &

Finance Company Ltd., etc.


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The Registrar To The Issue:-

After the appointment of the lead managers to the issue, in

consultation with them, the Registrar to the issue is appointed.

Quotations containing the details of the various functions they

would be performing and charges for them are called for selection.

Among them the most suitable one is selected. It is always ensured that the

registrar to the issue has the necessary infrastructure like Computer, Internetand telephone.

The Registrars normally receive the share application from various collection

centers. They recommend the basis of allotment in consultation with the

Regional Stock Exchange for approval. Usually registrars to the issue retain

the issuer records at least for a period of six months from the last date of

dispatch of letters of allotment to enable the investors to approach the

registrars for redressal of their complaints.


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The Underwriters

Underwriting is a contract by means of which a person gives anassurance to the issuer to the effect that the former would subscribe to the

securities offered in the event of non-subscription by the person to whom they

were offered. The person who assures is called an underwriter. The

underwriters do not buy and sell securities. They stand as back-up supporters

and underwriting is done for a commission. Underwriting provides an

insurance against the possibility of inadequate subscription. Underwriters are

divided into two categories:

Financial Institutions and Banks

Brokers and approved investment companies.

The company after the closure of subscription list communicates

in writing to the underwriter the total number of shares/debentures under

subscribed, the number of shares/debentures required to be taken up by the

underwriter. The underwriter would take up the agreed portion. If the

underwriter fails to pay, the company is free to allot the shares to others or

take up proceeding against the underwriter to claim damages for any loss

suffered by the company for his denial.


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The Bankers To The Issue:

Bankers to the issue have the responsibility of collecting the

application money along with the application form. The bankers to the issue

generally charge commission besides the brokerage, if any. Depending upon

the size of the public issue more than one banker to the issue is appointed.

When the size of the issue is large, 3 to 4 banks are appointed as bankers to

the issue. The number of collection centers is specified by the central

government. The bankers to the issue should have branches in the specified

collection centers.

Advertising Agents:

Advertising plays a key role in promoting the public issue.

Hence, the past track record of the advertising agency is studied carefully.Tentative program of each advertising agency along with the estimated cost

are called for. After comparing the effectiveness and cost of each program

with the other, a suitable advertising agency if selected in consultation with

the lead managers to the issue. The advertising agencies take the responsibility

of giving publicity to the issue on the suitable media. The media may be

newspapers/ magazines/ hoardings/press release or a combination of all.


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The Financial Institutions

Financial institutions generally underwrite the issue and lend

term loans to the companies. Hence, normally they go through the draft of

prospectus, study the proposed program for public issue and approve them.

IDBI, IFCI & ICICI, LIC, GIC and UTI are the some of the

financial institutions that underwrite and give financial

assistance. The lead manager sends copy of the draft prospectus to the

financial institutions and includes their comments, if any in the revised draft.

Government And Statutory Agencies

The various regulatory bodies related with the public issue are:

Securities Exchange Board of India Registrar of companies

Reserve Bank of India (if the project involves foreign investment)

Stock Exchange where the issue is going to be listed

Industrial licensing authorities

Pollution control authorities (clearance for the project has to be stated inthe prospectus)


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COLLECTION CENTERS

Generally there should be at least 30 mandatory collection centers

inclusive of the places where stock exchanges are located. If the issue is not

exceeding Rs.10 Cr (excluding premium if any) the mandatory collection

centers are the four metropolitan centers viz. Mumbai, Delhi, Kolkatta and

Chennai and at all such centers where stock exchanges are located in the

region in which the registered office of the company is situated. The regional

divisions of the various stock exchanges and the places of their locations are

given in the following table:


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Table 1.2: Collection centres

Region Exchange City

Northern Ludhiana Stock Ludhiana Region Exchange Delhi

Delhi Stock Exchange Jaipur Jaipur Stock Exchange Kanpur U P Stock Exchange

Southern Hyderabad Stock Hyderabad Region Exchange Bangalore

Bangalore Stock Managlore Exchange Chennai

Mangalore Stock Coimbatore Exchange Cochin Madras Stock Exchange Coimbatore Stock Exchange Cochin Stock Exchange

Eastern Region Calcutta Stock Exchange Kolkatta Gawahati Stock Gawahati Exchange Patna Magadh Stock Exchange Bhubaneswar

Bhubaneswar Stock Exchange

Western Bombay Stock Mumbai Region Exchange Mumbai

National Stock Mumbai Exchange Indore OTCEL Stock Exchange Pune M P Stock Exchange Vadodara Pune Stock Exchange Ahmedabad

Vadodara Stock Rajkot Exchange Ahmedabad Stock Exchange Sauashtra Kutch Stock Exchange


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In addition to the collection branch, authorized collection agents may also be

appointed. The names and addresses of such agent should be given in the offer

documents. The collection agents are permitted to collect such applicationmoney in the form of cheques, draft, and stock-invests and not in the form of

cash. The application money so collected should be deposited in the special

share application account with the designated scheduled bank either on the

same day or latest by the next working day.

The application collected by the bankers to the issue at different centers are

forwarded to the Registrar after realization of the cheques, within a period of 2

weeks from the date of closure of the public issue. The applications

accompanied by stock-invests are sent directly to the Registrars to the issue

along with the schedules within one week from the date of closure of the

issue. The investors, who reside in places other than mandatory and

authorized centers, can send their application with stock-invests to the

Registrar to the issue directly by registered post with acknowledgement due

card.


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PLACEMENT OF THE IPO

Initial public offers are floated through Prospectus; Bought out

deals/offer for sale; Private Placement and Book Building.

PRICING OF ISSUES

The Controller of Capital Issues Act governed issue of capital prior to May

27, 1992 1947. Under the Act, the premium was fixed as per the valuation

guidelines issued. The guidelines provided for fixation of a fair price on the

basis of the net asset value per share on the expanded equity base taking into

account, the fresh capital and the profit earning capacity.

The repealing of the Capital Issue Control Act resulted in an era

of free pricing of securities. Issuers and merchant bankers fixed the offer

prices. Pricing of the public issue has to be carried out according to the

guidelines issued by SEBI.

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

case of the following:

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

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

companies with three-year track record of consistent profitability.


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OFFER THROUGH PROSPECTUS

According to Companies (Amendment) Act 1985, application

forms for shares of a company should be accompanied by a Memorandum

(abridged prospectus).

In simple terms a prospectus document gives details regarding the company

and invites offers for subscription or purchase of any shares or debentures

from the public. The draft prospectus has to be sent to the Regional Stock

Exchange where the shares of the company are to be listed and also to all

other stock exchanges where the shares are proposed to be listed. The stock

exchange scrutinizes the draft prospectus. After scrutiny if there is any

clarification needed, the stock exchange writes to the company and also

suggests modification if any. The prospectus should contain details regarding

the statutory provisions for the issue, program of public issue opening,

closing and earliest closing date of the issue, issue to be listed at, highlights

and risk factors, capital structure, board of directions, registered office of the

company, brokers to the issue, brief description of the issue, cost of the

project, projected earnings and other such details. The board, lending financial

institutions and the stock exchanges in which they are to be listed should

approve the prospectus. Prospectus is distributed among the stock exchanges,

brokers and underwriters, collecting branches of the bankers and to the leadmanagers.


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How to evaluate an IPO ?

Whether you are buying stock from the secondary market or subscribing

to an initial public offering (IPO), make sure you have all the facts. That

means going through the small print in the IPO document with a fine-toothed

comb. Don't let market hype, investment trends or media reports influence

you. Following these parameters should help: Promoters. Who runs the

company? Professionals or a family? If the directors are well known, it gives a

company credibility. Check the credentials of the promoters, directors and key

managerial persons. See if they have at least five years' experience in the

company's line of business,

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

service, with adequate profit potential.

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

aspects such as land/office space, plant and machinery, utilities, regulatory

clearances, personnel, financing, projects in hand, sales and marketing,

technical and marketing tie-ups. High investments from promoters lend

credibility to the IPO plan, as do project appraisals by merchant bankers.


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

equity and debt on its books, and whether the additional issue of equity is

justified. Check for consistency in revenue, profit growth and margins for at

least three years before the IPO. A steady growth rate suggests a

fundamentally sound company. More important, scale the historic trend into

future projections: A company with a PAT (profit after tax) of Rs 10 lakh will

find it difficult to reach a projected PAT of Rs 15 crore. Projections are based

on assumptions, which give promoters leeway to manipulate figures. A good

way to check if projections are true is to see whether the assumptions are

realistic, given the company's scope of operations, and check how it compares

with competitors' figures.


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RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the

problem. It includes all those steps that are generally adopted to solve theresearch problem. Thus, it refers to the systematic method consisting of

enunciating the problem, formulating a hypothesis, collecting the facts or data,

analyzing the facts and reaching certain conclusion either in the form of

solutions towards the concerned problems or in certain generalizations for some

theoretical formulation.

RESEARCH DESIGN

The research design in this study is Descriptive . Descriptive

research studies are those studies, which are concerned with describing the

characteristics of a particular individual, or of a group. The studies concerned

with narration of facts and characteristics concerning individual, group or

situation are all examples of descriptive research studies.


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DATA COLLECTION

Collection of data is a very important step because accuracy in data

is a factor of the method used for data collected. Thus there are two ways of

collecting appropriate data:

PrimaryData

SecondaryData

Primary Data are those, which are collected for the first time, thus happen to

be original in character. For the purpose of collection of primary data personal

interview of respondents were conducted. An unbiased, undisguised structured

questionnaire was prepared which was administered to the respondents for the

purpose of getting the information.

Secondary Data are those, which have already been collected by someone else.

For the purpose of the study, the data were collected from secondary sources

like We bsites of NSE, Economic Times & related companies, Jou rnals like The

Chartered Accountant, the Dalal Street, The Financial Analyst, Newspapers like

The Economic Times, The Times of India, The Financial Express etc. All of the

260 Companies were considered which had raised their public issues only in

National Stock Exchange (NSE) from 1 January 2003 To 31 December 2007

(compiling 5 years). Companys current stock price was taken as closing price

at 3.30 pm on 31 st December 2007.


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SAMPLE SIZE

In this research, a sample of 100 persons is taken.

SAMPLING TECHNIQUE

All the respondents who were easily accessible and willing to share

the information were administered the structured questionnaire to get the

desired information. A non-probability sampling technique i.e. convenience

sampling technique was used.

STATISTICAL TOOLS USED

Different statistical tools have been used in the study.

Eg. Mean, Standard Deviation, Correlation, Standard Error, Z Test,Likert Scale.


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FINDINGS AND CONCLUSION

From the forgoing analysis followings were the findings :

Immediate performance of IPO can be relied upon for the equity in the long run

was rejected . It was proved from the fact that over last five years, there existed

statistically insignificant positive correlation between percentage change in the

issue price & list price of the IPO and percentage change in the issue price &

current market price of the same. Therefore, We can conclude that immediate

performance of a particular IPO can not be relied upon for the equity in the long

run.

More the subscription (times of issue size) of the IPO, more is the immediate

performance, was accepted. As there existed statistically significant positive

correlation between subscription (times of issue size) of the IPO and its

immediate performance at the time of listing. Thus, we can judge that the IPO

will give high immediate returns, by the times of its oversubscription.

Out of 100, 53 investors i.e. Maximum Investors are in share trading for 2 to 10

years. Out of 100, 62 investors i.e. Maximum Investors are investing Less than

Rs. 1,00,000 in the share market.

price & list price of the IPO and percentage change in the issue price & current

market price of the same. Therefore, We can conclude that immediate

performance of a particular IPO can not be relied upon for the equity in the long

run.


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More the subscription (times of issue size) of the IPO, more is the immediate

performance, was accepted. As there existed statistically significant positive

correlation between subscription (times of issue size) of the IPO and its

immediate performance at the time of listing. Thus, we can judge that the IPOwill give high immediate returns, by the times of its oversubscription.

Out of 100, 53 investors i.e. Maximum Investors are in share trading for 2 to

10 years. Out of 100, 62 investors i.e. Maximum Investors are investing Less

than Rs. 1,00,000 in the share market.

Out of 100, 43 investors i.e. Maximum Investors are interested in

investing Secondary Securities than IPOs.

Maximum of the Investors who have yearly income less than Rs. 2,00,000 opt

for Margin Funding.

Maximum of the Investors who have yearly income between Rs. 2,00,000 to

Rs. 5,00,000 opt for Hybrid Type of Investment consisting of margin funding

and self.

Maximum of the Investors who have yearly income more than Rs. 5,00,000

opt for self.

Out of 100, 77 investors i.e. maximum of the Investors invest in IPOs for

Listing Gains.


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Out of 100, 69 investors i.e. maximum of the Investors who invest in the share

market have Professional Knowledge about Share Market.

Since null hypothesis is rejected in case of all the Factors so sample mean > population mean.

Investors evaluate an IPO maximum from Promoters of the company,

prevailing Market Trend & Recent IPO performance & Issue Size of the IPO

and minimum from Suppliers of the company, Listing in Well Known Stock

exchanges & Media Advertisements..


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RECOMMENDATIONS

Initial return given by the IPO should not be treated as indication of itssuccess or failure in the long run. Investors of the secondary market must

take part in the primary markets as it has been seen that IPO activity in

Indian Stock Market has been tremendously growing. And IPO is the safest

stock market investment.

Over subscription should be treated as indication of success of the issue.

Whole amount for shares applied should be received in advance from

QIBs just like retail investor so that they can quote real worth of the

company in terms of money that they are ready to pay for it.

Investors must analyze all the sectors before investing in the IPO, in

order to get maximum returns.

Investors should take into consideration the promoters of the business,

the prevailing market trend & Recent IPO performance before investing

in an IPO.


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Whole amount for shares applied should be received in advance from QIBs

just like retail investor so that they can quote real worth of the company in

terms of money that they are ready to pay for it.

Investors must analyze all the sectors before investing in the IPO, inorder to get maximum returns.

Investors should take into consideration the promoters of the business,

the prevailing market trend & Recent IPO performance before investing

in an IPO.


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