ipo report
DESCRIPTION
A project report of Initial Public OfferingTRANSCRIPT
A PROJECT REPORT
ON IPO
NAME
MILAN TIMBADIYA
CLASS
PGDM – IV
GUIDED BY
PROF. CHHAVI MANRA
ACADEMIC YEAR
2011-2013
COLLAGE
MARWADI EDUCATION FOUNDATION’S GROUP OF
INSTITUTIONS
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INTRODUCTION
An initial public offering (IPO) is the first public offer of securities by a company since its
inception. The security offered in an IPO is generally either equity or convertible instrument.
The decision to go public is a critical one as it results in dilution of ownership stake and
diffusion of corporate control. An IPO can be used both as a financing strategy and exit
strategy. In a financing strategy, the main purpose of the IPO is to raise funds for the
company. An IPO can be used as an exit strategy when the existing investors offload their
equity holdings to the public.
The industrial securities market generally comprises two important constituents for smooth
operations in the securities dealings, namely:
1.) Primary or New Issues Market,
2.) Secondary Market or Stock Market or Stock Exchange
The Primary market is a mechanism through which the resources of the community are
mobilized and invested in the various types of industrial securities. New Issues are made in
the primary market.
The secondary market, that is the stock exchanges taken together, is a mechanism which
provides easy liquidity, transferability and continuous price formation of securities to enable
investors to buy and sell them with ease.
The primary market is a reflection of the secondary market, two major factors, interest
earning rate for an individual and corporate expansion govern for the latter. Equity
investments are made not for yield but for capital gains, the latter is directly dependent on
corporate retained earning and critically, their direction into funding expansion.
The New Issue Market is a perennial source of industrial securities of the secondary market.
The secondary market activates the primary when it is buoyant and vice-versa. The primary
market provides securities to the investors and assists to the corporate sector in raising funds
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through new issues. The secondary market provides liquidity and market ability to the
existing securities.
The New Issue Market deals with the new securities, which were not previously tradable to
the investing public. The main functions of the new issue market is to facilitate the transfer of
resources from savers to entrepreneurs seeking to establish or to expand diversify existing
events. The investors in these securities are banks, insurance companies, Investment Trust
companies and Individuals. The New Issue Market (IPO) is an important tool by which the
new concerns raise the capital with the aid of public money.
Introduction of IPO
IPO or Initial Public Offer is a way for a company to raise money from investors for its
future projects and get listed to Stock Exchange. Or An Initial Public Offer (IPO) is the
selling of securities to the public in the primary stock market.
Company raising money through IPO is also called as company ‘going public'.
From an investor point of view, IPO gives a chance to buy shares of a company, directly from
the company at the price of their choice (In book build IPO's). Many a times there is a big
difference between the price at which companies decides for its shares and the price on which
investor are willing to buy share and that gives a good listing gain for shares allocated to the
investor in IPO.
From a company prospective, IPO help them to identify their real value which is decided by
millions of investor once their shares are listed in stock exchanges. IPO's also provide funds
for their future growth or for paying their previous borrowing.
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What is primary & secondary market?
Primary market is the market where shares are offered to investors by the issuer company to
raise their capital.
Secondary market is the market where stocks are traded after they are initially offered to the
investor in primary market (IPO's etc.) and get listed to stock exchange. Secondary market
comprises of equity markets and the debt markets.
Secondary market is a platform to trade listed equities, while Primary market is the way for
companies to enter in to secondary market.
Who decides the Price Band?
Company with help of lead managers (merchant bankers or syndicate members) decides the
price or price band of an IPO.
SEBI, the regulatory authority in India or Stock Exchanges do not play any role in fixing the
price of a public issue. SEBI just validate the content of the IPO prospectus.
Companies and lead managers does lots of market research and road shows before they
decide the appropriate price for the IPO. Companies carry a high risk of IPO failure if they
ask for higher premium. Many a time investors do not like the company or the issue price
and doesn't apply for it, resulting unsubscribe or undersubscribed issue. In this case
companies' either revises the issue price or suspends the IPO.
Who decides the date of the issue?
Once ‘Draft Prospectus' of an IPO is cleared by SEBI and approved by Stock Exchanges
then it's up to company going public to finalize the date and duration of an IPO. Company
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consult with the Lead Managers, Registrar of the issue and Stock Exchanges before decides
the date.
Role of registrar of an IPO?
Registrar of a public issue is a prime body in processing IPO's. They are independent
financial institution registered with SEBI and stock exchanges. They are appointed by the
company going public.
Responsibility of a registrar for an IPO is mainly involves processing of IPO applications,
allocate shares to applicants based on SEBI guidelines, process refunds through ECS or
cheque and transfer allocated shares to investors Demat accounts.
Role of Lead Managers in an IPO
Lead managers are independent financial institution appointed by the company going public.
Companies appoint more then one lead manager to manage big IPO's. They are known as
Book Running Lead Manager and Co Book Running Lead Managers.
Their main responsibilities are to initiate the IPO processing, help company in road shows,
creating draft offer document and get it approve by SEBI and stock exchanges and helping
company to list shares at stock market.
Book Building Issue and Fixed Price Issue
Initial Public Offering can be made through the fixed price method, book building method or
a combination of both.
Difference between shares offered through book building and offer of shares through normal
public issue (Source: BSE):
Features Fixed Price process Book Building process
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Pricing
Price at which the securities are
offered/allotted is known in advance to the
investor.
Price at which securities will be offered/allotted is not known
in advance to the investor. Only an indicative price range is
known.
DemandDemand for the securities offered is known
only after the closure of the issue.
Demand for the securities offered can be known everyday as
the book is built.
PaymentPayment if made at the time of subscription
wherein refund is given after allocation.Payment only after allocation
Life cycle of an IPO:
Below is the detail process flow of a 100% Book Building Initial Public Offer IPO. This
process flow is just for easy understanding for retail IPO investors. The steps provided below
are most general steps involve in the life cycle of an IPO. Real processing steps are more
complicated and may be different. Please visit SEBI website, stock exchange website or
consult an expert for most current information about IPO life cycle in Indian Stock market.
1. Issuer Company - IPO Process Initialization
1. Appoint lead manager as book runner.
2. Appoint registrar of the issue.
3. Appoint syndicate members.
2. Lead Manager's - Pre Issue Role - Part 1
1. Prepare draft offer prospectus document for IPO.
2. File draft offer prospectus with SEBI.
3. Road shows for the IPO.
3. SEBI – Prospectus Review
1. SEBI review draft offer prospectus.
2. Revert it back to Lead Manager if need clarification or changes (Step 2).
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3. SEBI approve the draft offer prospectus, the draft offer prospectus is now
become Offer Prospectus.
4. Lead Manager - Pre Issue Role - Part 2
1. Submit the Offer Prospectus to Stock Exchanges, registrar of the issue and get
it approved.
2. Decide the issue date & issue price band with the help of Issuer Company.
3. Modify Offer Prospectus with date and price band. Document is now called
Red Herring Prospectus.
4. Red Herring Prospectus & IPO Application Forms are printed and posted to
syndicate members; through which they are distributed to investors.
5. Investor – Bidding for the public issue
1. Public Issue Open for investors bidding.
2. Investors fill the application forms and place orders to the syndicate members
(syndicate member list is published on the application form).
3. Syndicate members provide the bidding information to BSE/NSE electronically
and bidding status gets updated on BSE/NSE websites.
4. Syndicate members send all the physically filled forms and cheques to the
registrar of the issue.
5. Investor can revise the bidding by filling a form and submitting it to Syndicate
member.
6. Syndicate members keep updating stock exchange with the latest data.
7. Public Issue Closes for investors bidding.
6. Lead Manager – Price Fixing
1. Based on the bids received, lead managers evaluate the final issue price.
2. Lead managers update the 'Red Herring Prospectus' with the final issue price
and send it to SEBI and Stock Exchanges.
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7. Registrar - Processing IPO Applications
1. Registrar receives all application forms & cheques from Syndicate members.
2. They feed applicant data & additional bidding information on computer
systems.
3. Send the cheques for clearance.
4. Find all bogus application.
5. Finalize the pattern for share allotment based on all valid bid received.
6. Prepare 'Basis of Allotment'.
7. Transfer shares in the demat account of investors.
8. Refund the remaining money though ECS or Cheques.
8. Lead manager – Stock Listing
1. Once all allocated shares are transferred in investors DP accounts, Lead
Manager with the help of Stock Exchange decides Issue Listing Date.
2. Finally share of the issuer company gets listed in Stock Market.
Potential investor and their perception on price band
1. Income investor:
An income investor is the who is looking for steadily rising profits that will distributed to
shareholders regularly so, perception of such investor about price band is that price band is lower
then invest more amount in the IPOs.
2. Growth Investor:
A ‘ growth investor ‘ is the one who is looking for potential steady increase in the profit that are
re invested for further expansion perception of such investors about pricing decision & evaluation
company plan, retained earning of company.
3. Speculators:
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A speculator looks for short term gains or where more earning available to them. So, they will
attract into anywhere in market, where profit opportunities with lower price band arise to them.
Types of investors in IPOS categories:
Investors can apply for shares in an IPO in 4 different categories
1. RetailIndividualInvestor(RII)
In retail individual investor category, investors can not apply for more then Rs .one
lakh (Rs. 1,00,000) in an IPO. Retail Individual investors have an allocation of 35% of
shares of the total issue size in Book Build IPO's.
NRI's who apply with less then Rs. 1,00,000 /- are also considered as RII category.
2. SEBI like RII's
Non-institutional bidders have an allocation of 15% of shares of the total issue size in
Book Build IPO's.
3. QualifiedInstitutionalBidders(QIB's)
Financial Institutions, Banks, FII's and Mutual Funds who are registered with SEBI are
called QIB's. They usually apply in very high quantities.
QIBs are mostly representatives of small investors who invest through mutual funds,
ULIP schemes of insurance companies and pension schemes.
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QIB's have an allocation of 50% of shares of the total issue size in Book Build
IPO's .In a book built issue allocation to Retail Individual Investors (RIIs), Non
Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of
35:15: 50 respectively.
Issue open
As per Clause 8.8.1 of SEBI Act, Subscription list for public issues shall be kept open for at
least 3 working days and not more than 10 working days. In case of Book built issues, the
minimum and maximum period for which bidding will be open is 3 - 7 working days
extendable by 3 days in case of a revision in the price band. The public issue made by an
infrastructure company, satisfying the requirements in Clause 2.4.1 (iii) of Chapter II may be
kept open for a maximum period of 21 working days. As per clause 8.8.2., Rights issues shall
be kept open for at least 30 days and not more than 60 days.
1.2 INSUDTRY PROFILE
1.2.1 Stock Market History:
When did the Stock Market Begin
Historical evidences reveal that the 11th century Muslim and Jewish Merchants in Cairo had a
trade association and their own methods of credit and payment. This is believed to be the beginning
of stock market.
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In the 12th century, courratiers de change of France managed and regulated the debts of
agricultural communities on behalf of the banks. Since these men traded with debts, they were also
known as "brokers".
Venetian bankers traded in government securities in the 13th century.
In the 14th century, the Dutch started joint stock companies which encouraged the
shareholders to invest in business ventures.
In 1602, Dutch East India Company established Amsterdam Stock Exchange and they were
the first company to issue stocks and bonds. The Dutch pioneered in "option trading", "short-selling"
and “debt-equity swaps" and in other speculative financial instruments.
London Stock Exchange: This is one of the oldest stock exchanges in the world and
was established in 1698. The founder of London Stock Exchange was John Castaing.
Today, London Stock Exchange lists 3,500 companies, representing 84 countries.
New York Exchange: The New York Exchange is the oldest and the most well-
known of all American stock markets. This was established in 1792. NYSE has a total
capitalization of nearly $20 trillion and lists 2,800 companies.
American Stock Exchange: The American Stock Exchange is also known as Amex.
This stock exchange was established in 1849 during the California Gold Rush and the
Curb Exchange. The American Stock Exchange was associated with the mining
industry and played a major rule during the 19th century. In 1921, American Stock
Exchange enlisted companies, which did not meet the standards of the New York
Stock Exchange. In 1998, Amex was purchased by NASDAQ, but regained its
independence in 2003.
Bombay Stock Exchange: One of the oldest stock exchange markets in Asia is
Bombay Stock Exchange and it was established in 1875. Today, around 2,000,000
shares of stock are traded daily.
NASDAQ: National Association of Securities Dealers Automated Quotation or
NASDAQ was established in 1971. This was the first stock exchange to introduce the
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concept of electronics in stock trading. It is one of the most efficient stock exchanges
in the world and it surpassed the average trading volume of the NYSE in October
2004.
History of the Indian Stock Exchange:
The corporate securities market dates back to the 18 th century when the securities of East India
Company were traded in Mumbai and Kolkata. The brokers used to gather under a
banyan tree in Mumbai and under a Neem tree in Kolkata for the purpose. However,
the real beginning came in the 1850s with limited liability. The 1860s witnessed
beverish dealing in securities and securities speculation. This brought brokers to
Bombay together in July 1875 to boom the first organized stock exchange Mumbai,
Ahmadabad stock exchange in 1894 and 22 others followed with 20th century. 1830's:
Business on corporate stocks and shares in Bank and Cotton presses started in
Bombay. Trading list by the end of 1839 got broader.
1840's: Recognition from banks and merchants to about half a dozen brokers.
1850's: Rapid development of commercial enterprise saw brokerage business attracting more
people into the business.
1860's: The number of brokers increased to 60.
1860-61: The American Civil War broke out which caused a stoppage of cotton supply from
United States of America; marking the beginning of the "Share Mania" in India.
1862-63: The number of brokers increased to about 200 to 250.
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1865: A disastrous slump began at the end of the American Civil War (as an example, Bank
of Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87).
Before Independence situation - Establishment of Different Stock Exchanges
1874: With the rapidly developing share trading business, brokers used to gather at a street
(now well known as "Dalal Street") for the purpose of transacting business.
1875: "The Native Share and Stock Brokers' Association" (also known as "The Bombay
Stock Exchange") was established in Bombay.
1880's: Development of cotton mills industry and set up of many others.
1894: Establishment of "The Ahmadabad Share and Stock Brokers' Association".
1880 - 90's: Sharp increase in share prices of jute industries in 1870's was followed by a boom in
tea stocks and coal.
1908: "The Calcutta Stock Exchange Association" was formed
1920: Madras witnessed boom and business at "The Madras Stock Exchange" was
transacted with 100 brokers.
1923: When recession followed, number of brokers came down to 3 and the Exchange was
closed down.
1934: Establishment of the Lahore Stock Exchange.
1936: Merger of the Lahore Stock Exchange with the Punjab Stock Exchange
1937: Re-organization and set up of the Madras Stock Exchange Limited (Pvt.) Limited led
by improvement in stock market activities in South India with establishment of new
textile mills and plantation companies.
1940: Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited were
established.
1944: Establishment of "The Hyderabad Stock Exchange Limited".
1947: "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and
Shares Exchange Limited" were established and later on merged into "The Delhi
Stock Exchange Association Limited".
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Inter-mediaries
1.2.5 after Independence Scenario:
Delhi Stock Exchange
Bangalore Stock Exchange (1963)
Cochin Stock Exchange (1980)
Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)
Pune Stock Exchange Limited (1982)
Ludhiana Stock Exchange Association Limited (1983)
Gauhati Stock Exchange Limited (1984)
Kanara Stock Exchange Limited (at Mangalore, 1985)
Magadh Stock Exchange Association (at Patna, 1986)
Jaipur Stock Exchange Limited (1989)
Bhubaneswar Stock Exchange Association Limited (1989)
Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
Vadodara Stock Exchange Limited (at Baroda, 1990)
Coimbatore Stock Exchange
Meerut Stock Exchange
Source: - (Stock Market of India)
1.2.6 Market Players of Industries:
Chart 1.1: Financial Player
SURPLUS UNITS DEFICIT UNITS
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Individual
Company
Soverign/Country Soverign/Country
Company
Individual
Industry analysis:
It is related with the no of issue and amount raised in the primary market. In the following
manner, we directly described no of amount invested in the market i8t can be interpreted in
the following way. It described preference towards the IPOs market.
Money Raised By Indian Companies
India has very huge capital market. Companies find IPO as the most attractive instrument for
raising the capital from the public. The table given below shows the no. of issues for the
particular year and size of the primary market.
Year No. of issuesAmount Raised
(Rs. Crore)
2005 76 22590
2006 96 29845
2007 112 45663
2008 38 18520
2009 15 14674
. source: handbook on investment in India,
There is no consistency on the new issues considering the no. of issues and amount raised
during the particular period. It shows that there are various factors which affect the primary
market. The no. of new issues has drastically decreased from 2008 onwards. One of the
resons behind that can be the global recession period. But there are also other factors like
investor’s perception, regulation, market condition etc…
There is something amiss in the festivities in the primary market. On the one hand we see the
issues getting oversubscribed; on the other hand, listing of this IPOs aren’t exciting enough.
For example Adani power got listed at just rupees 102 over its issue price of Rs.100. there are
many issues like den network, N.H.P.C etc…. who got listed below the issue price. In fact
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the average listing gains for the 12 issues of 2007 stands at a mere 4.57%.This is quite
contrast to the sensex,which is up by 84%.
There is need of such research today as the performance in primary market is declining. The
facts given below justify the need of improvement in the primary market.
Out of the 12 issues listed in 2009 till now, seven issues are quoting below their issue
price.
Out of the total 38 issues in 2008, 30 issues are quoting below issue price.
The total amount lost in IPOs since 2007 stands at Rs.7200 crore. This is almost 10%
of the total funds raised since 2007
INDIA’S TOP TEN IPOs
1.2 India’s Top TEN IPOs:
Company Deal size (Rs. Cr) Year
Coal India 15000 2010
Reliance Power 11700 2008
ONGC 9500 2004
DLF 9188 2007
Cairn India* 5788 2006
TCS 5420 2004
NTPC 5368 2004
Reliance Petroleum** 2700 2006
Idea Cellular 2443 2007
Reliance Petroleum*** 2172 1993
This is the table which displays the top most IPO issued by the companies in the market. So
from the above table it can seen that Highest IPOs credits to company Coal India in the year
2010.
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Literature Review
uncertainty of investors regarding the IPO firm’s value. For investors , the costly information
in the IPO process is analogous to a call option on IPO with strike price as the IPO offer
price.
In the Indian context, Gupta (1996) has indicated that from the angle of investor protection,
the regulation of new issue market is important for several reasons. The number of small
investors in new issue market is massive. Most of new investors make the first entry into
equity investments via the new issue market. So retaining common investor confidence in
primary market is important.
Murali (2000) has indicated that new issues market (NIM) focuses on decreasing information
asymmetry, easy accessibility of capital by large sections of medium and small enterprises,
national level participation in promoting efficient investment, and increasing a culture of
investments in productive sector. In order that these goals are achieved, a substantial level of
improvement in the regulatory standards in India at the voluntary and enforcement levels is
warranted. The most crucial steps to achieve these goals would be to develop measures to
strengthen the new issues market.
Separately, the credit rating literature has shown that credit rating convey information beyond
what have incorporated into the price of financial claims.
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Research MethodologyResearch Methodology
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Title of the Study:
There is a very vast area in financial market. So in front of my eyes there were many topics
among them I have selected one of the title “FACTORS INFLUENCING INVESTORS
TO GO FOR IPO”
Objectives of the Study
The basic purpose of the report is to define the perception of the investors on IPOs pricing apart from
this some other objectives can be defined as under:
1. The factors affecting the perception of investors on IPO pricing .
2. Importance of credit rating agencies for subscribing IPO.
3. To study, what factors should any investor need to know to invest in the IPO?
And also as we know that service industry has been growing by leaps and bounds and to get
the know-how of market in general and service in particular I have conducted the research in
the ordering pattern of the individual clients. And so by that way we can get the overall
picture of the perception on IPOs about pricing decisions of the investors.
Rationale of the Study
Through my whole study I came with many results which are beneficial for me. In the sense
of my view towards my topic “FACTORS INFLUENCING INVESTORS TO GO FOR
IPO”
As a student I expand my ideas about IPOs pricing decisions. During analysis I had talked
with some of the respondents of various groups of the people. During analysis I had talked
with some of the IPOs investors at field research and present investors of IPOs .so trough this
way I can know the perception of the investors . In future time it help me a lots.
Now we talk about the organization point of view, from the research of my study the Marwadi Shares
and Finance Ltd got plenty of information. They came to know in which area the improvement is
required. So that they find the investors benefit& investment as a IPOs.
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Sample Design:
Research design in case of exploratory research design.
Research design in case of descriptive and diagnostic research studies.
The market area is very wide so it is more difficult to take all items as a sample is most important
thing in the market. When the universe is a small one, there is a no need to sample or sample survey.
But when universe is large, requirement of sample survey is very high. A sample design is a definite
plan for obtaining a sample from given population. It refers to the technique or the procedure the
researcher would adopt in selecting items for a sample. Sample design is a determined before data are
collected. There are many recollect search design from which researcher can choose It.
Sample size :100 respondents
Sampling Sampling is widely used in business as a means of gathering useful
information about a population. Data are gathered from samples and conclusions are
drawn about the population as a part of inferential statistics process sampling
Reason for sampling
There are many reasons for taking sample size like,
The sample can save money.
The sample can save time.
The research report will be based on probability sampling. As per research scope and
objective simple random sampling technique will be better option for sampling as we
are using subpopulation for our research..
sampling size of 100 is chosen as per the current market
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Collection of Data:
Data Collection
The task of data collection begins after a research problem has been defined and research plan chalked
out. While deciding about the method of data collection to be used for study ,the researcher should
keep in mind two types of data like primary and secondary data.
Primary data
Secondary data
1. Primary Data
Primary data is the one, which is collected by the investigator himself for the purpose of a specific
inquiry or study. Such data is original in character and is generated by survey conducted by
individuals so research institution or any organization. The classification of primary data is according
to nature and function of data. Collection of data can be made by broker of the Rajkot city .it is taken
by way of filling of questionnaire.
1. Observation method
2. Interview method
3. Questionnaire method
From these methods, I have concentrated on a basic method of research named questionnaire method
for the present research.
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Observation Method
Observation may be defined as a systematic viewing of a specific phenomenon in its proper setting of
gathering data for particular study. Observation method includes both seeing and hearing.
Interview Method
The interview method of collecting data involves presentation of oral verbal stimuli and reply in terms
of oral verbal responses. This method can be used to collect the information from the customer.
Questionnaire Method
In this method the questionnaire is sent to all the persons concerned with request to answer the
questioner and return it. A questionnaire consists of number of question type on printed in definite
order. A schedule questionnaire with multiple choice question was designed which were both open
ended and close ended question.
I have taken 8to 9 question for filling of IPOs.
2 . Secondary Data
Secondary data are those which have been already collected by someone else and which have been
passed through statistical process for the purpose of conducting this research I have used various
secondary data such as
o Reference book
o Articles, News paper
o Websites
The whole research is a primary study but even though I will use the secondary data to make the
argument stronger. The past research and articles will also be analyzed during the research process. It
will be qualitative research. And I have used all 3 alternatives method of primary data. I have
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collected both the primary data as well as secondary data. I have collected the primary data through
interview, in which I have asked 8 to 9 questions to the respondents. While the secondary data is in
the internal form I use the website of BSE and NSE. The formal data are available in a regularly basis,
such as monthly, quarterly or annually in a form of IPOs that allows comparisons through time to
time..
Method of research
Research design in case of exploratory research design.
Data are collected from way of respondents questionnaire and analyzed through Charts
and percentage method.
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ANALYSISANALYSIS
ANDAND
INTERPRETATION OFINTERPRETATION OF DATADATA
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Gender of Investors
Male 79Female 21
Male; 79
Female; 21
Data Interpretation:
The above chart clearly describes the gender of the various respondents who have given their
opinion in the survey. We can see that the number of males is more compared to that of the
number of females. We have males to be 79% of the total sample size surveyed and females
to be just 21% of the total sample size surveyed. This clearly talks about the interests of the
female population in investments.
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Occupation wise distribution
Business 47
Job 38
Student 22
Other 5
Business Job Student Other0
5
10
15
20
25
30
35
40
45
50
Series1
Data Interpretation:
The above mainly talks about the various occupational details of various respondents who
participated in the survey. We can see that the maximum number of respondents were
Business persons followed by jobbers, students and others. This clearly shows us that the
maximum number of people who are interested in investment activities are business persons,
they have the panache for investment activities. They are nearly 47% of the sample. The
interesting factor is that the jobbers are also very much interested in investment activities
which is a very good sign.
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Your annual Income?
Less Than 3,00,000 39
3,00,000 to 5,00,000 20
5,00,001 to 10,00,000 24
More Than 10,00,001 17
Less Than 3,00,000
3,00,000 to 5,00,000
5,00,001 to 10,00,000
More Than 10,00,001
0
5
10
15
20
25
30
35
40
45
RESPONDENTS
RESPONDENTS
Data Interpretation:
The income level of various respondents is depicted in the above chart. We can see that the
maximum number of people fall in the category of less than 3,00,000 lakhs category followed
by the people falling in 5,00,000 to 10,00,000 lakhs category. There are comparatively less
people in the 3,00,000 to 5,00,000 category and very few people in the more than 10,00,001
category. This shows that the investors fall in both high income and low income categories.
These are those people who are interested in investing in IPOs.
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Which area you belong?
Rural 23
Urban 77
Rural23%
Urban77%
Chart Title
Data Interpretation:
The above chart mainly talks about the area to which the people belong to, we can clearly see
that the urban people are dominating the chart with almost 77% of the total sample size
whereas, the people from the rural areas are just 23%. It is still a good point to be noted that
even though people live in rural areas, they are still interested in investments. This also shows
that the literacy rate of the rural population is also increasing day by day. This also stands as
a testimony for the fact that financial literacy is increasing in rural areas.
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Do you invest in Primary (IPO) Market?
Yes 77
No 23
YesNo
Data Interpretation:
This chart mainly talks about the respondents’ interest in investing in Initial Public Offers.
Out of 100 people surveyed it is seen that 77% of the people are investing in IPOs whereas
just 23% of the people are not investing in IPO. This shows that IPO is considered as a good
option for investment by most of the respondents.
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2. How much do you invest in IPO’s?
Less Than 10,000 3110,001 to 50,000 3650,001 to 1,00,000 9More Than 1,00,000 10
Less Than 10,000
10,001 to 50,000
50,001 to 1,00,000
More Than 1,00,000
0
5
10
15
20
25
30
35
40
Series1Series2
Data Interpretation:
When the investors were asked as to how much they invest in an IPO, we found that
maximum number of the people invest somewhere between 10,000 to Rs 50,000 in an IPO.
There are also some people who invest less than Rs 10,000 in an IPO. There are very few
people who invest in IPO for an amount more than Rs 1,00,000.
30
3. What is the source of Information you use?
Print Media 31
Electronic Media 46
Expert Opinion 31
Friend Advice 30
Print Media Electronic Media Expert Opinion Friend Advice0
51015
202530
35404550
Chart Title
Series1Series2
Data Interpretation:
This chart mainly talks about the source of information for IPO investors. It is clearly seen
that the electronic media stands first as the main source of information followed by print
media, expert opinion and friends’ advice. The point to be noted is that people do prefer
friends’ advice before investing in IPO. The main source of information regarding an IPO
comes mainly from the electronic media rather than the other forms of media.
31
Factors considered for IPO
(1- Not Consider, 2- Low consider, 3-High consider, 4-Very high consider)
S. NO. Factors 1 2 3 41. Company Goodwill 4 17 26 422. Corporate Profile 3 19 34 333. Board Member 7 24 30 284. Size of the IPO Issued 5 15 33 365. Credit Rating 5 16 30 386. Current Financial Position 7 19 27 367. Future Prediction and Forecast 6 17 32 348. Corporate Governance Practices 6 20 30 329. Broker Advice 8 19 32 3010. Comments in the Media 5 27 31 2611. Share Price 6 13 27 43
Company G
oodwill
Corporat
e Pro
file
Board M
ember
Size o
f the I
PO Issued
Credit R
ating
Current F
inancia
l Positi
on
Future
Predicti
on and Fo
recast
Corporat
e Gove
rnan
ce Prac
tices
Broke
r Advic
e
Comments
in the M
edia
Share
Price
0
5
10
15
20
25
30
35
40
45
Series1Series2Series3Series4
32
Data Interpretation:
The chart and the data presented above mainly talk about the various factors that are
considered by the investors while investing in an IPO. After a clear observation of the data
presented above, we see that the company Goodwill and Share price are the most considered
factors for investment in IPO. The least considered factors stand out to be Corporate profile,
Size of the IPO issued, etc. Credit Rating is also considered as one of the important factors
for IPO investment where as the brokers advice is not so much regarded compared to the
credit rating factor. It is also to be noted that the comments that are being passed in the media
and also the people who are part of the board of directors do affect the investors sentiment
towards IPO investment. Overall, all the factors are taken in to consideration before making
any investment in the IPO. So a company has to mainly focus on share price that would be
listed on the stock exchange and also its goodwill in the market.
5. How long are you trading in Primary Market and Secondary Market.?
00 year - 02 years 47
02 years - 05 years 23
05 years - 10years 12
10 years and Above 4
00 year - 02 years
02 years - 05 years
05 years - 10years
10 years and Above
0
5
10
15
20
25
30
35
40
45
50
Series1Series2
33
Data Interpretation:
This chart mainly talks about the association of people with the primary and the secondary
markets in terms of time period. It is found that most of the investors are trading in the
primary and the secondary market since last 2 years and not more. Their number stands to be
at 47% followed by 23% people who are trading in these markets more than 2 years but less
than 5 years and there are just 4% of the people who are dealing in these markets since 10
years or more.
6. What is your advice to new investors in IPO?
Go by only promoters 8
Go by only Credit Rating 29
Go by only sectors performance 21
Go by all of the above 43
Go by only
promoter
s
Go by only
Credit R
ating
Go by only
sectors
perform
ance
Go by all o
f the a
bove
05
1015202530354045
Series2Series1
34
Data Interpretation:
The chart talks mainly about the various factors that should be considered before investing in
an IPO. Out of 100 samples taken, 43% of the people believe that one should consider all the
factors like promoters of the company, Credit Rating, Sector performance whereas 21%
believe that sector performance needs to be considered compared to others, 29% believe that
Credit rating should be considered compared to others and the rest 8% feel that the promoters
are the most important factor for taking a decision in the investment of IPO
7. How much percentages have you gained on IPO listing?
Below 10% 14
up to10% 22
10%-15% 37
15% and Above 14
Below 10% up to10% 10%-15% 15% and Above
0
5
10
15
20
25
30
35
40
Series1Series2
Data Interpretation:
The chart mainly talks about the returns that the investors have received by investing in an
IPO. We can see that most of the investors have received 10 – 15% of returns on their
investment in IPO. And there are also some people who received above 15% as well.
35
8. Is it better to invest in IPO or Pick the same stocks on listing?
Invest in IPOs 37
Pick the same stock on listing 12
Partly invest in IPO and pick the stock on listing 32
Wait sometime after listing 5
0
5
10
15
20
25
30
35
40
Series2Series1
Data Interpretation:
When the respondents were asked about their opinion to whether invest in only IPO or Listed
stocks, they came up with the above answers. 37% of the respondents are of the opinion that
it is always better to invest only in IPO 32% of the people are of the opinion that there should
be some part of the investment in IPO and the other should in Listed securities. 12% of the
investors believe that they should pick up the same stock after listing and 5% of the
respondents are of the opinion that they should wait till listing before investing.
36
9. What is the purpose of IPO investment?
Listing Gain 49 58%
Long term Gain 40 48%
1 20%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Long term GainListing Gain
Data Interpretation:
49% of the respondents invest in an IPO just for the purpose of obtaining the listing gain and
only 40% of the respondents are of the opinion that they invest in an IPO for the purpose are
obtaining in the long term gains. This clearly shows us that the main purpose of investing in
an IPO is Listing gain.
10. How do you feel about the procedure for IPO’s?
37
Very Easy 13
Easy 31
Nutaral 27
Difficult 11
Very Difficult 4
Very EasyEasyNutaralDifficultVery Difficult
Data Interpretation:
Respondents’ feeling about the IPO procedure is discussed in the above chart. It is seen that
31% of the respondents are of the opinion that the IPO listing procedure is easy. 27% of the
respondents are neutral where 11% of the people feel that it is difficult and 4% of the people
feel that it is very difficult. The overall opinion of the respondents is that the IPO procedure is
easy and not very difficult.
11. What difficulties did you face after applying IPO’s?
38
Refund Problem 14
Delay in crediting allotted shares to your DEMAT Account
19
No clarity in allotment 22
None of the above. 31
Other 19
Refund Pro
blem
Delay i
n cred
iting allo
tted sh
ares t
o your D
EMAT A
ccount
No clarit
y in al
lotmen
t
None of th
e above
.Other
05
101520253035
Series1Series2
Data Interpretation:
The chart above mainly talks about the problems faced by the investors investing IPO. We
can see that 31% of the respondents do not have any problems where as 22% of the people
have the problem with allotment. They are of the opinion that there is no proper clarity in the
allotment. 19% of the people find problem in credit of shares to Demat account.
39
CONCLUSION
The objective behind this paper is to identify the major factors which directly or indirectly affect the
investors’ decision on IPO investment. 2009 year shown the worst performance in primary market.
Investor lost around Rs.7000 crore during the same period .Reliance power, NHPC, Den network,
Adani power etc. companies have failed to gain the trust from the investors. The question here was
that how investor look at the price of IPO , do they make any analysis of the company or just they
invest with the market trend. If the price of company reasonable, there is no scope of discounting the
IPO. Even if we ignore the short term gain, the company must give reasonable return in the long term.
But this has not happened. Investors are losing money in the short term as well as in the long term
also.
The relative action should be from the both side , investors and issuer. Investors should more focus on
fundamentals of the company rather than outside trend or rumour. In this research, first of all we try to
find the investors perception on how they select the company for the investment. Generally investors
don’t take much effort on analyzing the company’s performance, about promoters and current
valuation of the company. Either they lack of knowledge of they don’t have time to do this. In this
situation, Broker is the only option with them. The research says that around 46% of the total sample
respondents invest on the basis of broker’s advice. Now issuer may take the benefit of this situation.
Issuer by giving various incentives and commission tries to force brokers to give advice to investors
for subscribing the particular IPO.
In the second part, we try to analyze the impact of past IPO returns on investment decision. The
interesting conclusion came out is that there is impact of past return s on investors’ perception for
investment. Generally company used to go for public during the good market condition as well as past
performance and response of IPOs. There are example of companies who have suffered due to bad
timing for the issue like Wockhard Hospital. It has to withdraw from the market due to bad response
from the investors.
40
SUGGESTIONS
The research clearly indicates that there is a still need of improvement in primary market in terms of
transparency and accountability. The detail recommendation can be given specific head.
INFORMATION RELATED MEASURES
Latest and easy availability of information
Public information should be available
Education of investors
Transparency in the system
Improve awareness of investors the primary market sensitive Information
should be made available to everyone at the same time.
PROMOTERS:
Strict action against cheaters
Moral character of board of directors to be checked
Only experienced promoters should be allowed
More transparency in activities
Dishonest promoters not to be allowed to raise funds.
Disclosure of loans taken from various sources
PUBLIC:
More active investor association to be provided
Public consciousness development is important
41
Understanding the riskiness associated with investment in shares
RELATIONSHIP WITH SHAREHOLDERS:
Provide better service
Investor to have a say in decision making process
Better communication between top management and shareholders
Shareholders interest to be considered while companies take decision
GOVERNMENT:
Improve infrastructure
Improve economic condition
Promote and attract investors
Corruption to be checked at various levels
Introduce rating of equity
Take step to protect small investors
INTERMEDIARIES:
Improve faith in brokers
Honesty and fair dealing in brokers should be encouraged
Lower brokerage
Improve relationship with customers
Brokers’ activities are to be regulated
Reduce no. of brokers
Take action against brokers with bad conduct
Mutual should be allowed to actively invest in primary markets
42
MARKETS:
Improve trust of small investors
Transparency of markets
Volatility to be checked
Proper audit of exchanges should take place
Improve liquidity
Allow good issue managers to manage issues
Delisting of companies should be avoided
Ensure new investors’ confidence in the market
Small investor to get firm allotment
More margin to be taken from brokers
Liquidity should be improved
BIBLIOGRAPHY
Websites:
43
www.nse-india.com
www.bseindia.com
www.sebi.in.org
44