ipo report

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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 1

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A project report of Initial Public Offering

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Page 1: Ipo Report

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

14

Individual

Company

Soverign/Country Soverign/Country

Company

Individual

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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.

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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.

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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

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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

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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

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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.

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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.

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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?

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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?

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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.

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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.

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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

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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

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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:

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www.nse-india.com

www.bseindia.com

www.sebi.in.org

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