RESEARCH REPORT ON

INVESTORS PERCEPTION ABOUT IPOS HAVING SAFETY NETS

SUBMITTED TO MR. PRIYANK BADOLA FACULTY GUIDE ASB NOIDA

SUBMITTED BY DIVYANSHU KATARIA AO106406 F-15 BBA ASB NOIDA

Acknowledgement
I would like to take this opportunity to thank the following people who have directly or indirectly contributed towards the completion of this dissertation and without their help; this in the present form would have not been possible. I would also like to thank my industry guide Mr. Abhishek Yadav for his continous support & cooperation. And last but not the least I express my heart felt gratitude to my faculty guide Mr. Priyank Badola for his innovate ideas & continuous guidance through out the intern ship.

DIVYANSHU KATARIA BBA

Certificate:

INDEX
S.NO 1 a) b) c) TOPIC CHAPTER 1 Executive Summary Objective of Study Introduction 1) Company profile 2) Introduction to the topic 2 a) 3 a) CHAPTER 2 Literature Review CHAPTER 3 Investment Options Available For Investors 4 a) b) CHAPTER 4 How You Can Invest in Shares in Primary Market Initial Public Offer & Further Public Offering 5 a) CHAPTER 5 Reason For This Research IPO Failures 6 a) b) c) 7 a) 8 a) CHAPTER 6 What is safety net Safety Nets (how it works??) Green Shoe Option CHAPTER 7 RESEARCH Research Methodology CHAPTER 8 Analysis And Interpretation 33-34 36 37 38
25-26 28-31 21-23 6-7 8 10-14 15

17

40-41 43-67
4

b) c) 9 a) 10

Conclusion & Recommendations Limitations ANNEXURE Sample Questionnaire BIBLIOGRAPHY

69-73 74 76-78 80

EXECUTIVE SUMMARY
During the past few months, the stock markets have scaled new heights, surpassing the previously insurmountable barriers. Worse is the fact that corrections in the market have time and again shaken the confidence of the retail investors. In order to bring back the investors to the stock markets and regain their confidence, a lot needs to be done by the issuer companies, their merchant bankers, lead managers and book runners.

Safety net options are one of the measures taken by them. It is actually a put option given to the investors, which gives the right but not the obligation to the investors to sell the stock to issuer at a particular price before a certain period.

The present research study has been undertaken in order to deepen the understanding of the investors problems and to find how safety nets are perceived by the investors?

The study is based on direct interviewing of a sample of 50 investors. A cross sectional descriptive research was conducted to know the perception about safety nets among the investors with the help structured, questionnaire. Those having no voluntary savings for financial investments or no ability to understand investments, like shares and bonds, were excluded.

Findings of survey justify that as far as perception about the safety net is concerned investors are not sound in perceiving it as a tool which shows

great optimism about the prospects of stock and this is based on facts like, there are as many as 54% of investors who are unaware of this tool and additional 10% dont take it as a tool which helps investors.

So these 64% investors, if made aware of the benefits can really prove as potential investors for companies which are yet to come up with their IPOs.

OBJECTIVE OF THE STUDY

The present research study has been undertaken in order to deepen the understanding of the investors problems and needs and their perception while investing money. During the last few months many new companies have entered the market but worrisome part has been the fact that many of their IPOS are trading below the issue price and this all has time and again shaken the confidence of the investors. While many companies {such as DLF} have shelved the plan of IPO, Some others have price stabilization mechanism such as safety net attached to their IPOS.

So prime motive of this research was to find how safety nets are perceived by the investors?

Sub objectives:

1. To find out the level of awareness about safety net among the investors so that this research would make a substantial contribution to those investors who are unaware about these safety nets.

2. To find out investors confidence level (whether investors feel that they can make money in the stock market?)

3. To find out the investors preference while investing money.

Chapter 1

INTRODUCTION

COMPANY PROFILE:
Sharekhan is one of the leading retail brokerage of CITI VENTURE

CAPITAL which was running sucessfully since 1922 in the country. It is

the retail broking arm of the Mumbai-based SSKI Group, which has over eight decades of experience in the stock broking business. Sharekhan offers its customers a wide range of equity related services including trade execution on BSE, NSE, Derivatives, depository services, online trading, investment advice etc. The firms online trading and investment site - www.sharekhan.com - was launched on Feb 8, 2000. The site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has a registered base of over one lakh customers. The number of trading members currently stands at over 4.5Lacs While online trading currently accounts for just over 2 per cent of the daily trading in stocks in India, Sharekhan alone accounts for 22 per cent of the volumes traded online. The content-rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering

customers best-of-breed technology and superior market information. The objective has been to let customers make informed decisionsand to simplify the process of investing in stocks. On April 17, 2002 Sharekhan launched Speed Trade, a net-based executable application that emulates the broker terminals along with host of other information relevant to the Day Traders. This was for the first time that a net-based trading station of this caliber was offered to the traders. In the last six months SpeedTrade has become a standard for the Day Trading community over the net.

THE NETWORK:
Sharekhans ground network includes over 660 branches in 290 cities in 10

India. It has always believed in investing in technology to build its business. The company has used some of the best-known names in the IT industry, like Sun Microsystems, Oracle, Microsoft, Cambridge

Technologies, Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its trading engine and content. With a legacy of more than 80 years in the stock markets, the SSKI group ventured into institutional broking and corporate finance 18 years ago Presently SSKI is one of the leading players in institutional broking and corporate finance activities. SSKI holds a sizeable portion of the market in each of these segments. SSKIs institutional broking arm accounts for 7% of the market for Foreign Institutional portfolio investment and 5% of all Domestic Institutional portfolio investment in the country. It has 60 institutional clients spread over India, Far East, UK and US. Foreign Institutional Investors generate about 65% of the organizations revenue, with a daily turnover of over US$ 2 million. The Corporate Finance section has a list of very prestigious clients and has many firsts to its credit, in terms of the size of deal, sector tapped etc. The group has placed over US$ 1 billion in private equity deals. Some of the clients include BPL Cellular Holding, Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shoppers Stop.

PRODUCTS SHAREKHAN:
2- Portfolio Management Services.

OFFERED

BY

1- Equity in online and offline trading.

11

3- Offline Trade in Commodities. 4- Mutual Fund Advisory.

WHY SHAREKHAN ?? Experience

SSKI has more than eight decades of trust and credibility in the Indian stock market. In the Asia Money broker's poll held recently, SSKI won the 'India's best broking house for 2004' award. Ever since it launched Sharekhan as its retail broking division in February 2000, it has been providing institutuonal-level research and broking services to individual invcestors.

Technology
With our online trading account you can buy and sell shares in an instant from any PC with an internet connection. You will get access to our powerful online trading tools that will help you take complete control over your investment in shares.

Accessibility
Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION servies for investors. These services are accessible through our centres across the country (Over 588 locations in 148 cities) over the internet (through the website www.sharekhan.com) as well as over the Voice Tool.

Knowledge
12

In a business where the right information at the right time can translate into direct profits, you get access to a wide range of information on our content-rich portal, sharekhan. You will also get a useful set of knowledge-based tools that will empower you to take informed decisions.

Convenience

You can call our Dial-N-Trade number to get investment advice and execute your transactions. We have a dedicated call-centre to provide this service via a Toll Free Number 1800-22-7500 & 1800-22-7050 from anywhere in India.

Customer Service
The customer service team will assists for any help that one needs relating to transactions, billing, demat and other queries. Our customer service can be contracted via a toll-free number, email or live chat on www.sharekhan.com. Sharekhan has dedicated research teams of more than 30 people for fundamental and technical researchs. The analysts constantly track the pulse of the market and provide timely investment advice in the form of daily research emails, online chat, printed reports and SMS on you mobile.

Benefits
Free Depository A/c Secure Order by Voice Tool Dial-n-Trade. Automated Portfolio to keep track of the value of your actual purchases. 24x7 Voice Tool acess to your trading account. Personalised Price and Account Alerts delivered instantly to your Cell Phone & E-mail address. 13

Special Personal Inbox for order and trade confirmations. On-line Customer Service via Web Chat. Anytime Ordering.

INTRODUCTION TO THE TOPIC:

Alarm bells always tend to ring loud and clear in primary market circles. of late, many stocks are logging only a marginal increase in prices immediately and within days of their IPOs getting listed. The recent boom in the stock markets has again motivated many corporates to tap money from the market. During the past few months, the stock markets have scaled new heights, surpassing the previously insurmountable barriers. As the same time, it is to be noted that falls have eroded thousands of crores of investor wealth. For retail investors,

14

especially those who earlier flocked to IPOs of smaller cap stocks, this scenario is unwelcome. Retail investors form an integral part of the stock markets. The markets cannot survive without their participation. So the loss of wealth had put off the retail investors from the market. In order to bring back the investors to the stock markets and regain their confidence, the Securities Exchange Board of India (SEBI) has taken some steps. However, law alone cannot achieve the goal. A lot would also need to be done by the issuer companies, their merchant bankers, lead managers and book runners. Safety net options are one of the measures taken by them.

15

Chapter 2

LITERATURE REVIEW

16

LITERATURE REVIEW
In an IPO, or initial public offering, a company issues its shares to the public for the first time but Equity investments are risky. Ups and downs in the stock markets are an integral part of equity investing. The rising ratio of under-performers need not be a major cause of concern as it is a part and parcel of a very bullish market. Still worse is the fact that it has time and again shaken the confidence of the retail investors. Retail investors form an integral part of the stock markets. The markets cannot survive without their participation. So the loss of wealth put off the retail investors. Following case in newspaper fully justify this fact S Ramachandra lost heavily in IBP's divestment issue. Allotted 300

shares at Rs 620, Ramachandra decided to cut his losses as price of the scrip started to plummet. He sold his shares at Rs 565, making a loss of about nine per cent. His elder son reacted much slower, and sold his 200 shares at a price of Rs 529, ending up with a loss of over 14 per cent against the allotment price. He had little option but to sell the shares since he had availed of a bank loan in order to subscribe to the issue.Banks today lending against shares charge an interest of about 10-12 per cent. So this all bring in problem like. Where does that leave retail investors?

17

The recent boom in the stock markets has again motivated many corporates to tap money from the market. During the past few months, the stock markets have scaled new heights. As the secondary market has bounced back, the primary market is buzzing with activity once again. As the stock markets turn bullish once again, initial public offerings have become numerous just as little seeds sprout all over during the rainy season. Not all of these grow to become giant trees. Companies with sound business models and good earnings potential would grow regardless of market conditions while the me-too IPOs which hit the market, essentially to capitalize on good weather, are bound to perish When an IPO goes bad, there's never one thing that causes it. it takes bad timing, , bad luck, and the occasional stupid mistakes so Those that survive and prosper, are the ones that have found fertile soil, good sunshine and high resistance levels, which enables them to compete and spread out. There has been confusion among the investors where they have to put their money in, either secondary markets or in primary markets. There has been a general perception that the secondary markets are too risky and primary markets are risk averse to some extent. But it was proved that both seem to be the peers in pushing the investors into the losses. The markets prove that both are equally bad.

Leading book managers of IPOs are tagging safety net options to make best use of the motives of such investors and get back scared retail investors to the market.

18

A `safety net' implies a commitment to buy shares from the original investors during a stipulated period at a price determined at the time of issue, irrespective of the prevailing market price. But most merchant bankers do not offer this option for public issues. In a circular the central bank said these schemes were often offered without any request from the company. There is also no income for the banks to correspond with the risk of loss built into these schemes, as the investor will take recourse to the safety net only when the market value of the shares falls below the pre-determined price. "Banks/their subsidiaries have, therefore, been advised that they should refrain from offering such `Safety Net' facilities by whatever name they are called. A large number of investors look at IPOs as a vehicle for quick gains, for which market sentiment does matter .So better for an investor is to consider Growth visibility and do valuation of the company before investing. Problem is: If we ever involved in an IPO, have to close eyes, grit teeth, and prepare to be blindsided? What investors should do if such securities fall below issue price? Safety net can help. But how many investors are aware of these safety nets and how they actually perceive it? So this research was being conducted to find out how many investors are really aware of these safety nets and how they see these options. So that

19

this research could eventually help those, who are unaware about the benefits of safety net.

20

Chapter 3

INVESTMENT OPTION AVAILABLE FOR INVESTORS

21

VARIOUS INVESTMENT OPTIONS FOR INVESTORS

Investment options for an investor broadly can be categorized as:

Traditional Investment

Safety

Convenience Products

Risky Products

A. Gold B. Real Estate C. Chit Funds

A) Small Saving B) Bank Deposits C) Bonds

A) Mutual funds

A)shares

D) Company deposits

TRADITIONAL PRODUCTS GOLD: Gold

has much advantage besides being an investment product.

A)

Gold score high in terms of liquidity, safety but at times falls behind the benchmark of returns

B)

CHIT FUNDS:

Chit funds are savings of small groups of people,

which are circulated but as investment options they are ranked poorly in term of safety, return and liquidity and high default rate.

C)

REAL ESTATE:

Real estate has much advantage of being an

investment option and is rated high in term of safety.

22

SAFETY PRODUCTS
A) I.

SMALL SAVING: INCLUDES:

Post office savings:- saving deposits, recurring deposit, time
deposits, monthly income accounts. II.

National savings:-

public provident funds, national saving

certificates, small saving backed by govt. assurance offer convenience, safety, tax advantages and good returns.

B)

BANK DEPOSIT:
Banks were the first investment houses to successfully help the common man to shift his investments. Banks offer safety liquidity, convenience and decent returns. RBIs policy of interest rate deregulation further triggered competition among bands and they are moving from offering traditional services to market friendly options and services.

C)

BONDS:
Bonds are debt instruments issued at fixed price, bearing fixed interest and having a fixed term of life. Govt. and corporate sectors are main issuers of bonds. Bonds as investment option offers a decent returns but carry several risk of default.

23

D) COMPANY DEPOSITS:
An investor can also invest his money in a company for a fixed period of time after the maturity period he receive handsome prefixed rate of interest. Company deposits are simple but there market is not well regulated so investors have to be watchful.

CONVENIENCT PRODUCT:
MUTUAL FUNDS:
They are the most convenience products and are usually safe than stocks. The mutual funds are managed by investment professionals and other service providers. While ownership of fund is in the hands of the investors. The pool of fund is invested in portfolio of marketable investments. The value of portfolio updated everyday.

RISKY PRODUCTS:
STOCKS/ SHARES:
In terms of risk and return stocks deliver more than other investment option, in stocks there is probability of losing the principal. Investment in stocks requires great analytical skills and deep pockets to absorb the risks through systematic diversification. Stocks need constant

attention to update one self with development in companies and market regulations.

24

Chapter 4

HOW YOU CAN INVEST IN SHARES IN PRIMARY MARKET

25

DIFFERENT KINDS OF ISSUES

Primarily, issues can be classified as a Public, Rights or preferential issues (also known as private placements). The classification of issues is as follows.

Rights Issue
Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements.

Private placements
A private placement is an issue of shares by a company to a select group of persons under Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. A private placement of shares or of convertible securities by a listed company is generally known by name of preferential allotment. A Qualified Institutions Placement is a private placement of equity shares or securities convertible in to equity shares by a listed company to Qualified Institutions Buyers only in terms of provisions of SEBI guidelines.

26

Public issue
Public issues can be classified into Initial Public offerings and further public offerings. In a public offering, the issuer makes an offer for new investors to enter its shareholding family.

27

INITIAL PUBLIC OFFER & FURTHER PUBLIC OFFERING

28

[A]

INITIAL PUBLIC OFFER

An initial public offering (IPO)
is the first sale of a corporation's common shares to public investors. The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, they also impose heavy regulatory compliance and reporting requirements. The term only refers to the first public issuance of a company's shares; any later public issuance of shares is referred to as a Secondary Market Offering There are several reasons for which a private company may wish to become a public company.

THE TWO BIGGEST REASONS ARE:

To raise capital To allow the original investors or entrepreneurs who started the company to realize profits on their investment and time. A private company is one in which investment or ownership is limited to select individuals or organizations. A public company is one in which anyone can invest and obtain ownership by purchasing shares on a publicly traded exchange.

29

UNDERTAKING AN IPO
It is a large and exciting event for a new company. A well received IPO means that the company will have cash to further its development and growth. It also usually means that the people who started the company realize some significant profits for their efforts. An IPO requires a great deal of work, from filing the necessary paperwork with the regulatory bodies and writing a prospectus for potential investors to devising and implementing a sales campaign for the sale of the initial shares. Since the company also needs to continue to function and complete its normal activities, a financial firm is usually hired to do this work. This firm is referred to as the underwriting firm for the IPO IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares. the underwriters keep a commission based on a percentage of the value of the shares sold.

30

ELIGIBILITY NORMS FOR MAKING AN IPO

SEBI has laid down eligibility norms for entities planning to enter the primary market through public issues. An unlisted company needs to satisfy following criteria to be eligible for making a public issue:

a) Net tangible assets of at least Rs 3 crores for three full years b) Distributable profits in at least three years c) Net worth of at least Rs 1 crore in three years d) If change in name, at least 50 per cent of revenue for Preceding one year should be from the new activity e) The issue size should not exceed five times the pre-issue net Worth.

SEBI also provides alternate routes to the companies not satisfying any of the above parameters, for accessing the primary market.

The alternative conditions are as follows:

a) Issue shall be made through book-building route, with at least 50 per cent to be mandatory allotted to the QIBs . b) The minimum post-issue face value capital shall be Rs 10 crores or there shall be a compulsory market-making for at least two years.

31

[B]

FURTHER PUBLIC OFFERING

A Further public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.

32

WHAT HAD HAPPENED DURING MAY- JUNE 2006

Chapter 5

REASON FOR THIS RESEARCH IPO FAILURES

33

REASONS FOR UNDERPRICING OF I.P.OS:

ASYMMETRIC INFORMATION:
The most basic problem of the I.P.O process is the presence of both good & bad companies going public coupled with the asymmetric information between the investors & the firms. The firms themselves know reasonably well, but the investors do not. When the information & analysis is costly it is optimal for the investors to not learn about the company thoroughly, which is particularly relevant in India.

FIXING THE OFFER PRICE EARLY:

The firms set an offer price at a certain date & the issue opens at another date even if the company has an exact idea on the offer day it would be afraid of a drop in the stock price on the issue date which renders the public issue unattractive as it is the stock prices fluctuate from day to day.

THE INTEREST RATE FLOAT:

The issuing company controls the application money for a few months & even if the stock invest are widely used but if the interest rate on the stock invest is low the markets would compensate the low rate of return to the investors by under pricing.

34

MERCHANT BANKER REWARDING FAVOURED CLIENTS:

The interaction between the merchant banker & the company going public is one-shot interaction but the merchant banker is in a repeated game with many of his large clients, especially the large institutional investors, in this situation merchant banker has an incentive to under price the issue as a way of favoring his established clients, which would hurt the interests of the issuing company.

THE LIQUIDITY PREMIUM:

Investors who apply for public issue loose their liquidity on the amount paid at the issue date, markets in order to compensate this pay a liquidity premium which results in under pricing.

BUILDING LOYAL SHAREHOLDERS:

Firms may have an incentive to under price when they expect to return to the capital market to raise further resources at a later stage via a rights issue or a public issue which helps the firm leave the purchasers at an under priced value

35

Chapter 6

WHAT CAN HELP IS SAFETY NET

36

SAFETY NETS
Safety Net:
It is actually a put option given to the investors, which gives the right but not the obligation to the investors to sell the stock to issuer at a particular price before a certain period. Any safety net scheme of the shares proposed in any public issue shall be finalized by an issuer company with the lead merchant banker in advance and disclosed in the prospectus. Such buy back or safety net arrangements shall be made available only to all original individual allottee limited up to a maximum of 1000 shares per allottee and the offer is kept open for a period of 6 months from the last date of dispatch of securities. For exp. IPO hits the market with a final price of Rs 50 with safety net option attached to it. The subscribers to IPO can sell the shares to Issuer before 6 month at a price of Rs 50 per share. The investors, thus, have a put option with a strike price of Rs 50 per share with an expiry of six months. As it gives the investors the right to sell the shares at any time before the expiry of six months, Such an option makes the instrument attractive to investors.

How It Works:

37

Suppose the above stock falls to Rs 25 three months hence, an investor would lose Rs 25 (Rs 50-25) per share on his investment. A safety option, however, enables the investor to sell the stock to issuer at the strike price of Rs 50 per share. Next, suppose the stock moves up to Rs 60, the investor can sell it in the market and pocket the gains. He is under no compulsion to sell the share to issuer which is why the safety net is an option. But there is a difference between the safety net and an option. An option requires investors to pay an upfront premium to the option writer. This premium is compensation to the writer for the risk of having to buy the stock from you at a higher-than-market-price. Safety net does not require investors to pay such a premium which makes it more attractive. The idea of safety net is that, should during this period the secondary market price fall below the offer price, the promoter or the merchant banker would stand guard and buy the shares from them without demur. This arrangement is any day vastly superior to the Green shoe exercise which admittedly has but the trappings of real safety net and, hence, is superficial in offer of protection to individual investors because the exercise may come a cropper should the shares bought with the limited resources at the disposal of the stabilizing agent prove to be inadequate to lift its price to the desired level.

38

GREEN SHOE OPTION

The Securities and Exchange Board of India (SEBI) permit exercise of the green shoe option by a company making a public issue. A pre-issue contract is entered into for this purpose with an existing shareholder often one of the promoters with a sizeable shareholding who would be prepared to lend his shares to be used for price stabilization to be carried out by a stabilizing agent on behalf of the company up to a maximum period of 30 days from the date of allotment of shares. The company then goes on to make allotment, including over allotment, to the extent it has exercised the green shoe option, which term incidentally has its origin in the name of a company that for the first time exercised such an option in the US. The proceeds of the public issue to the extent it relates to such over-subscription permitted by the green shoe option is, however, kept in an escrow account to be used in the price stabilization exercise.

39

Chapter 7

RESEARCH

40

RESEARCH METHODOLOGY
Research methodology stands for the ways and means we adopt for conducting the research. It gives a fair idea about the steps generally followed by researcher in pursuing the research right from defining the problem to the final conclusion and summary. This is how this research is going to be focused towards those steps

Problem Stock markets movements are integral part of equity investing. Worse is the fact that Market has time and again shaken the confidence of the investors. Safety net does help investors to sustain their faith in IPOS at least for some time. But problem is How many investors are aware of these safety nets and how they actually perceive it?

Research Design and Tools A cross sectional descriptive research was conducted to know the perception about safety nets among the investors with the help structured, questionnaire. The questions started with an investor profile, followed by questions that helped to determine the confidence level. Additional questions allow us to ascertain whether investors feel that they can make money in the stock market, and also to find out their perception especially when instruments tends to have some safety mechanism attached to them.

41

Research Approach The investors problems and needs can be best known from the investors themselves. So for this research surveys were conducted to fulfill the purpose , covering a variety of interrelated aspects, such as the

investors past experiences, types of investments held currently, future investment intentions, the important combination of decisions taken by the investors while investing. Sampling technique and size: Random Sample of 50 investors was drawn from the universe of potential investors Those having no voluntary savings for financial investments or no ability to understand investments, like shares and bonds, were excluded, because they were irrelevant for the purpose of the present survey. And to ensure near-randomness and cross-sectional representation, relevant data was collected by primary sources with the help of questionnaire.

Data Analysis and Interpretation To make the project understandable to the readers the various data, information is being edited and tabulated using SPSS and other simple statistical tools ,which is depicted by diagrams such as charts, graphs , pie charts, histograms and percentages so as to make interpretations at a glance. Relevant summary and conclusions is also being drawn from the available data with the use of SPSS.

42

Chapter 8
ANALYSIS & INTERPRETATIONS CONCLUSION & RECOMMENDATIONS LIMITATIONS

43

INVESTMENT OBJECTIVE AMONG INVESTORS

What is your Investment Objective?

Frequency Valid Receiving regular income Capital appreciation Planning for commitment Pay off or reduce debt Acquiring an Asset Saving for Retirement Total 16 21 5 1 4 3 50

Percent 32.0 42.0 10.0 2.0 8.0 6.0 100.0

INVESTMENT OBJECTIVE
25 20 No. of Respondents 15 10 5 0
S eries1 Regular income 16 Capital Appreci21 Future Commit5 Pay off Debt 1 Acquiring S aving for Asset Retirement 4 3

Objectives

This research shows that both regular income and capital

appreciation are the primary objectives of investors while investing their money.

44

Around 32% i.e. 16 investors out of the sample agree that they look

for regular income in the instruments, they tends to put their money in. Around 42% i.e. 21 investors out of sample give preference to

capital appreciation. So its good news for primary market that they are ample number of investors who look for capital gain in long run. Rest of the sample have other personal motives like future

commitments , paying off or reducing debt, acquiring an asset or saving for retirement.etc. Around 10% say they want to save their money for future

commitment, only 2% say they are investing with a motive to pay off their existing debt, 8% want to acquire some asset in future and rest 6% wants to accumulate their money to utilize it after their retirement.

45

INVESTMENT GOAL WHILE INVESTING MONEY

What is your Investment goal? Frequency Valid Capital is safe and no need of income this time Steady income from your Investments Both Capital Appreciation and Regular Income Only Capital Appreciation Total 11 Percent 22.0

12

24.0

21

42.0

6 50

12.0 100.0

w hat is your investment goal

25 20 15 10 5 0 Series1

no of respondents

Capital is safe 11

Steady income 12

Both Appre- Only Capital and Income Appreciation 21 6

Series1

Investment goals

This research shows that in spite of boom in the stock market majority of investors wants to put their instrument which not only provide safety to the principal but also fetch interest on it 46

 Around 22% investors i.e. 11 out of sample wants their capital safe as they do not require income this time so safety of principal is the goal with which they are investing Around 24% investors wants to have regular income rather than sticking with investment for long so this is also a major reason for speculation going on in share market as investors want quick returns within no time. Appreciation in Principal + Interest on it seems to be the driving goal for investors. Around 42% investors look for instruments which not only provide regular income but also appreciate the principal in long run. So this is good news for industry like mutual fund to utilize these potential investors. Rest 12% wants only capital appreciation in long run so they want to safe their principal in long run and dont want to put it in risky instruments just for the sake of quick returns.

INSTRUMENT IN WHICH INVESTMENT IS MADE

You have Investments in which Instrument?

47

Frequency Valid Saving Schemes Commodity Mutual Funds Shares Any other Total 12 2 14 20 2 50

Percent 24.0 4.0 28.0 40.0 4.0 100.0

Instruments where Investment was made

Any other Instrument Shares Mutual Funds Commodity Saving Schemes

2 20 14 2 12
No of Respondents

Series1

This research shows that regular income and capital appreciation are the primary objectives while investing money and that is justified by the fact that 68% of the sample wants to put their money in instruments like mutual funds and shares. This may be the recent boom of stock market which makes them put money to these risky instruments ahead of saving schemes. Rest 24% wants to put their money in saving schemes. They are the investors who either dont feel secure in stock market or their confidence had been shaken due to past corrections and scams in stock market.

48

 Rest of the investors tends to put their money in commodities or other schemes like insurance as investment, but they represent only 8% of population studied.

49

FOR HOW LONG THEY WANT TO INVEST THEIR MONEY

What is Your Investment Time Frame? Frequency Valid Less than a year 1 year to 3 years 3 years to 5 years More than 5 years Total 13 18 9 10 50 Percent 26.0 36.0 18.0 20.0 100.0

Time frame for Investment

More than 5 years 3 years to 5 years 1 year to 3 years Less than a year

10

Time frame

9 Series1 18

13
No or Respondents

This research show that most of people today do believe in investing for long term but still there are good number of investors who wants to fetch short term gains out of their investments. Above chart clearly justify this fact that 26% of sample was investing for short term i.e. less than a year.

50

PERCENTAGE OF INCOME INVESTED

What Percentage of your Annual Income you set aside for Investments? Frequency Valid Less than 10% 10% - 20& 20% - 30% More than 30% Total 13 18 10 9 50 Percent 26.0 36.0 20.0 18.0 100.0

Percentage of Income set aside for Investments

20 15 No.of 10 Respondents 5 0
Se r ie s 1 Le s s than 10% 13

10% - 20 18

20% - 30% 10

>30% 9

Percentage Income

There is no particular trend that how much one invests in. It all depends upon whether he/she wants to be in accumulation phase or distribution phase. Still a lot depends upon the risk assessment and income of the investor. Returns expected and past experience do effect on how much is being invested.

51

HOW MANY INVEST IN STOCK MARKET & HOW COMFORTABLE ARE THEY
Have you ever invested in Shares / Stocks? Frequency Valid Yes & I was comfortable with risk Yes but I was uncomfortable with risk No but I would feel comfortable with risk No as I feel uncomfortable with risk Total 29 Percent 58.0

10

20.0

16.0

3 50

6.0 100.0

58 60 50 40 30 20 10 0 10 29 20 8 16 3 6 F re que nc y P e rc ent

Y es & I w as Y es but I w as o but i w ouldN o as I feel N comfortable uncomfortable feel uncomfortable w ith risk w ith risk comfortable w ith risk 29 58 10 20 8 16 3 6

Frequency P ercent

52

 This is good news for stock market that most of the investors feel comfortable with the risk involved in shares. Around 58% investor in this research feel comfortable when they invest in shares 16% of investors were such that they never invested in stocks/ shares but they are comfortable with risk involved in these risky instruments Rest 20% investors had their investment in stock market but they are either not confident or not comfortable with risk. This might be due to correction being seen during May-June 2006. Only 6% said that they never invested in share market due to the fact that they are not comfortable with risk. Overall this research shows that people like risky investment provided it justify them with suitable returns.

53

INVESTMENTS IN INITIAL PUBLIC OFFER

Have you ever invested in Initial Public Offer [IPO] ?

Frequency Valid Yes No Total 24 26 50

Percent 48.0 52.0 100.0

H a v e y o u e v e r In v e s te d in In itia l P u b lic O ffe r

26 26 25 No of R e sp o n d e n ts 24 23 S e rie s 1 24

Y es 24

No 26 O p ti o n s

Around 48% of sample responds positively when they were being asked that whether they had invested in IPO ever during their life.

54

INVESTORS COMFORT LEVEL IN STOCK MARKET AND THEIR INVESTMENT IN IPOS

Have you ever invested in Shares / Stocks * Have you ever invested in Initial Public Offer [ IPO ]? Have you ever invested in Initial Public Offer [ IPO ] Yes No Have you ever invested in Shares / Stocks Yes & I was comfortable with risk

Total

20

29

Total

Yes but I was uncomfortable with risk No but I would feel comfortable with risk No as I feel uncomfortable with risk

10

0 24

3 26

3 50

INV ESTO RS CO M FOR T LEV EL IN STO CK M AR KET AN D THEIR IN V ES TM ENT IN IPO'S

21 18 15 No of 12 respondents 9 6 3 0
Yes & I was comfortable with risk Yes but I was uncomfortable with risk No but i would feel comfortable with risk No as I feel uncomfortable with risk

H ave you ever invested in Initial P ublic Offer [ IP O ] Yes H ave you ever invested in Initial P ublic Offer [ IP O ] N o

H av e you e v e r inv e ste d in Share s / S tocks

55

This research show that out of 24 investors who invest in IPO 20 investors i.e. 83% were those who are comfortable with the risk involved in stock/shares and rest 4 i.e.17% were those who do invest in shares but not comfortable with risk involved. So this shows that this primary market is basically driven by the confidence level of investors.

56

AWARENESS ABOUT IPO FAILURE

Are you aware of IPO failure?

Frequency Valid Yes No Total 36 14 50

Percent 72.0 28.0 100.0

Aw areness about IP O failure

40 30 No of 20 re sponde nts 10 0

Yes 36
O ptions

No 14

S eries1

This research shows that 72% of the sample studied knows that at times IPO fails to pick in the market and their prices fall below the price at which they were issued.

57

AWARENESS ABOUT IPO FAILURE AMONG INVESTORS WHO HAD INVESTED IN IPOS
Have you ever invested in Initial Public Offer [ IPO ] * Are you aware of IPO failure? Are you aware of IPO failure Yes No 21 3 15 36 11 14

Have you ever invested in Initial Public Offer [ IPO ] Total

Yes No

Total 24 26 50

Awareness about IPO failure among Respondents who invested in it

25 21 No of respondents 20 15 10 5 0 3 15 11

Yes

No Are you aware of IPO failure

Yes I have invested in IPO'S No, I never Invested in IPO's

21 15 Options Yes I have invested in IPO'S

3 11

No, I never Invested in IPO's

Out of total of 36 who were aware of IPO failures, 56% i.e. 21

were those who had invested in IPO in the past .rest 44% constitute those who never invested in IPO but they know about failure. Out of total of 24 who had invested in IPO 3 are such that they

were unaware about the IPO failures , this may be due to fact that they might have invested through some brokers and were unaware about what was happening to there investment in short run. 58

So out of total 14 who were unaware about IPO failure 11 i.e.

around 79 % were those who never invest in IPO at all. So from here this can be concluded that there is good amount of

awareness regarding the IPO failure among investors who had their investments in IPOs

AWARENESS ABOUT SAFETY NETS

Are you aware about Safety Net Options attached with IPO's? 59

Frequency Valid Yes No Total 23 27 50

Percent 46.0 54.0 100.0

Awareness about Safety Net Options

27 26 25 No.of 24 Respondents 23 22 21 Series1 Yes 23 Options No 27

Series1

Out of total 50 respondents 46% i.e.23 respondents were aware of safety net options attached with IPOs .So there is still 54% investors which are unaware about these price stabilization mechanisms.

AWARENESS ABOUT SAFETY NETS AMONG INVESTORS WHO HAD INVESTED IN IPOs

60

Have you ever invested in Initial Public Offer [ IPO ] * Are you aware about Safety Net Options attached with IPO'S? Are you aware about Safety Net Options attached with IPO'S Yes Have you ever invested in Initial Public Offer [ IPO ] Total
30

No 18 5 23 6 21 27

Total 24 26 50

Yes No

20

10

Aware of Safety Nets Count

Yes 0 Yes No No

Have you ever invested in Initial Public Offer [ IPO ]

Out of total 24 who had invested in IPO in the past 18 i.e.75% of them were aware of the safety net options. so there is fair amount of awareness among people who invest in IPOs about these safety nets. Rest 25% were unaware about these options in spite of the fact that they had invested in IPOs in the past Out of rest 26 [who never invest in IPO] 5 i.e19% were aware of safety net while majority of them were not aware of these options.

61

INVESTORS AWARENESS ABOUT SAFETY NETS & THEIR INVESTMENT IN IPOs WITH SAFETY NETS
Are you aware about Safety Net Options attached with IPO'S * Have you ever Invested with Safety Net Options? Have you ever Invested with Safety Net Options Yes Are you aware Yes about Safety No Net Options attached with IPO'S Total 10 0 10 No 13 27 40 Total 23 27 50

INVESTORS AW ARENESS ABOUT SAFETY NETS AND THEIR INVESTMENT IN IPO's W ITH SAFETY NETS

40 35 30 25 20 15 10 5 0 27
No,I am unaware about Safety nets

No.of respondents

0 10
Yes

13

Yes I am aware about Safety nets

No

Have you ever Invested with Safety Net Options

Out of 23 investors who were aware of safety nets, only 10 found to have their investments in IPO with safety nets. While majority of them i.e. 13 or 56% never invest their money with safety nets in spite of being aware of these options. So this is a good opportunity for intermediaries to make these investors invest with these options.

62

Remaining 27 i.e.54% were not aware of safety nets so they never

invest with it. So this is again an opportunity to make them aware of the benefits involved and eventually invest in primary market with these options on.

SAFETY NET ARE SHOWING GOOD OPTIMISM ABOUT THE PROSPECT OF STOCK
Do you agree Safety Nets are showing great deal of optimism about the prospects of stock? Frequency 15 3 32 50 Percent 30.0 6.0 64.0 100.0

Valid

Yes I Agree No I Disagree No Opinion Total

S f t N t a es o in ge t d a o o t is aey es r h w g r a e l f pim m a o t t epo p cso so k b u h r s et f t c

Y sI A re e g e 3% 0

N O in n o p io 6% 4

N I D a re o is g e 6 %

This question was put forward to gauge the perception level of investors.

63

When being asked that do they agree that safety nets are showing

great deal of optimism about the prospects of stock, majority of investors i.e.64% were having no opinion on this. So this can be concluded that majority of them were not clear about the impact safety nets have on the prices on stock. Only 30% of Investors agrees that yes it shows a great deal of

optimism about the prospects of the stock while rest 6% were disagree on this fact. So as far as perception about the safety net is concerned investors

were not sound in perceiving it as a tool which shows great optimism about the prospects of stock.

PERCEPTION ABOUT SAFETY NET AMONG INVESTORS

Are you aware about Safety Net Options attached with IPO'S * Do you agree Safety Nets are showing great deal of optimism about the prospects of stock? Do you agree Safety Nets are showing great deal of optimism about the prospects of stock Yes I No I No Agree Disagree Opinion Are you aware about Safety Net Options attache d with IPO'S Total Yes

Total

15

23

No

0 15

1 3

26 32

27 50

64

Safety Nets are showing great deal

of Optimism about the prospects of

Perception About Safety nets among Investors who are Aware or Unaware about these options
No Opinion No I Dis agree Yes I Agree 0 26 6

stock

1 2
Yes I Agree 0 15

15 10

0 20
No I Disagree 1 2

30
No Opinion 26 6

40

No, I am unaware about Safety Nets Yes, I know about Safety nets

Yes, I know about Safety nets

No, of Respondents Safety Nets No I am unaware about

Above graph show that out of total sample of 50 investors only 15

i.e.30% agree on the fact that safety nets shows great optimism about prospect of stock. While 32 investors i.e. around 64% of the sample studied were not having any opinion regarding this .this is due to fact that the majority of investors i.e. 26 were actually not aware of safety nets. So they are bound to have no opinion about that.

65

Perception about safety net among Investors who are aware of safety nets
15 10 5 0
Series1

No of respondents

Yes I Agree 15

No,I disagree 2

No Opinion 6

Safety nets are showing great deal of Optimism about the Prospect of stock

When same question was put forward to those 23 investors who were aware of safety nets, 15 i.e. 65% of them agree that yes it show great optimism about the prospect of the stock while 6 i.e.26% were found to have no opinion and rest 9% do not agree on this fact. So this can be concluded that majority of investors who are aware of safety nets perceive it as a good tool. But still there are as many as 35% investors who were still not sure how this price stabilization mechanism actually operates to show optimism about the future prices of the stocks.

66

SAFETY NET HELPS INVESTORS WHEN THERE IN DOWNFALL IN PRICES

Do you think that Safety Net really help investors when there is downfall in prices? Frequency Valid Yes it helps investors No it's just a mechanism Not aware of safety net Total 18 5 27 50 Percent 36.0 10.0 54.0 100.0

Safety Nets really hepls Investors when there is downfall in Prices

Sorry I am unaware about safey net

27

No it's just a mechanism

Series1

Yes it helps investors

18
No of respondents

When this question was put forward that do you think safety net

helps investors when market price of stock fall below the price for

67

which it was issued with in 6 months or it is just a mechanism which companies used to get more and more subscriptions. 27 investors were not unaware of safety nets so their opinion was not considered for this research as it might mislead the purpose of study. Out of 23 who were aware of safety net 18 i.e.78% investors

agree on the fact that Yes, safety net helps when price of stock fall below the price for what it was issued and investors can utilize the put option being provided and return the shares back to the merchant banker .while rest 22% i.e. 5 investors perceive it just as a mechanism used by companies to get more and more subscriptions and in their opinion merchant bankers hardly take the shares back in case price fall below for what it was issued within 6 months. So this can be concluded that majority of investors who are aware

of safety net perceive this instrument in a positive sense but still there are as many as 54% of investors who are unaware of this tool and

additional 10% dont take it as a tool which helps investors. So these 64% investors, if made aware of the benefits can really prove as potential investors for companies which are yet to come up with their IPOs.

68

CONCLUSION RECOMMENDATION S LIMITATIONS

69

CONCLUSION
Various conclusions can be drawn from the study:
One of the motives of this research was to find out investors

preference while investing money and from this research it is found that appreciation in Principal + Interest on it seems to be the driving goal for investors. Around 42% investors look for instruments which not only provide regular income but also appreciate the principal in long run. So this is good news for this industry of investment to utilize these potential investors by providing such options with instruments which not only provide some sort of safety to the principal but also fetch regular return on it and maximum the return at lowest possible risk.

Regular income and capital appreciation are the primary objectives

while investing money and that is justified by the fact that 68% of the sample had their investments in instruments like mutual funds and shares. This may be the recent boom of stock market which makes them put money to these risky instruments ahead of saving schemes. Another good thing is that investors tends to put their money for long term, around 74% investors tends to keep their investments for more than a year. So this research shows that people dont mind keeping their investments for long term and that too in risky instruments provided it justify them with suitable returns.

Another motive of this research was to find out the confidence

level of investors or it can be said that how comfortable they feel to

70

put their money in an instrument like stock/share where there is risk of both principal + interest? There is good news for stock market that most of the investors feel comfortable with the risk involved in shares. Around 58% investor in this research feel comfortable when they invest in shares 16% of investors were such that they never invested in stocks/ shares but they are comfortable with risk involved in these risky instruments Another motive of research was to find out the level of

awareness among investors so that this research would make a substantial contribution to those investors who are unaware about these safety nets. This research show that still 54% investors which are unaware about these price stabilization mechanisms. So as far as level of awareness is concerned it is still not satisfactory. This low level is due to the facts like: 1. Out of the sample of 50 investors only 39 i.e. 78% investors

had their investments in stock / shares in their life. 2. 3. Out of those 39 only 24 had their investment in IPOs. 14 investors that represent 28 % of the sample were not

aware of IPO failure, where IPO fails to pick in the market and their prices fall below the price at which they were issued.

Prime motive of this research was to find how safety nets are

perceived by the investors. So when being asked that do they agree that safety nets are showing great deal of optimism about the prospects of stock, majority of investors i.e.64% were having no opinion on this. So this can be concluded that majority of them were not clear about the impact safety nets have on the prices on stock. Only 30% of Investors agree that yes it shows a great deal of optimism

71

about the prospects of the stock while rest 6% were disagree on this fact.

So as far as perception about the safety net is concerned investors were not sound in perceiving it as a tool which shows great optimism about the prospects of stock.

Another fact which justify above result is that Out of 23 who 22% investors perceive it just as a

were aware of safety net

mechanism used by companies to get more and more subscriptions and in their opinion merchant bankers hardly take the shares back in case price fall below for what it was issued within 6 months.

So over all this study can be concluded by the facts that still there are as many as 54% of investors who are unaware of this tool and additional 10% dont take it as a tool which helps investors. So these 64% investors, if made aware of the benefits can really prove as potential investors for companies which are yet to come up with their IPOs.

72

RECOMMENDATIONS
The Indian primary stock market has witnessed impressive progress in the last decade. However, unless the retail investors are educated enough to understand the instruments and the facilities attached most of them would be unable to benefit from the markets progress and would

eventually end up losing the bulk of the money invested due to their own lack of understanding. This was exactly found in this research that primary market is abound with people who are looking for easy preys, i.e. ignorant investors. Even the safety mechanisms such as safety nets which eventually help them are not perceived in true sense.

1. Launch Investor Awareness Program. How well one manages own investments will depends upon the factor that how much he/she is equipped with knowledge to undertake this task. The affluent people can hire portfolio management services but the ordinary people will find these too costly. So awareness programs can help such investors to made their investments on safer side and have maximum returns at lowest possible risk.

2. A more systematic approach to investor education is needed. Which should give more thought to both the content and the delivery mechanism it should make them aware about the practical implication of the instruments / options such as Safety nets rather than imbibing theoretical knowledge into their brains. This systematic approach is needed because even investors who were aware of safety nets were found to have no opinion about the impact; it has on the prospect of the stock in future.

73

3. Town Meetings in cities throughout the country should be held to help the people learn how to save and invest wisely and achieve financial security. Companies coming with IPOs should also publish free brochures and other educational materials on these safety mechanisms and launch special promotional schemes to make investors aware about these options. Such perspective will guard the investors against being over-optimistic and will help them in evolving a sound and safe long-term investment strategy.

4.

Patience is the key to success in primary market. Generally

investors increasingly try to make a quick buck and put their money in a company without checking its fundamentals. . Many companies tend to be shady with no projects and business plans. Better is to make investment in IPO only a small part of portfolio so that one can afford to lose. And stop dreaming that buying shares in a hot IPO at the offering price and then "flip" the shares on first few months for an easy profit. Instead, determine which new companies may actually have a future, then invest in the holding only if it's a good company with good earnings potential.

74

LIMITATIONS
Sample size was only 50. This was due to the fact that Those having no voluntary savings for financial investments or no ability to understand investments, like shares and bonds, were excluded Due to incomplete response of some of the investors, some adjustments are being made in order to make it viable. This survey was being conducted in the period when market was on a higher side so this psychological effect on the mindset of the respondents assumed to have an effect on their responses. Specially when asked, whether they are comfortable with their past investments in stock/shares or not?

75

ANNEXURE

76

QUESTIONNAIRE
This study is for academic purpose so no personal information will be supplied to any person or organization. The main objective of this study is to know the preferences while investing money and their perception and awareness about safety nets when it comes to primary market. Personal Details:Age: Sex:

Q1: -What are your investment goals, i.e. why would you want to Invest today?

Receiving regular income

Capital appreciation

Planning for commitment (CHILD EDUCATION ETC) Acquiring an asset Any other ( please specify)

Pay off or reduce debt Saving for retirement

Q2:- Which of following clearly define your investment objective? You want to ensure capital is safe & you do not need income at this time

You require steady income from your investments

You need both capital appreciation and regular income

77

You are only interested in capital appreciation over long term.

Q3:- Do you have existing investment / savings? Yes

No If yes in which of the following instruments: Saving Schemes Any other Commodity Mutual Funds Shares

Q4:- What is your investment time frame i.e. for how long you set aside your funds? Less than a year 3 years to 5 years 1 year to 3 years More than 5 years

Q5:-What percentage of your annual income do you set aside for Savings/ investments? Less than 10% 20% - 30 % 10% - 20% More than 30%

Q6:- Have you ever invested in shares / stocks? Yes and I was comfortable with the risk Yes but I was uncomfortable with the risk No but I would feel comfortable with the risk if I did No because I feel uncomfortable with risk involved

78

Q7:- Have you ever invested in Initial Public Offer (IPO)?

Yes No

Q8:-Are you aware about IPO failure( when market price fall below the price for which they are issued) ? Yes No

Q9:-Are you aware about the Safety net options (such as buy back by the Issuer or Green shoe option) attached to the initial public offers? Yes No

Q10:- If yes, have you ever invested with Safety net options? Yes No

Q11:-If yes, do you agree that Safety nets are showing a great deal of optimism about the prospects for the stock? 1 .Yes, I Agree 2 No, I Disagree 3. No opinion

Q12:- Do you think that Safety net really help investors when There is downfall in prices or it is just a mechanism used by companies to get more and more subscriptions? Yes it helps investors No its just a mechanism

79

10

BIBLIOGRAPH Y

80

BIBLIOGRAPHY
Web sites:
www.financialexpress.com www.ecomomictimes.com www.businesstimes.com www.rediff.money.com

Links:
http://nseindia.com/content/ipo/ipo_introduction.

Book:
Fundamentals of investments by Gorden J. Alexander, william F. sharpe

81

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