A

PROJECT REPORT
ON
INITIAL PUBLIC OFFER
IN

RELIGARE.

SUBMITTED BY
P.VENKAT RAO
H.T. NO: 2146-12-672-023

UNDER THE SUPERVISION OF

Mrs.R.BHARATHI
ASST.PROFESSOR

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR

THE AWARD OF THE

MASTERS DEGREE IN BUSINESS ADMINISTRATION

(2012-2014)

Department of Business Administration

PRR COLLEGE OF COMMERCE AND MANAGEMENT
Affiliated to Osmania University
GANDIPET ROAD, MANCHIREVULA (V), R.R.DIST, A.P

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2
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 ACKNOWLEDGEME

I take this opportunity to extend my profound thanks and deep

sense of gratitude to the authorities of RELIGARE. For giving me the

opportunities to undertake this project work in their esteemed

organization. I profusely thank Mr. Anjaneyulu (Manager)

My sincere thanks to Honorable secretary Sri SRINIVAS RAO,

PRR COLLEGE principal Dr. SHEKHAR SISTLA, HODDr. NUZHATH

KHATOON, and my project guide Mrs.R.BHARATHI. For the kind

encouragement and constant support extended in completion of this

project work. From the bottom of my heart

I am also thankful to all those who have incidentally helped me,

through their valued guidance, co-operation and unstinted support during

the course of my project.

P.VENKAT RAO

2146-12-672-023

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 INDEX
CHAPTER NAME PAGE NO
CHAPTER-1 INTRODUCTION 1-6
Need of the study
Objective of the study
Scope of the study
Methodology of the study
Characteristics Limitations of the Study

CHAPTER-2 REVIEW OF LITERATURE 7-34

CHAPTER-3 INDUSTRY AND COMPANY 35-58

PROFILE

CHAPTER-4 DATA ANALYSIS AND 59-68

INTERPRETATION

CHAPTER-5 FINDINGS, 69-72

SUGGESTIONS
CONCLUSION
BIBLIOGRAPHY

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 LISTOF TABLES

S.NO TITLE PAGE.NO

AN IPO GRADING SCALE

1 26

2 TREND OF IPOS YEAR ON YEAR 64

TOP GAINERS 2013

3 65

TOP LOSERS 2013

4 66

IPOS BY GRADE
5 67

TOP BOOK RUNNERS LEAD MANAGERS IN 2013

6 68

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 LIST OF GRAPHS

S.NO TITLE P.NO

1 IPO INDEX 58

2 TREND OF IPOS YEAR ON YEAR 64

TOP GAINERS 2013

3 65

TOP LOSERS 2013

4 66

IPOS BY GRADE
5 67

TOP BOOK RUNNERS LEAD MANAGERS IN 2013

6 68

LIST OF DIAGRAMS

7
S.NO TITLE P.NO
1 CLASSIFICATION OF ISSUES 8

2 BOOK-BUILDING PROCESS 15
3 DATA- FLOW DATA DIAGRAM SHOWING THE 27
ENTIRE IPO-GRADING PROCEDURE
4 REASONS FOR CHOOSING RELIGARE 56
5 TOP 10 ALL TIME IPOs IN INDIA 59

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 CHAPTER-1

INTRODUCTION

INTRODUCTION

The primary market is that part of the capital markets that deals with the issuance of
new securities. Companies, governments or public sector institutions can obtain
funding through the sale of a new stock or bond issue. This is typically done through
a syndicate of securities dealers. The process of selling new issues to investors is
called underwriting. In the case of a new stock issue, this sale is an initial public

9
offering (IPO). Dealers earn a commission that is built into the price of the security
offering, though it can be found in the prospectus. Primary market creates long term
instruments through which corporate entities borrow from capital market.

The first sale of stock by a private company to the public. IPOs are often issued by
smaller, younger companies seeking the capital to expand, but can also be done by
large privately owned companies looking to become publicly traded.

In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it
determine what type of security to issue (common or preferred), the best offering
price and the time to bring it to market.

Also referred to as a "public offering."

Initial public offer (IPO) refers to sale of shares of a company to the general public
for the first time, initial public offer can be a risky investment for individual investor.
It is tough to predict what the stock will do on its initial day of trading and in the near
future because there is often little historical data with which to analyze the company,
also most IPOs are of companies going through a transitory growth period, which
are subject to additional uncertainty regarding their future values.

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CLASSIFICATION OF ISSUES
IPO

An Initial Public Offer (IPO) is the selling of securities to the public in the
primary market. It is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to
the public. This paves way for listing and trading of issuers securities. The sale of
securities can be through book building or normal public issue.

Secondary Offerings

Secondary Offerings are issued by companies or corporate bodies whose

shares are already being traded in the capital market and they are issuing fresh
shares either to fund the expansion of their existing business or to invest into
other business activities.

Reasons for Going Public

Raising funds to finance capital expenditure programs like expansion,

diversification, modernization, etc.
Financing of increased working capital requirements
Financing acquisitions like a manufacturing unit, brand acquisitions, tender
offers for shares of another firm, etc.
Debt Refinancing
Exit Route for Existing Investors

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OBJECTIVES OF THE STUDY

The project aims to study the functioning of primary markets in India and the
role of SEBI.
To understand the procedure of IPO for companies going public.
To study the advantages and disadvantages of going public.
To study the performance of IPOs.
To do an in-depth study of the top IPOs in the last one year
To analyze the upcoming IPOs.

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SCOPE OF THE STUDY

The study covers the Primary Markets with IPOs in particular. The study attempts to
study the advantages and disadvantages of IPOs. The study collects most of the
information from different secondary resources apart from primary information by
discussing with different managers and customers who do online trading. The study
covers only the IPOs in India. The study attempts to study the IPOs that have come
up in the last few years and the IPOs that are expected to come up in the next one
year.

NEED OF THE STUDY

Different investment avenues are available to investors. Stock market also offers good
investment opportunities to the investor alike all investments, they also carry certain
risks. The investor should compare the risk and expected yields after adjustment off
tax on various instruments, while talking investment decision the investor may seek
advice from experts and consultancy include stock brokers and analysts while making
investment decisions.

The objective is to make the investor aware of the primary markets with special
reference to Initial Public Offerings. The objective is to help the investor in selecting
the appropriate initial public offerings in order to attain maximum return and to
construct the portfolio.

The investor should decide how best to reach the goals from the securities available.
To identity investor objective constraints and performance, which help to formulate
the investment policy? The development and improvement strategies in the
investment policy are formulated. They will help the investors in selection of asset
classes and securities in each class depending upon their real attributes.

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RESEARCH METHODOLGY

Data collection is an actively in marketing research. The design of the data

collection method is the spine of research design. The sources of data are classified in
to two types.
The Primary Data.

The Secondary Data.

PRIMARY DATA:
The primary data are fresh data collected directly from the field and therefore
consist of original information gathered for the specific purpose. It is expensive,
laborious, and time consuming. But it assures a greater degree of accuracy and
reliability as it comes straight from the horses month.

SECONDARY DATA:
The secondary data are the data, which the investigator borrows from other
who have collected it for various other purposes. Therefore it may not entirely be
reliable. It is less expensive and involves less expensive and involves less time and
labor than the collection of primary data.

The Sources of collecting Data:

I. Reports and publication of Government department and international bodies.

II. Newspaper, magazines, trade journals.

III. Publication of books company records, brochures, catalogues and other

documents.

IV. Data related by statistical organization.

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LIMITATIONS OF THE STUDY

The study is limited to Initial Primary Offerings in India.

The study was carried out for a period of 45 days and due to paucity of time
an in-depth study was not possible.

The IPO market is a dynamic one. Therefore data related to last few months
was only considered and interpreted.

Secondary information may not be authentic.

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 CHAPTER-2

REVIEW OF LITERATURE

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 Literature review
The primary market is that part of the capital markets that deals with the issuance of
new securities. Companies, governments or public sector institutions can obtain
funding through the sale of a new stock or bond issue. This is typically done through
a syndicate of securities dealers. The process of selling new issues to investors is
called underwriting. In the case of a new stock issue, this sale is an initial public
offering (IPO). Dealers earn a commission that is built into the price of the security
offering, though it can be found in the prospectus. Primary market creates long term
instruments through which corporate entities borrow from capital market.

Features of primary markets are:

This is the market for new long term equity capital. The primary market is the
market where the securities are sold for the first time. Therefore it is also
called the new issue market (NIM).
In a primary issue, the securities are issued by the company directly to
investors.
The company receives the money and issues new security certificates to the
investors.
Primary issues are used by companies for the purpose of setting up new
business or for expanding or modernizing the existing business.
The primary market performs the crucial function of facilitating capital
formation in the economy.
The new issue market does not include certain other sources of new long term
external finance, such as loans from financial institutions. Borrowers in the
new issue market may be raising capital for converting private capital into
public capital; this is known as "going public."
The financial assets sold can only be redeemed by the original holder.

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Methods of issuing securities in the primary market are:

Initial public offering;

Rights issue (for existing companies);
Preferential issue.

Classification of Issues

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IPO
An Initial Public Offer (IPO) is the selling of securities to the public in the primary
market. It is when an unlisted company makes either a fresh issue of securities or an
offer for sale of its existing securities or both for the first time to the public. This
paves way for listing and trading of issuers securities. The sale of securities can be
through book building or normal public issue.

FPO
Further Public Offers are issued by companies or corporate bodies whose shares are
already being traded in the capital market and they are issuing fresh shares either to
fund the expansion of their existing business or to invest into other business activities.

Reasons for Going Public

Raising funds to finance capital expenditure programs like expansion,

diversification, modernization, etc.
Financing of increased working capital requirements
Financing acquisitions like a manufacturing unit, brand acquisitions, tender
offers for shares of another firm, etc.
Debt Refinancing
Exit Route for Existing Investors

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Advantages of Going Public

Facilitates future funding by means of subsequent public offerings

Enables valuation of company
Provides liquidity to existing shares
Increases the visibility and reputation of the company
Commands better pricing than placement with few investors
Enables the company to offer its shares as purchase consideration or as an
exchange for the shares of another company

Disadvantages of Going Public

Dilution of Stake makes co vulnerable to future takeovers

Involves substantial Expenses
Need to make continuous disclosures
Increased regulatory monitoring
Listing fees and Documentations
Cost of maintaining Investor relations
Takes substantial amount of management time and efforts

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REGULATORY FRAMEWORK FOR IPOS
Eligibility Conditions for Companies Issuing Securities
The companies issuing securities offered through an offer document shall satisfy the
following at the time of filing the draft offer document with SEBI and also at the time of
filing the final offer document with the Registrar of Companies/ Designated Stock
Exchange:
Filing of offer document
No issuer company shall make any public issue of securities, unless a draft
Prospectus has been filed with the Board through a Merchant Banker, at
least 30 days prior to the filing of the Prospectus with the Registrar of
Companies (ROC):
Provided that if the Board specifies changes or issues observations on
the draft Prospectus (without being under any obligation to do so), the issuer
company or the Lead Manager to the Issue shall carry out such changes in
the draft Prospectus or comply with the observation issued by the Board
before filing the Prospectus with ROC.

Companies barred not to issue security

No company shall make an issue of securities if the company has been
prohibited from accessing the capital market under any order or direction
passed by the Board.

Application for listing

No company shall make any public issue of securities unless it has
made an application for listing of those securities in the stock exchange

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 Issue of securities in dematerialized form
No company shall make public or rights issue or an offer for sale of
securities, unless:
a. The company enters into an agreement with a depository for
dematerialization of securities already issued or proposed to be
issued to the public or existing shareholders; and
b. The company gives an option to subscribers/ shareholders/
investors to receive the security certificates or hold securities
in dematerialized form with a depository.

IPO Grading
No unlisted company shall make an IPO of equity shares unless the
following conditions are satisfied as on the date of filing of Prospectus with
ROC:
a. the unlisted company has obtained grading for the IPO from at
least one credit rating agency
b. Disclosures of all the grades obtained, along with the
rationale/ description furnished by the credit rating agency(ies)
for each of the grades obtained.

Eligibility Norms for IPO

An unlisted company may make an initial public offering (IPO) of equity shares only
if :-

The company has net tangible assets of at least Rs. 3 crores in each of the
preceding 3 full years (of 12 months each), of which not more than 50% is
held in monetary assets.

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 The company has a track record of distributable profits in terms of Section
205 of the Companies Act, 1956, for at least three (3) out of immediately
preceding five (5) years.
The company has a net worth of at least Rs. 1 crore in each of the preceding 3
full years (of 12 months each).
In case the company has changed its name within the last one year, atleast
50% of the revenue for the preceding 1 full year is earned by the company
from the activity suggested by the new name.
The aggregate of the proposed issue and all previous issues made in the same
financial year in terms of size (i.e., offer through offer document + firm
allotment + promoters contribution through the offer document), does not
exceed five (5) times its pre-issue net worth as per the audited balance sheet of
the last financial year.

PROCEDURE FOR IPOS

Fixed Pricing versus True Pricing (Book- Building)

The traditional method of doing IPOs is the fixed price offering. Here, the issuer and
the merchant banker agree on an issue price. Then the investor has a choice of
filling in an application form at this price and subscribing to the issue. Extensive
research has revealed that the fixed price offering is a poor way of doing IPOs. Fixed
price offerings, all over the world, suffer from `IPO under pricing'. In India, on
average, the fixed-price seems to be around 50% below the price at first listing; i.e.
the issuer obtains 50% lower issue proceeds as compared to what might have been the
case. This average masks a steady stream of dubious IPOs who get an issue price
which is much higher than the price at first listing. Hence fixed price offerings are
weak in two directions:
dubious issues get overpriced and

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 Good issues get under priced.

BOOK-BUILDING

A mechanism where, during period for which the IPO is open, bids are collected from
investors at various prices which are above or equal to the floor price (the minimum
price). The final price of the share is determined after the bid closing date, based on
certain evaluation criteria.

The SEBI (Disclosure and Investor Protection) Guidelines, 2000, define the term
`book-building' in a rather complex language as "a process undertaken by which a
demand for the securities proposed to be issued by a body corporate is elicited and
built-up and the price for such securities is assessed for determination of the quantum
of such securities to be issued by means of a notice, circular, advertisement,
document or information memoranda or offer document.''

Book building process is a common practice used in most developed countries for
marketing a public offer of equity shares of a company. However, Book building acts
as scientific as well as flexible price discovery method through which a consensus
price of IPOs may be determined by the issuer company along with the Book
Running Lead Manager (i.e. merchant banker) on the basis of feedback received from
individual investors as well as most informed investors (who are institutional and
corporate investors like, UTI, LICI, GICI, FIIs, and SFCI etc). The method helps to
make a correct evaluation of a companys potential and the price of its shares.

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Book-Building Process

ISSUER

BOOK RUNNING
LEAD MANAGERS

UNDERWRITERS
MUTUAL FUNDS MERCHANT BANKERS STOCK
BROKERS

INVESTORS

MFs Financial Foreign Financial NRIs Corporations HNIs Retail Investors

Institutions Institutions

In simple terms, book-building is a mechanism by which the issue price is

discovered on the basis of bids received from syndicate members/brokers and not by
the issuers/merchant bankers.

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An Issuer Company can issue capital through book building in following two ways:
75% Book Building process

Under this type of public offer, the issue of securities has to be categorized into:

Placement portion category

Net offer to the public

The option of 75% Book Building is available to all body corporate that are
otherwise eligible to make an issue of capital to the public. The securities issued
through the book building process are indicated as 'placement portion category' and
securities available to public are identified as 'net offer to public'. In this option,
underwriting is mandatory to the extent of the net offer to the public. The issue price
for the placement portion and offers to public are required to be same

100% of the net offer to the public through Book Building process - In the 100%
of the net offer to the public, entire issue is made through Book Building process.
However, there can be a reservation or firm allotment to a maximum of 5% of the
issue size for the permanent employees, shareholders of the company or group
companies, persons who, on the date of filing of the draft offer document with the
Board, have business association, as depositors, bondholders and subscribers to
services, with the issuer making an initial public offering.

The number of bidding centres, in case of 75% book building process should not be
less than the number of mandatory collection centres specified by SEBI. In case of
100% book building process, the bidding centres should be at all the places where the
recognized stock exchanges are situated.

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Book Building Process in India

The steps which are usually followed in the book building process can be summarized
below:

The issuer company proposing an IPO appoints a lead merchant banker as a BRLM.

(2) Initially, the issuer company consults with the BRLM in drawing up a draft
prospectus (i.e. offer document) which does not mention the price of the issues, but
includes other details about the size of the issue, past history of the company, and a
price band. The securities available to the public are separately identified as net offer
to the public.

(3) The draft prospectus is filed with SEBI which gives it a legal standing.

(4) A definite period is fixed as the bid period and BRLM conducts awareness
campaigns like advertisement, road shows etc.

(5) The BRLM appoints a syndicate member, a SEBI registered intermediary to

underwrite the issues to the extent of net offer to the public.

(6) The BRLM is entitled to remuneration for conducting the Book Building
process.

(7) The copy of the draft prospectus may be circulated by the BRLM to the
institutional investors as well as to the syndicate members.

(8) The syndicate members create demand and ask each investor for the number
of shares and the offer price.

(9) The BRLM receives the feedback about the investors bids through syndicate
members.

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(10) The prospective investors may revise their bids at any time during the bid period.

(11) The BRLM on receipts of the feedback from the syndicate members about the
bid price and the quantity of shares applied has to build up an order book showing the
demand for the shares of the company at various prices. The syndicate members must
also maintain a record book for orders received from institutional investors for
subscribing to the issue out of the placement portion.

(12) On receipts of the above information, the BRLM and the issuer company
determine the issue price. This is known as the market-clearing price.

(13) The BRLM then closes the book in consultation with the issuer company and
determine the issue size of (a) placement portion and (b) public offer portion.

(14) Once the final price is determined, the allocation of securities should be made by
the BRLM based on prior commitment, investors quality, price aggression, earliness
of bids etc. The bid of an institutional bidder, even if he has paid full amount may be
rejected without being assigned any reason as the Book Building portion of
institutional investors is left entirely at the discretion of the issuer company and the
BRLM.

(15) The Final prospectus is filed with the registrar of companies within 2 days of
determination of issue price and receipts of acknowledgement card from SEBI.

(16) Two different accounts for collection of application money, one for the private
placement portion and the other for the public subscription should be opened by the
issuer company.

(17) The placement portion is closed a day before the opening of the public issue
through fixed price method. The BRLM is required to have the application forms
along with the application money from the institutional buyers and the underwriters to
the private placement portion.

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(18) The allotment for the private placement portion shall be made on the 2 nd day
from the closure of the issue and the private placement portion is ready to be listed.

(19) The allotment and listing of issues under the public portion (i.e. fixed price
portion) must be as per the existing statutory requirements.

(20) Finally, the SEBI has the right to inspect such records and books which are
maintained by the BRLM and other intermediaries involved in the Book Building
process

Pricing

Before establishment of SEBI in 1992, the quality of disclosures in the offer

documents was very poor.

The main drawback of free pricing was the process of pricing of issues. The issue
price was determined around 60-70 days before the opening of the issue and the
issuer had no clear idea about the market perception of the price determined.
In Book Building the price is determined on the basis of demand received or at price
above or equal to the floor price.

The Allotment Process through Book-building:

Step1-The Company will 'discover' its price

Earlier, the company determined a fixed price for the stock issue. The issue was
marketed to the general public through advertisements and a media campaign.
Today, companies prefer a book building process. Book building is the process of
price discovery. That means there is no fixed price for the share. Instead, the company
issuing the shares comes up with a price band. The lowest price is referred to as the
floor and the highest, the cap. Bids are then invited for the shares. Each investor
states how many shares s/he wants and what s/he is willing to pay for those shares

29
(depending on the price band). The actual price is then discovered based on these
bids.

Step2-Players of the game

Three classes of investors can bid for the shares:

Qualified Institutional Buyers: QIBs include mutual funds and Foreign
Institutional Investors. At least 50% of the shares are reserved for this
category.
Retail investors: Anyone who bids for shares under Rs 50,000 is a retail
investor. At least 25% is reserved for this category.
The balance bids are offered to high networth individuals and employees of
the company.

Individuals who apply for the IPO put in their bids.

The process is transparent. One can check on the issue subscription at the BSE
and NSE Web sites.
After evaluating the bid prices, the company will accept the lowest price that will
allow it to dispose the entire block of shares. That is called the cut-off price.

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Reverse Book Building

Reverse book-building is a mechanism by which companies listed on a stock

exchange can delist their shares. The reasons for delisting may be several and
sometimes intentional.

The reverse book building is an efficient price discovery mechanism of de-listing of

securities, which is provided for capturing the sell orders on online basis from the
shareholders through respective BRLM. In the reverse book-building scenario, the
acquirer or promoter of a company offers to get back shares from the shareholders. It
is a mechanism where, during the period for which the reverse book building is open,
offers are collected at various prices, which are above or equal to the floor price from
the share holders through trading members appointed by the acquirer or promoter of a
company. The reverse book building price (i.e. final price/ exist price) is determined
by BRLM in consultation with the acquirer or promoter of the company after the offer
closing date in accordance with the SEBI (De-listing of Securities) Guidelines, 2003.
which desires to get de-listed, in accordance to book building process. The offer price
has a floor price, which is fixed for de-listing of securities below which no offer can
be accepted. The floor price is the average of 26 weeks traded price quoted on the
stock exchange where the shares of the company are most frequently traded preceding
26 weeks from the date of public announcement is made. There is no ceiling on the
maximum price.

ROLE OF VARIOUS INTERMEDIARIES IN IPO

Intermediarys help corporations design securities that will be attractive to investors,

buy these securities from the corporations, and then resell them to savers in the
primary markets.

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Merchant Bankers/ Lead Manager

Merchant bankers play an important role in issue management process. Lead

managers have to ensure correctness of the information furnished in the offer
document. They have to ensure compliance with SEBI rules and regulations as also
Guidelines for Disclosures and Investor Protection. To this effect, they are required to
submit to SEBI a due diligence certificate confirming that the disclosures made in the
draft prospectus or letter of offer are true, fair and adequate to enable the prospective
investors to make a well informed investment decision. The role of merchant bankers
in performing their due diligence functions has become even more important with the
strengthening of disclosure requirements and with SEBI giving up the vetting of
prospectuses. Their functions are:

To act as intermediaries between the company seeking to raise money and the
investors. They must possess a valid registration from SEBI enabling them to
do this job.
They are responsible for complying with the formalities of an issue, like
drawing up the prospectus and marketing the issue.

If it is a book building process, the lead manager is also in charge of it. In such
a case, they are also called Book Running Lead Managers.

Post issue activities, like intimation of allotments and refunds, are their
responsibility as well.

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Underwriters

Underwriters are required to register with SEBI in terms of the SEBI (Underwriters)
Rules and Regulations, 1993. In addition to underwriters registered with SEBI in
terms of these regulations, all registered merchant bankers in categories I, II and III
and stockbrokers and mutual funds registered with SEBI can function as underwriters.
Part III gives further details of registration of underwriters. In 1996-97, the SEBI
(Underwriters) Regulations, 1993 were amended mainly pertaining to some
procedural matters.

Bankers to an Issue

Scheduled banks acting as bankers to an issue are required to be registered with SEBI
in terms of the SEBI (Bankers to the Issue) Rules and Regulations, 1994. These
regulations lay down eligibility criteria for bankers to an issue and require registrants
to meet periodic reporting requirements. Part III gives further details of registration of
bankers to an issue.

Portfolio managers

Portfolio managers are required to register with SEBI in terms of the SEBI (Portfolio
Managers) Rules and Regulations, 1993. The registered portfolio managers
exclusively carry on portfolio management activities. In addition all merchant
bankers in categories I and II can act as portfolio managers with prior permission
from SEBI. Part III gives further details of the registration of portfolio managers.

33
Registrars to an Issue and Share Transfer Agents

Registrars to an issue (RTI) and share transfer agents (STA) are registered with SEBI
in terms of the SEBI (Registrar to the Issue and Share Transfer Agent) Rules and
Regulations, 1993. Under these regulations, registration commenced in 1993-94 and
is granted under two categories: category I - to act as both registrar to the issue and
share transfer agent and category II - to act as either registrar to an issue or share
transfer agent. With the setting up of the depository and the expansion of the network
of depositories, the traditional work of registrars is likely to undergo a change.

IPO Grading

IPO grading (initial public offering grading) is a service aimed at facilitating the
assessment of equity issues offered to public. The grade assigned to any individual
issue represents a relative assessment of the fundamentals of that issue in relation to
the other listed equity securities in India. IPO grading is positioned as a service that
provides an independent assessment of fundamentals to aid comparative assessment
that would prove useful as an information and investment tool for investors.
Moreover, such a service would be particularly useful for assessing the offerings of
companies accessing the equity markets for the first time where there is no track
record of their market performance.

IPO grade assigned to any issue represents a relative assessment of the fundamentals
of that issue in relation to the universe of other listed equity securities in India. This
grading can be used by the investor as tool to make investment decision. The IPO
grading will help the investor better appreciate the meaning of the disclosures in the
issue documents to the extent that they affect the issues fundamentals. Thus, IPO
grading is an additional investor information and investment guidance tool.

Credit Rating agencies (CRAs) like ICRA, CRISIL, CARE and Fitch Ratings who
are registered with SEBI will carry out IPO grading. SEBI does not play any role in

34
the assessment made by the grading agency. The grading is intended to be an
independent and unbiased opinion of that agency. IPO grading is not mandatory but is
optional and the assigned grade would be a one time assessment done at the time of
the IPO and meant to aid investors who are interested in investing in the IPO. The
grade will not have any ongoing validity.

SEBI GUIDELINES ON IPO GRADING

No unlisted company shall make an IPO of equity shares or any other security
which may be converted into or exchanged with equity shares at a later date,
unless the following conditions are satisfied as on the date of filing of
Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of
book built issue) with ROC:
The unlisted company has obtained grading for the IPO from at least
one credit rating agency;
Disclosures of all the grades obtained, along with the
rationale/description furnished by the credit rating agency(ies) for each
of the grades obtained, have been made in the Prospectus (in case of
fixed price issue) or Red Herring Prospectus (in case of book built
issue); and
The expenses incurred for grading IPO have been borne by the
unlisted company obtaining grading for IPO.
Most of the market analysts have welcomed this move of SEBI as it will help the
investors in a volatile market to know whether the merchant banker has carried the
exercise in determining the price of an issue in a proper manner or not. It will also
help the investors in knowing whether the price of the issue is justified or not. They
even said that management of a good company will never get afraid of getting graded
of their IPOs if they are good.

FEATURES OF IPO GRADING

35
IPO grading covers both internal and external aspects of a company seeking to make
an IPO in general. The internal factors include competence and effectiveness of the
management, profile of promoters, marketing strategies, size and growth of revenues,
competitive edge, technology, operating efficiency, liquidity and financial flexibility,
asset quality, accounting quality, profitability and hedging of risks. Among external
factors, the key one is the industry and economic/business environment for the issuer.
Here, it is important to note that internationally, the global rating agencies such as
Standard & Poors and Moodys do not perform grading of IPOs at all. While Standard
& Poors is the majority stakeholder in CRISIL Ltd, Moodys is the single biggest
stakeholder in ICRA Ltd. Similarly, the third global player Fitch IBCA (which
acquired another rating agency Dun & Bradstreet in 2000) also does not grade IPOs
as yet. The IPO grading is indicated on a five point scale and a higher score indicating
stronger fundamentals.

An IPO grading Scale

IPO grade Assessment

5/5 Strong fundamentals
4/5 Above average fundamentals
3/5 Average fundamentals
2/5 Below average fundamentals
1/5 Poor fundamentals

Data-flow diagram showing the entire IPO-grading procedure

36
This process will ideally require 2-3 weeks for completion, so it may be a good idea
for companies to initiate the grading process about 6-8 weeks before the targeted IPO
date to provide sufficient time for any contingencies.

Cost Involved In IPO Grading

37
Though nothing has been declared officially but most of the credit rating has said that
IPO-grading would not cost much to the issuers. They would be charging 10 basis
points of the amount to be raised with a ceiling of about Rs 10-15 lakhs. Thus, even
in the case of a mega IPO, there would be a cap on fees, he noted. Around 100 IPOs
hit the market on an average every year. However, despite this seemingly big number,
the total receipts for the entire rating industry on account of grading fees would be
only about Rs 10-15 crore.

Benefits of IPO Grading

There are various positive sides of an IPO grading. The most significant factors that
go in favor of IPO grading are:

(a) Professional and Independent Appraisal: IPO grading will create awareness
about the fundamentals of the companys IPO and will provide focused company
information as a key input to prospective investors that will be helpful in taking an
investment decision, in a manner similar to what a credit rating is for debt investors.

(b) Removal of Information Burden: Where disclosures of issues are large and
complex, a service analyzing and interpreting these disclosures independently and
quickly will be extremely useful in cutting through the clutter. Thus, the usefulness of
IPO grading would be particularly high for small investors as it will serve as a guide
about the company coming out with the issue.

(c) Impediment for Weak Companies: While fundamentally sound companies will
gain from the market, companies whose fundamentals are not very strong will be
impeded in building up speculative demand among investors. Such weak companies
will need to offer pricing, which will adequately compensate investors for the risks
they take. Therefore, IPO grading provides disincentives for weak companies
planning to come to the market to raise easy capital.

38
(d) Improved Investors Sophistication: It is perceived that an independent and
informed opinion on the fundamental quality of the company will bring about greater
level of investor sophistication in a scientific manner. In fact, investors may take
investment decisions in a better way on the basis of opinion of CRAs regarding IPO
grading. However, the assessment is not a recommendation to buy or not buy a stock.
It is, instead, a powerful tool to assist the investors in making up their mind about the
quality of a company proposing to offer an IPO investment option.

39
 SEBI GUIDELINES FOR IPOS

1. IPOs of small companies

Public issue of less than five crores has to be through OTCEI and separate
guidelines apply for floating and listing of these issues.

2. Size of the Public Issue

Issue of shares to general public cannot be less than 25% of the total issue, incase of
information technology, media and telecommunication sectors this stipulation is
reduced subject to the conditions that:

Offer to the public is not less than 10% of the securities issued.
A minimum number of 20 lakh securities is offered to the public and
Size of the net offer to the public is not less than Rs. 30 crores.

3. Promoter Contribution
Promoters should bring in their contribution including premium fully before
the issue
Minimum Promoters contribution is 20-25% of the public issue.
Minimum Lock in period for promoters contribution is five years
Minimum lock in period for firm allotments is three years.

4. Collection centers for receiving applications

There should be at least 30 mandatory collection centers, which should
include invariably the places where stock exchanges have been established.
For issues not exceeding Rs.10 crores (including premium, if any), the
collection centres shall be situated at:-

40
 the four metropolitan centres viz. Bombay, Delhi, Calcutta, Madras; and at
all such centres where stock exchanges are located in the region in which
the registered office of the company is situated.

5. Regarding allotment of shares

Net Offer to the General Public has to be at least 25% of the Total Issue Size
for listing on a Stock exchange.
It is mandatory for a company to get its shares listed at the regional stock
exchange where the registered office of the issuer is located.
In an Issue of more than Rs. 25 crores the issuer is allowed to place the whole
issue by book-building
Minimum of 50% of the Net offer to the Public has to be reserved for
Investors applying for less than 1000 shares.
There should be atleast 5 investors for every 1 lakh of equity offered (not
applicable to infrastructure companies).
Quoting of Permanent Account Number or GIR No. in application for
allotment of securities is compulsory where monetary value of Investment is
Rs.50,000/- or above.
Indian development financial institutions and Mutual Fund can be allotted
securities upto 75% of the Issue Amount.
A Venture Capital Fund shall not be entitled to get its securities listed on any
stock exchange till the expiry of 3 years from the date of issuance of
securities.
Allotment to categories of FIIs and NRIs/OCBs is upto a maximum of 24%,
which can be further extended to 30% by an application to the RBI -
supported by a resolution passed in the General Meeting.

6. Timeframes for the Issue and Post- Issue formalities

The minimum period for which a public issue has to be kept open is 3
working days and the maximum for which it can be kept open is 10 working

41
 days. The minimum period for a rights issue is 15 working days and the
maximum is 60 working days.
A public issue is effected if the issue is able to procure 90% of the Total issue
size within 60 days from the date of earliest closure of the Public Issue. In
case of over-subscription the company may have the right to retain the excess
application money and allot shares more than the proposed issue, which is
referred to as the green-shoe option.
A rights issue has to procure 90% subscription in 60 days of the opening of
the issue.
Allotment has to be made within 30 days of the closure of the Public Issue and
42 days in case of a Rights issue.
All the listing formalities for a public Issue has to be completed within 70
days from the date of closure of the subscription list.

7. Dispatch of Refund Orders

Refund orders have to be dispatched within 30 days of the closure of the
Public Issue.
Refunds of excess application money i.e. for un-allotted shares have to be
made within 30 days of the closure of the Public Issue.

8. Other regulations pertaining to IPO

Underwriting is not mandatory but 90% subscription is mandatory for each
issue of capital to public unless it is disinvestment in which case it is not
applicable.
If the issue is undersubscribed then the collected amount should be returned
back (not valid for disinvestment issues).
If the issue size is more than Rs. 500 crores voluntary disclosures should be
made regarding the deployment of the funds and an adequate monitoring
mechanism to be put in place to ensure compliance.
There should not be any outstanding warrants or financial instruments of any
other nature, at the time of initial public offer.

42
 In the event of the initial public offer being at a premium, and if the rights
under warrants or other instruments have been exercised within the twelve
months prior to such offer, the resultant shares will not be taken into account
for reckoning the minimum promoter's contribution and further, the same will
also be subject to lock-in.
Code of advertisement specified by SEBI should be adhered to.
Draft prospectus submitted to SEBI should also be submitted simultaneously
to all stock exchanges where it is proposed to be listed.

9. Restrictions on other allotments

Firm allotments to mutual funds, FIIs and employees not subject to any lock-
in period.
Within twelve months of the public/rights issue no bonus issue should be
made.
Maximum percentage of shares, which can be distributed to employees cannot
be more than 5% and maximum shares to be allotted to each employee cannot
be more than 200.

10. Relaxations to public issues by infrastructure companies.

These relaxations would be applicable to Infrastructure Companies as defined
under Section 10(23G) of the Income Tax Act, 1961, provided their projects are
appraised by any Developmental Financial Institution (DFI) or IDFC or IL&FS. The
projects must also have a participation of at least 5% of the project cost (in debt
and/or equity) by the appraising institution.

The infrastructure companies will be exempted from the requirement of

making a minimum public offer of 25 per cent of its securities.
The requirement of 5 shareholders per Rs. 1 lakh of offer is also waived in
case of offerings by infrastructure companies.
For public issues by infrastructure companies, minimum subscription of 90%
would no longer be mandatory provided disclosure is made about the alternate

43
 source of funding which the company has considered, in the event of under
subscription in the public issue.
Infrastructure companies are permitted to freely price the offerings in the
domestic market provided that the promoter companies along with Equipment
Suppliers and other strategic investors subscribe to 50% of the equity at the
same or a higher price than what is being offered to the public. Adequate
disclosures about the justification for the pricing will be required to be made
in the offer documents.
The Infrastructure Companies would be allowed to keep their issues open for
21 days. The relaxation would give infrastructure companies sufficient time to
mobilize funds for their issues.
Infrastructure Companies would not be required to create and maintain a
Debenture Redemption Reserve (DRR) in case of Debenture Issues.

44
 CHAPTER-2

REVIEW OF LITERATURE

45
 Introduction To The Capital Market

The capital market is the market for securities, where companies and the
government can raise long term funds. The capital market includes the stock market
and the bond market. Financial regulators ensure that investors are protected against
fraud. The capital markets consist of the primary market, where new issues are
distributed to investors, and the secondary market, where existing securities are
traded.

Capital market thus plays a vital role in channelizing the savings of individuals for
Investment in the economic development of the country. As a result the investors are
not constrained by their individual abilities, but by the abilities of the companies,
which in turn enhance the savings and investments in the country, liquidity of capital
market is an important factor affecting growth.

Since projects require long term finance, but on the other hand, the investor may not
like to relinquish control over their savings for a long time. A liquid stock market
ensures a quick exit without incurring heavy losses or costs. Thus development of
efficient market system is necessary for creating conductive climate for investment
and economic growth.

Capital Market Segment Primary and Secondary

Broadly , the comprises of two segments the new issue market which is
commonly known as primary market and the stock market which is known as
secondary market.

46
Primary

A primary offering, such as with a corporate bond, means you are

buying it directly from the issuer, at par value, usually. A secondary market is where
you sell or buy existing issues. I.E. If you bought a bond last year, now need to get
your principal, you can sell it in the secondary market. You may not get par value. If
rates are up since you bought the bond, then you will likely have to sell it at a
discount to be able to get rid of it. If rates have fallen since you bought it, you could
get a premium for it.

Secondary

The market where securities are traded after they azre initially offered in the
primary market. Most trading is done in the secondary market. To explain further, it is
trading in previously issued financial instruments. An organized market for used
securities. Bombay Stock Exchange (BSE), National Stock Exchange NSE, bond
markets, over-the-counter markets, residential mortgage loans, governmental
guaranteed loans etc

Secondary Market refers to a market where securities are traded after being
initially offered to the public in the primary market and/or listed on the Stock
Exchange. Majority of the trading is done in the secondary market. Secondary market
comprises of equity markets and the debt markets. For the general investor, the
secondary market provides an efficient platform for trading of his securities.
For the management of the company, Secondary equity markets serve as a monitoring
and control conduitby facilitating value-enhancing control activities, enabling
implementation of incentive-based management contracts, and aggregating
information (via price discovery) that guides management decisions.

47
BRIEF ABOUT THE STOCK EXCHANGES

Stock Exchange is a market like any other centralized market where both
buyers and sellers come and conduct their business of purchase and sale of shares &
securities. In other words, it is a market place for shares and securities where trading
takes place in a controlled and protected environment.

MEANING OF STOCK EXCHANGE

A stock exchange, share market or bourse is a corporation or mutual

organization which provides "trading" facilities for stock brokers and traders, to trade
stocks and other securities. Stock exchanges also provide facilities for the issue and
redemption of securities as well as other financial instruments and capital events
including the payment of income and dividends. The securities traded on a stock
exchange include: shares issued by companies, unit trusts and other pooled
investment products and bonds. To be able to trade a security on a certain stock
exchange, it has to be listed there. Usually there is a central location at least for
recordkeeping, but trade is less and less linked to such a physical place, as modern
markets are electronic networks, which gives them advantages of speed and cost of
transactions. Trade on an exchange is by members only. The initial offering of stocks
and bonds to investors is by definition done in the primary market and subsequent
trading is done in the secondary market. A stock exchange is often the most important
component of a stock market. Supply and demand in stock markets is driven by
various factors which, as in all free markets, affect the price of stocks (see stock
valuation).
There is usually no compulsion to issue stock via the stock exchange itself,
nor must stock be subsequently traded on the exchange. Such trading is said to be off

48
exchange or over-the-counter. This is the usual way that bonds are traded.
Increasingly, stock exchanges are part of a global market for securities.

Functions of Stock Exchange

Stock exchange is established into the main purpose of providing a market

place for the members to deal in securities under well laid down regulations and to
protect the interest of the investors. The main functions of stock exchange are

It brings the companies and investors together so that the investors can put risk
capital into companies and thus, companies can use the capital.
It provides an orderly regulated market for securities.
It provides continuous, ready and open market for selling and buying securities.
It promotes savings and investment in the economy by attracting funds from the
investors.
It facilitates take overs by means of acquiring majority of shares traded on the
stock market.
It acts as a clearing house of business information.
It motivates the managers of well reputed companies, to retain their shares in A
group, to improve performance.
It induces the managers to improve performance for converting non-specified
shares into specified shares in the exchange.
It enables the investors to evaluate the net worth of their holdings.
It also allows the companies to float their shares in the market.

49
FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance of capital

markets throughout the world. The development of a market economy is dependent

on the development of the capital market. The regulation of a capital market involves

the regulation of securities; these rules enable the capital market to function more

efficiently and impartially. A well regulated market has the potential to encourage

additional investors to partake, and contribute in, furthering the development of the

economy. The chief capital market regulatory authority is Securities and Exchange

Board of India (SEBI).

SEBI is the regulator for the securities market in India. It is the apex body to develop

and regulate the stock market in India It was formed officially by the Government of

India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI is

headquartered in the popular business district of Bandra-Kurla complex in Mumbai,

and has Northern, Eastern, Southern and Western regional offices in New Delhi,

Kolkata, Chennai and Ahmedabad. In place of Government Control, a statutory and

autonomous regulatory board with defined responsibilities, to cover both

development & regulation of the market, and independent powers has been set up.

50
The basic objectives of the Board were identified as:

to protect the interests of investors in securities;

to promote the development of Securities Market;
to regulate the securities market and
For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to

the fulfillment of its objectives with commendable zeal and dexterity. The

improvements in the securities markets like capitalization requirements, margining,

establishment of clearing corporations etc. reduced the risk of credit and also reduced

the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration

norms, the eligibility criteria, the code of obligations and the code of conduct for

different intermediaries like, bankers to issue, merchant bankers, brokers and sub-

brokers, registrars, portfolio managers, credit rating agencies, underwriters and

others. It has framed bye-laws, risk identification and risk management systems for

Clearing houses of stock exchanges, surveillance system etc. which has made dealing

in securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX

Nifty & Sensex) in 2000. A market Index is a convenient and effective product

because of the following reasons:

51
 It acts as a barometer for market behavior;

It is used to benchmark portfolio performance;

It is used in derivative instruments like index futures and index options;

It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national

level, and also to diversify the trading products, so that there is an increase in number

of traders including banks, financial institutions, insurance companies, mutual funds,

primary dealers etc. to transact through the Exchanges. In this context the

introduction of derivatives trading through Indian Stock Exchanges permitted by

SEBI in 2000 AD is a real landmark.

SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively

and successively (e.g. the quick movement towards making the markets electronic

and paperless rolling settlement on T+2 bases). SEBI has been active in setting up the

regulations as required under law.

52
STOCK EXCHANGES IN INDIA

Stock Exchanges are an organized marketplace, either corporation or mutual

organization, where members of the organization gather to trade company stocks or

other securities. The members may act either as agents for their customers, or as

principals for their own accounts.

As per the Securities Contracts Regulation Act, 1956 a stock exchange is an

association, organization or body of individuals whether incorporated or not,

established for the purpose of assisting, regulating and controlling business in buying,

selling and dealing in securities.

Stock exchanges facilitate for the issue and redemption of securities and other

financial instruments including the payment of income and dividends. The record

keeping is central but trade is linked to such physical place because modern markets

are computerized. The trade on an exchange is only by members and stock broker do

have a seat on the exchange.

53
 BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay

Stock Exchange. It is the oldest market not only in the country, but also in Asia. In the

early days, BSE was known as "The Native Share & Stock Brokers Association." It

was established in the year 1875 and became the first stock exchange in the country

to be recognized by the government. In 1956, BSE obtained a permanent recognition

from the Government of India under the Securities Contracts (Regulation) Act, 1956.

In the past and even now, it plays a pivotal role in the development of the country's

capital market. This is recognized worldwide and its index, SENSEX, is also tracked

worldwide. Earlier it was an Association of Persons (AOP), but now it is a

demutualised and corporatized entity incorporated under the provisions of the

Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization)

Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

BSE Vision

The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock

exchange by establishing global benchmarks."

54
BSE Management

Bombay Stock Exchange is managed professionally by Board of Directors. It

comprises of eminent professionals, representatives of Trading Members and the

Managing Director. The Board is an inclusive one and is shaped to benefit from the

market intermediaries participation.

The Board exercises complete control and formulates larger policy issues. The day-

to-day operations of BSE are managed by the Managing Director and its school of

professional as a management team.

BSE Network

The Exchange reaches physically to 417 cities and towns in the country. The

framework of it has been designed to safeguard market integrity and to operate with

transparency. It provides an efficient market for the trading in equity, debt instruments

and derivatives. Its online trading system, popularly known as BOLT, is a proprietary

system and it is BS 7799-2-2002 certified. The BOLT network was expanded,

nationwide, in 1997. The surveillance and clearing & settlement functions of the

Exchange are ISO 9001:2000 certified.

55
BSE Facts

BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is

the benchmark equity index that reflects the robustness of the economy and finance. It

was the

First in India to introduce Equity Derivatives

First in India to launch a Free Float Index

First in India to launch US$ version of BSE Sensex

First in India to launch Exchange Enabled Internet Trading Platform

First in India to obtain ISO certification for Surveillance, Clearing &

Settlement

'BSE On-Line Trading System (BOLT) has been awarded the globally

recognized the Information Security Management System standard

BS7799-2:2002.

First to have an exclusive facility for financial training

Moved from Open Outcry to Electronic Trading within just 50 days

BSE with its long history of capital market development is fully geared to continue

its contributions to further the growth of the securities markets of the country, thus

helping India increases its sphere of influence in international financial markets.

56
 NATIONAL STOCK EXCHANGE OF INDIA

LIMITED

The National Stock Exchange of India Limited has genesis in the report of the High

Powered Study Group on Establishment of New Stock Exchanges, which

recommended promotion of a National Stock Exchange by financial institutions (FIs)

to provide access to investors from all across the country on an equal footing. Based

on the recommendations, NSE was promoted by leading Financial Institutions at the

behest of the Government of India and was incorporated in November 1992 as a tax-

paying company unlike other stock Exchange in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation)

Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market

(WDM) segment in June 1994. The Capital Market (Equities) segment commenced

operations in November 1994 and operations in Derivatives segment commenced in

June 2000.

NSE GROUP

National Securities Clearing Corporation Ltd. (NSCCL)

It is a wholly owned subsidiary, which was incorporated in August 1995 and

commenced clearing operations in April 1996. It was formed to build confidence in

clearing and settlement of securities, to promote and maintain the short and consistent

settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk

containment system.

57
NSE.IT Ltd.

It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is

uniquely positioned to provide products, services and solutions for the securities

industry. NSE.IT primarily focuses on in the area of trading, broker front-end and

back-office, clearing and settlement, web-based, insurance, etc. Along with this, it

also provides consultancy and implementation services in Data Warehousing,

Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe

Facility Management, Real Time Market Analysis & Financial News.

India Index Services & Products Ltd. (IISL)

It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and

index related services and products for the Indian Capital markets. It was set up in

May 1998. IISL has a consulting and licensing agreement with the Standard and

Poor's (S&P), world's leading provider of investible equity indices, for co-branding

equity indices.

National Securities Depository Ltd. (NSDL)

NSE joined hands with IDBI and UTI to promote dematerialization of securities. This

step was taken to solve problems related to trading in physical securities. It

commenced operations in November 1996.

58
NSE Facts

It uses satellite communication technology to energize participation from

around 400 cities in India.

NSE can handle up to 1 million trades per day.

It is one of the largest interactive VSAT based stock exchanges in the world.

The NSE- network is the largest private wide area network in India and the

first extended C- Band VSAT network in the world.

Presently more than 9000 users are trading on the real time-online NSE

application.

Today, NSE is one of the largest exchanges in the world and still forging ahead. At

NSE, we are constantly working towards creating a more transparent, vibrant and

innovative capital market.

OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act

1956 and is recognized as a stock exchange under section 4 of the securities Contracts

Regulation Act, 1956. The exchange was set up to aid enterprising promotes in raising

finance for new projects in a cost effective manner and to provide investors with a

transparent and efficient mode of trading Modeled along the lines of the NASDAQ

market of USA, OTCEI introduced many novel concepts to the Indian capital markets

such as screen-based nationwide trading, sponsorship of companies, market making

and scrip less trading. As a measure of success of these efforts, the Exchange today

59
has 115 listings and has assisted in providing capital for enterprises that have gone on

to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant

mineral water, etc.

Need for OTCEI:

Studies by NASSCOM, software technology parks of India, the venture capitals funds

and the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical,

Biotechnology and Media shares have repeatedly emphasized the need for a national

stock market for innovation and high growth companies.

Innovative companies are critical to developing economics like India, which is

undergoing a major technological revolution. With their abilities to generate

employment opportunities and contribute to the economy, it is essential that these

companies not only expand existing operations but also set up new units. The key

issue for these companies is raising timely, cost effective and long term capital to

sustain their operations and enhance growth. Such companies, particularly those that

have been in operation for a short time, are unable to raise funds through the

traditional financing methods, because they have not yet been evaluated by the

financial world.

60
EVOLUTION AND GROWTH OF INDIAN PRIMARY MARKET

Early Liberalization Phase: 1992-1995 (Fixed Pricing)

The initiation of the process of reform in India also would not have been possible
without changes in the regulatory framework. The New Economic policy (1991) led
to a major change in the regulatory framework of the capital market in India. The
Capital Issues (Control) Act 1947 was repealed and the Office of the Controller of
Capital Issues (CCI) was abolished. The Securities and Exchange Board of India
(SEBI), established in 1988 and armed with statutory powers in 1992, came to be
established as the regulatory body with the necessary authority and powers to regulate
and reform the capital market. SEBI came to be recognized as a regulatory body for
the capital market after the abolition of the CCI. The control on pricing of capital
issue has been abolished and easy access is provided to the capital market. Initial
Public Issue caught the attention of general public only after the success of Reliance,
when millions of small investors made huge returns which were unheard of till then.
Dhirubhai Ambani was the first promoter who raised huge amounts through the
public issue route to finance large facilities.

The issue process was smoothened, procedures were simplified and free pricing was
allowed, although with certain restrictions, The Indian market had the concept of par
value of equity shares, and anything above par was considered premium. The only
companies that were allowed to come with premium issues were those, which had a
three year profit-track record for the preceding five years. New companies without
this record could float premium issues if their promoting companies had the same
track record and they had to hold 50% of the post issue capital. Any new company
floated by first generation entrepreneurs could only issue equity at par. There was no
restriction about prices in a premium issue.

61
The offer was always at a fixed price, whether premium or par. The companies had to
appoint intermediaries like merchant bankers, registrars, bankers etc. Merchant
bankers had the responsibility of fixing the prices, in consultation with the company,
carrying out with due diligence, preparing the prospectus (offer documents) etc. The
prospectus had to be submitted to SEBI for getting scrutiny.

The trend continued in the early nineties as many large projects were launched after
the economy was liberalised. Many of these companies came out with public issues
and the retail participation increased dramatically. But many of the companies which
raised money during this period just disappeared without a trace.

Late Liberalisation Period: 1996-2005 (Book Building)

The late nineties and the first few years of the current decade did not see much
activity in the primary market even though we saw a huge bull run led by technology
stocks at the turn of the decade. The bad experiences of retail investors kept them
away from the market and made it difficult for companies to launch successful issues.
The corporate sector was recovering from the damage caused by large capacity
expansions and new projects set up in the nineties.

The dormant primary issues market came alive after 2003 mostly because of the
divestment programme of the government. The issue of Maruti Udyog, through which
the government sold part of its stake in the company, rekindled retail investor interest
in the primary market. The issue was made at a very reasonable price and investors
made very good returns immediately.

The year 2004 saw the primary market activity at its historic peak as some large
private companies also came out with issues. Further divestment by the government;
including the largest ever issue by an Indian company from ONGC, attracted more
retail investors into the market. The IPO market continues to buzz in the current year
as well. Taking advantage of the strength in the secondary market, many high profile
companies are lining up to raise money from the market. The year started with the

62
issue from Jet Airways which attracted a lot of interest from investors. As a result of
tougher regulations, the quality of the issues has gone up substantially.

2006 onwards scenario:

India's IPO market emerged as the eighth largest with $7.23 billion (Rs 30,000 crore)
in net proceeds through 78 public issues, global research and consultancy firm Ernst
& Young said in its Global IPO report. Across the world, the companies raised $246
billion, up from $167 billion in 2005, through a total of 1,729 IPOs, led by Chinese
companies at the top with net proceeds of $56.6 billion. However, the biggest number
of IPOs came from the United States with 187 offerings, followed by Japan with 185
and China with 175 IPOs. According to the study, India's increasing number of larger
deals has been driven by the growth of Indian corporations and their need for
additional capital for potential acquisitions. In 2007 Indian IPOs continue to surge in
numbers. Continued strength is expected in the real estate and energy sector. "The
rapid growth in emerging market economies has resulted in a migration of capital
from the developed economies into the emerging markets," E&Y said.

The localisation trend in India is evidenced by several billion-dollar IPOs hosted by

Indian exchanges. In 2006, India's largest IPO, Reliance Petroleum raised $1.8
billion, followed by the oil production and exploration company, Cairn Energy, which
raised $1.3 billion with both companies listing on domestic exchanges.

However, some Indian companies are also listing abroad, especially London,
Singapore and Luxembourg, primarily for higher valuations and visibility, the report
noted.

63
 COMPANY PROFILE

SSKI, a veteran equities solutions company with over 8 decades of experience

in the Indian stock markets. The SSKI Group comparies of institutional Broking and
Corporate Finance. The institutional broking division caters to domestic and foreign
institutional investors, while the Corporate Finance Division focuses on ninche areas
such as infrastructure, telecom and media, SSKI has been voted as the Top Domestic
Brokerage House in the research category, by the Euro Money survey and Asia
Money survey.

Religare is also about focus. Religare does not claim expertise in too many
things. Religares expertise lies in stocks and thats what he talks about with authority.
So when he says that investing in stocks should not be confused with trading in
stocks or a portfolio-based strategy is better than betting on a single horse, it is
something that is spoken with years of focused learning and experience in the stock
markets. And these beliefs are reflected in everything Religare does for you!

Religare Indias leading stockbroker is the retail arm of SSKI, An organization with
over eighty years experience in the stock market. With over 240share shops in 111

Cities, and Indias premier online trading destinations-www.religare.com, ours

customer enjoy multi-channel access at the stock markets, Religare offer u trade
execution facilities for cash as well as derivatives on the BSE &NSE and most
importunity we bring you investment advice tempered by eighty years of broking
experience.

Through our portal Religare.com, weve been providing investors a powerful online
trading platform, the latest news, research and other knowledge-based tools for over
5years now. We have dedicated terms for fundamental and technical research so that
you get all the information your need to take the right investment decisions. With

64
branches and outlets across the country , our ground network is one of the biggest in
India. We have a talent pool of experienced professionals specially designated to
guide you when you need assistance, which is why investing with us is bound to be a
hassle-free experience for you!

Reason why you should choose Religare

1. Experience:
SSKI has more than eight decades of trust and credibility in the Indian stock
market. In the Asia Money Brokers poll held recently, SSKI won the Indias best
broking division in February 2000, it has been providing institutional-level research
and broking services to individual investors.

2.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 acces to our powerful inline trading
tools that will help you take complete control over your investment in shares.

3. Accessibility:
In addition to our online and phone trading services, we also have a ground
network of 240 share shops across 111 cities in India where you can get personalized
services.

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

5.Convenience:
You can all our Dial-n-Trade number to get investment and execute your
transaction. We have a dedicated call-center to provide this service via a toll-free
number from anywhere in India.

65
6.Customer service:
Our customer service team will assist you for any help that you need relating
to transactions, billing, demat and other queries, our customer service can be
contacted via a toll-free number, email or live chat on Religare.com

7.Investment Advice:
Religare has dedicated research teams for fundamental and technical research.
Our analysts constantly track the pulse of the market and provide timely investment
advice to you in the form of daily research emails, online chat, printed reports on
SMS on your phone.Cutomers of Religare Experience language, presentation style,
content or for that matter the online trading facility find a common thread; one that
helps the customers make informed decisions and simplifies investing in stocks. The
common thread of empowerment is what Religares all about! Religare is also about
focus. Religare does not claim expertise in too many things. Religares expertise lies
in stocks and thats what he talks about with authority. So when he says that investing
in stocks should not be confused with trading in stocks or a portfolio-based strategy is
better than betting on a single horse, it is something that is spoken with years of
focused learning and experience in the stock markets. And these beliefs are reflected
in everything Religare does for customers.

To sum up, Religare brings to customers a user-friendly online trading facility,

coupled with a wealth of content that will help customers stalk the right shares.

Those of customers who feel comfortable dealing with a human being and
would rather visit a brick-and-mortar outlet than talk to a PC; Religare offers
customers the facility to visit (or talk to) any of Religares share shops across the
country. In fact Religare runs Indias largest chain of share shops with over hundred
outlets in 80 cities!

Religare services:
Religare, one of Indias leading brokerage houses, is the retail arm of SSKI.
With over 511 share shops in 170 cities, and Indias premier online trading portal
www.religare.com, religares customers enjoy multi-channel access to the stock
markets.

66
 Figure 3.1

Online Services to Suit customers Needs:

67
 With a Religare online trading account, customers can buy and sell shares in
an instant! Anytime customers like trading account that suits customers trading
habits and preferences the Classic Account for most investors and Speed trade for
active day traders. Customers Classic Account also comes with Dial-n-Trade
completely free, which is an exclusive service for trading shares by using customers
telephone.
When beginning customers foray in investing in shares, customers need a lot
of things from the right information at customers disposal, to assistance when
customers need it and advice on investing. Religare have been in this business for
over 80 years now, and with Religare customers get a host of serices and tools that are
difficult to fing in one place anywhere else. The Religare First Step program, built
specifically for new investors. All customers have to do is walk into any of Religares
511 share shops across 170 cities in India to get a host of trading related services
Religares friendly customer service staff will also help customers with any accounts
related queries customers may have.
A Religare outlet offers the following services:
Online BSE and NSE execution (through BOLT & NEAT terminals)Free access to
investment advice from Religare value line (a monthly publication with reviews of
recommendations, stocks to watch out for etc)

Daily research reports and market review(High Noon & Eagle Eye)
Pre-market Report (Morning Cuppa)
Daily trading calls based on Technical Analysis
Cool trading products(Darling Derivatives and Market Strategy)
Personalised Advice
Live Market Information
Depository Services: Demat & Remat Transactions
Derivatives Trading (Futures and Options)
Commodities Trading
IPOs & Mutual Funds Distribution

68
IPO Index

Initial Public Offerings (IPOs) are a great opportunity for promoters to sell shares at a
very high price and for the investing public to make some listing gains if possible.
Buying a stock that has just got listed after an IPO is a foolish idea. The BSE IPO
index has performed badly since its launch on 24 August 2009. The index closed at
1947.54 on the day of its launch. By the end of December 2011, exactly 26 months
after its launch, the BSE IPO index was at 1,310.1, down almost 637 points. In the
same period, the Sensex is up by 50% increasing from 10,335 points on 2 nd Jan 2009
to 15,517 points on 30th Dec 2011.

The Bombay Stock Exchange (BSE) launched the BSE IPO index to track the value

of the companies listing subsequent to a successful completion of an IPO. The index

currently has 72 companies. But this figure is continually changing, depending on

69
how many companies are listed, as an IPO company is kept on the index only for two

years.

70
 CHAPTER-4

DATA ANALYSIS
&
INTERPRETION

71
TOP 10 ALL TIME IPOs IN INDIA

72
 INDIA'S 10 LARGEST IPOS

Coal India

India's largest ever public offer from Coal India Ltd to raise up to Rs 15,000 crore
(Rs 150 billion) hit the stock markets in October 2010. The government is divesting
10 per cent of its stake in Coal India Ltd (CIL), the world's largest coal miner,
through the IPO.

Reliance Power

Anil Dhirubhai Ambani Group-promoted Reliance Power Ltd's Rs 11,700 crore (Rs
117 billion) initial public offering set many a record: it started off with a bang on
January 15, 2008 with the share sale -- India's biggest-ever -- getting fully subscribed
within a minute of opening. It received the highest number of applications ever -- 3.1
million applications.

Oil and Natural Gas Corporation

ONGC's public offering, which opened on March 5, 2004 was oversubscribed within
half an hour of its opening, with estimated proceeds of Rs 9,500 crore (Rs 95 billion).
Till the Reliance Power IPO was launched, the ONGC offering was the largest IPO
by any company ever in the Indian capital markets with 142.59 million shares being
sold through the book-building route in a price band of Rs 680-750.

73
DLF

DLF Universal's IPO hit the markets on June 11, 2007 and closed on June 14.
Although scheduled for June 2006, the IPO ran into rough weather with minority
investors create a furore with 'cheating' allegations against the company. DLF
managed to settle this issue and filed a new prospectus with the Securities and
Exchange Board of India. The Sebi approval for the same was received soon after.

DLF Universal priced its IPO between Rs 500 and Rs 550. It was earlier expected to
price the issue around Rs 600. The issue raised about Rs 9,188 crore (Rs 91.88
billion). The IPO was oversubscribed a modest 3.45 times.

Cairn India
IPO size: Rs 5,788 crore, year of issue: 2006

Cairn, the oil and gas exploration company, entered the Indian capital market with a
public issue of 328,799,675 equity shares of Rs 10 each at a premium decided
through a 100 per cent book-building process. The share was issued in a price band of
Rs 160-Rs 190. The construction and development work for the oil major's Rajasthan
oil field was partly funded by the IPO. The company raised about Rs 5,788 crore
(57.88 billion) through the IPO.

74
Tata Consultancy Services

IPO size: Rs 5,420 crore, year of issue: 2004

India's largest IT company, Tata Consultancy Services Ltd, offered 5.54 crore (55.4
million) equity shares of Re 1 each, including a fresh issue of 2.27 crore (22.7
million) shares, in its initial public offering through a book-building route. The Rs
5,000 crore (Rs 50 billion) IPO opening coincided with the birth centenary of JRD
Tata, who was at the helm of the Tata group for over four decades before Ratan Tata
took charge.

The TCS IPO created a record as the IPO was oversubscribed by 6.69 times and
received a total application amount worth Rs 34,000 crore (Rs 340 billion) as against
the issue size of Rs 5,000 crore.

Reliance Petroleum

IPO size: Rs 2,700 crore, year of issue: 2006

Reliance Petroleum opened for bidding on April 13, 2006. The price band was fixed
at Rs 57 to Rs 62 and the bidding closed on April 20, 2006. This was the second time
in the market for the petrochem major, after 1993 when it first came out with an IPO.

The company offered 45 crore (450 million) equity shares for subscription. Retail
investors could bid for up to 1,600 shares at the upper end of the price band and they
needed to pay only Rs 16 per share at the time of bidding. The balance amount was to
be payable on allotment.

The company raised Rs 2,700 crore (Rs 27 billion) through the IPO.

75
National Thermal Power Corporation

IPO size: Rs 5,368 crore, year of issue: 2004

The National Thermal Power Corporation offered a public issue of equity shares of
Rs 10 each by offering 865,830,000 equity shares in a price band of Rs 52 to Rs 62.
The issue was made through 100 per cent book building process. The offer was made
for 10.5 per cent of NTPC's enlarged capital. The issue raised about Rs 5,368 crore
(Rs 53.68 billion) at the top end of the price band. Post offer, the government's stake
in NTPC reduced to 89.5 per cent. The issue opened on October 7, 2004 and closed
on October 14.

Idea Cellular

IPO size: Rs 2,443 crore, year of issue: 2007

The issue was oversubscribed 49.51 times. The issue was oversubscribed 49.51 times.
A 32.69 crore (326.9 million) issue received 16.18 billion bids while 35.71 crore bids
at cut off price. The company entered capital market with an initial public offering,
aggregating to Rs 21,250 million, of equity shares of Rs 10 each. The price band for
the issue was between Rs 65 and Rs 75 per equity share.

Jet Airways

IPO size: Rs 1,899 crore, year of issue: 2005

The initial public offer by Jet Airways got an overwhelming response on the very first day

-- February 18, 2005. The issue was fully subscribed within five minutes of opening and

was oversubscribed 4.4 times. The issue received a total 7.5 crore (75 million) bids for the

1.72 crore (17.2 million) shares on offer at a price band of Rs 950-1,125.

76
TREND OF IPOS YEAR ON YEAR

TABLE-1

Year Amount (Rs. Crore) No of Issues

2002-03 5,732 14
2003-04 22,131 34
2004-05 25,526 34
2005-06 23,676 102
2006-07 24,993 85
2007-08 53,219 91
2008-09 3,534 22
2009-10 49,441 47
2010-11 55,613 67
2011-12 14,178 38

Interpretation:

TABLE-2

77
 TOP GAINERS - 2012

ISSUE
PRICE ON 31ST PRICE INCREASE
NAME OF THE ISSUE DEC 2012(RS) RS.) (%)
ONELIFE CAPITAL ADVISORS LIMITED 230.1 110 109.18%
AANJANEYA LIFECARE LIMITED 485.05 234 107.29%
PRAKASH CONSTROWELL LTD 243.6 138 76.52%
RUSHIL DECOR LIMITED 120.25 72 67.01%
FLEXITUFF INTERNATIONAL LIMITED 257 155 65.81%
LOVABLE LINGERIE LIMITED 316.6 205 54.44%
TREE HOUSE EDUCATION & ACCESSORIES 158 135 17.04%

TABLE-3

78
 TOP Losers 2012

PRICE ON ISSUE
31ST DEC PRICE DECREASE
NAME OF THE ISSUE 2012(RS) RS.) (%)
TAKSHEEL SOLUTIONS LIMITED 12.85 150 -91.43%
BHARATIYA GLOBAL INFOMEDIA LIMITED 7.35 82 -91.04%
ACROPETAL TECHNOLOGIES LIMITED 11.5 90 -87.22%
BROOKS LABORATORIES LIMITED 13.25 100 -86.75%
SHILPI CABLE TECHNOLOGIES LIMITED 9.6 69 -86.09%
INDO THAI SECURITIES LIMITED 10.6 74 -85.68%
SERVALAKSHMI PAPER LIMITED 4.35 29 -85.00%
PARAMOUNT PRINTPACKAGING LIMITED 5.55 35 -84.14%
VASWANI INDUSTRIES LIMITED 10.55 49 -78.47%
SANGHVI FORGING AND ENGINEERING 22.25 85 -73.82%

TABLE-4

79
 IPOS By Grade

Grade Assigned Total

IPO GRADE 1 6
IPO GRADE 2 17
IPO GRADE 3 10
IPO GRADE 4 4
IPO GRADE 5 1

TABLE-5

TOP BOOK RUNNERS LEAD MANAGERS IN 2012

80
Book Runners - Lead Managers IPOs
JM Financial Consultants Private Limited 5
Almondz Global Securities Limited 4
Arihant Capital Markets Limited 3
Ashika Capital Limited 3
Corporate Strategic Allianz Limited 3
ICICI Securities Limited 3
Kotak Mahindra Capital Company Limited 3

TOP BOOK RUNNERS LEAD MANAGERS IN 2012

10

6 5
4
4 3 3 3 3 3

0
JM Financial Almondz Arihant Ashika Corporate ICICI Kotak
Consultants Global Capital Capital Strategic Securities Mahindra
Private Securities Markets Limited Allianz Limited Limited Capital
Limited Limited Limited Company
Limited

FINDINGS

IPOs are the most popular for private companies to go public.

Companies generally go for IPOs for expansion of operations or setting up
new divisions.

IPOs are not so popular in India compared to the western countries.

81
 IPOs were offered at Fixed Offer Prices earlier, but Book Building process has
been popular in the recent years.

BSE IPO index is performing badly compared to the SENSEX.

The total number of companies that have come for are just around 500 in the
last 10 years

The total no of companies coming for IPO have touched the maximum (102)
in 2005-2006.

The no of IPOs in 2012-2013 (till date) are just 38 as compared to 67 in the

previous year.

2008-2009 was mostly affected with just 22 companies coming for IPOs
because of recession. Companies were not coming for IPOs due to lack of
investor confidence.

Of the 38 companies that have come for IPO this year, only 7 companies are
now trading at a profit while the rest of companies are now trading at a loss.

JM Financial Consultants Private Limited and Almondz Global Securities

Limited stood on top in the list of Book Runners & Lead Managers in 2011.

Close to 100 companies are in the pipe line to raise money through IPOs in
the coming months.

82
 CHAPTER-5

FINDINGS, SUGGESTION
&
CONCLUSIONS

83
SUGGESTIONS

A thorough fundamental analysis should be done before investing in any IPOs.

Investors should come out of the opinion that all the IPOs will be traded at a
premium.

Looking at the previous trends, investors should be cautious while investing in

Initial Public Offerings.

Investors in IPOs should study the company and the growth of industry in
which it is operating in thoroughly.

Investors should also look at the economic conditions before investing in an

IPO.

The government in co-ordination with SEBI should be more proactive in

checking dubious companies coming for IPOs with the sole objective of
raising money to cheat the public.

There should be more stringent rules imposed for companies to go public.

84
CONCLUSIONS

Investors should be careful while investing in IPOs. The essential points to take care
of to see that IPOs are successful and investors benefit from investing in the IPOs
include:

1. Investors should check that companies are appointing underwriters, book runners
and lead managers appointed have good expertise in the industry.
2. The market relies heavily on analyst projections and recommendations: Investors
should understand the company, customers, and competition; and also see that
promoters have sincere commitment in covering the company.
3. Previous trends play an important role. The underwriter must have the ability and
contacts to identify the right investor groups for the company and get them committed
to attend. References from previous IPO successes are essential.
4. There must be sufficient evidence of being able to build a quality "book" of
potential orders for your stock.
5. There should be a history regarding the ability to identify the right offer price and
size.
6. Investors should go for those IPOs where companies provide significant
aftermarket support in terms of maintaining and supporting trading in the stock,
providing subsequent research reports on the company, and continuing institutional
exposure to the company.

85
BIBLIOGRAPHY

86
BIBLIOGRAPHY

BOOKS

1. Financial management , M. Y .and Jain. P.K (2009),Pearson publications.

2. Security Analysis by Graham Dodd.
3. Investment Analysis And Management by Francis,Balla.

WEBSITES
www.moneycontrol.com
www.capitalline.com
www.nseindia.com
www.sebi.gov.in
www.capitalmarket.com
www.wikipedia.com
www.intimesepctrum.com
www.thehindubusinessline.com
www.financialexpress.com
www.myiris.com
www.icraratings.com

NEWSPAPERS
1. Economic Times

87