CHAPTER I
INTRODUCTION
1
INTRODUCTION
Initial Public Offerings are very important, mainly because of India being a
developing country and lot of growth in various sectors which leads a country to
ultimate success. And when we talk about country’s growth which is dependent on the
kind of work and how much importance to which sector is given. And when we say or
talk about industries growth, which leads the economy of country, has to be balanced
and given proper finance so as to reach the levels to fulfill the needs of the society. And
industries, which have massive outflow of work and a big portfolio then its very
difficult for any company to work with, limited finance and this is where IPO plays an
important role.
This report talks about how IPO helps in raising fund for the companies going
public, what are its pros and cons, and also it gives us detailed idea why companies go
public. It gives us idea of how IPO is driven in the market and what are various factors
taken into consideration before going for an IPO. And it also tells us how we can more
or less judge a good IPO. It also gives us some idea about what are the expenses that a
company undertakes during an IPO.
IPO has been one of the most important generators of funds for the small
companies making them big and given a new vision in past and it is still continuing its
work and also for many coming years.
2
OBJECTIVES OF THE STUDY

To understand various dimensions and problems in IPO process and to suggest
recommendations.

To analyze the various IPOs and recommend others to invest in good initial
public offerings after thorough research.

To understand post IPO performance.

To study the upcoming IPOs and suggest investors in investing these IPOs.
3
LIMITATIONS OF THE STUDY
 The study is limited to Initial Public 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.
4
METHODOLGY & PROCEDURE
 Data Collection

The data collected was mainly secondary in nature and the
sources were website and textbooks. Interacting with guide and
other personalities also collected some primary data.
 Data Analysis

The collected data was grouped under relevant headings. The
various topics were then so arranged those give logical studies of
the topics.
 Conclusions

The suggestions and conclusions were made mainly based on the
observations from the data collected.
5
SCOPE OF THE STUDY
The scope of the study is identified after and during the study is conducted. The
study covers only the IPOs in India for the last two years. The study attempts to study
the IPOs that have come up in the last two years and the IPOs that are expected to come
up in the next one year.
6
CHAPTER II
REVIEW OF LITERATURE
7
A company can raise capital through issue of shares or debentures. The various
types of issues are:
Public Issue, Rights Issue, Bonus Issue, Private Placement and Bought Out Deal
There can be two kinds of public issues, namely:

Initial Public Offer (IPO)

Further Public Offer (FPO)
Classification of Issues
8
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 issuer’s 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
9
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
10
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.
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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 profle
companies are lining up to raise money from the market. The year started with the issue
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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.
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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 networth 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 underpricing'. 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

Good issues get under priced.
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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 IPO’s 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 company’s potential and the price of its shares.
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Book-Building Process
ISSUER
BOOK RUNNING
LEAD MANAGERS
MUTUAL FUNDS
UNDERWRITERS
MERCHANT BANKERS
STOCK BROKERS
INVESTORS
MFs
Financial
Institutions
Foreign Financial
Institutions
NRIs
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Corporations HNIs Retail Investors
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.
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.
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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 recognised stock exchanges are situated.
Book Building Process in India
(1)
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.
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(9)
The BRLM receives the feedback about the investor’s bids through syndicate
members.
(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, investor’s 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.
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(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.
(18)
The allotment for the private placement portion shall be made on the 2nd 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
22
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 (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.
The process can be illustrated with an example:
Number of shares issued by the company = 100.
Price band = Rs 30 - Rs 40.
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If individuals have bid for prices as follows:
Bid
Number of Price per share
shares
1
20
Rs 40
2
10
Rs 38
3
20
Rs 37
4
30
Rs 36
5
20
Rs 35
6
20
Rs 33
7
20
Rs 30
The shares will be sold at the Bid 5 price of 20 shares for Rs 35.?

Because Bidders 1 to 5 are willing to pay at least Rs 35 per share.

The total bids from Bidders 1 to 5 ensure all 100 shares will be sold (20 + 10 +
20 + 30 + 20).
The cut-off price is therefore Bid 5's price = Rs 35.
Bidders 1 to 5 get allotments at that price. Bidders 6 and 7 don't get an allotment
because their bids are below the cut-off price.
The bids are first allotted to the different categories and the over-subscription (more
shares applied for than the shares available) in each category is determined.
Retail investors and high net worth individuals get allotments on a proportional basis.
If a retail investor has applied for 200 shares in the issue, and the issue is oversubscribed five times in the retail category, he qualify to get 40 shares (200 shares/5).
Sometimes, the over-subscription is huge or the issue is priced so high that the bidder
can't really bid for too many shares before the Rs 50,000 limit is reached.
In such cases, allotments are made on the basis of a lottery.
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If a retail investor has applied for 5 shares in an issue, and the retail category has been
over-subscribed 10 times, the investor is entitled to half a share.
Since that isn't possible, it may then be decided that every 1 in 2 retail investors will get
allotment. The investors are then selected by lottery and the issue allotted on a
proportional basis among.
ILLUSTRATION EXPLAINING THE PROCEDURE OF ALLOTMENT
1.
Total shares on offer@ Rs. 600 per share: 10 crore shares
2.
Shares on offer for retail category: 2.5 crore shares
3.
The total issue is over subscribed 4 times whereas the retail category is over
subscribed 8.25 times
4.
Issuer decides to fix the minimum application / bid size as 9 shares (falling within
the range of Rs. 5000- 7000). Application can be made for a minimum of 9 shares
and in multiples thereof.
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Assume three retail investors A, B & C. A has applied for 81 shares. B has applied
for 72 shares and C has applied for 45 shares. As per allotment procedure, the allotment to
retail individual investors would be on proportionate basis i.e., at 1/8.25th of the total
number of shares applied for. The actual entitlement shall be as follows:
Sr.
Name
of Total Number of Total number of shares eligible to be allotted
No.
Investor
shares applied for
(No. of shares applied for / 8.25)
1
A
81
81/8.25 = 9.82 shares rounded off to 10 shares
2
B
72
72/8.25 = 8.73 shares rounded off to 9 shares (i.e.
minimum application size).
3
C
45 shares
45/8.25=5.45 shares.
Application liable to be rejected. (as the
entitlement is less than the minimum application
size). However, the successful applicants out of
the total applicants shall be determined by
drawal of lots.
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 delisting 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
26
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
Intermediary’s 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.
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.
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
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.
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.
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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 issue’s 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
29
in 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.
30
FEATURES OF IPO GRADING
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
31
Data-flow diagram showing the entire IPO-grading procedure
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.
32
Cost Involved In IPO Grading
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 company’s 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.
33
(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.
34
CHAPTER III
INDUSTRY PROFILE
35
FINANCIAL MARKETS
Finance is the pre-requisite for modern business and financial institutions play a
vital role in the economic system. It is through financial markets and institutions that
the financial system of an economy works. Financial markets refer to the institutional
arrangements for dealing in financial assets and credit instruments of different types
such as currency, cheques, bank deposits, bills, bonds, equities, etc.
Financial market is a broad term describing any marketplace where buyers and
sellers participate in the trade of assets such as equities, bonds, currencies and
derivatives. They are typically defined by having transparent pricing, basic regulations
on trading, costs and fees and market forces determining the prices of securities that
trade.
Generally, there is no specific place or location to indicate a financial market.
Wherever a financial transaction takes place, it is deemed to have taken place in the
financial market. Hence financial markets are pervasive in nature since financial
transactions are themselves very pervasive throughout the economic system. For
instance, issue of equity shares, granting of loan by term lending institutions, deposit of
money into a bank, purchase of debentures, sale of shares and so on.
In a nutshell, financial markets are the credit markets catering to the various
needs of the individuals, firms and institutions by facilitating buying and selling of
financial assets, claims and services.
36
CLASSIFICATION OF FINANCIAL MARKETS
37
Capital Market
The capital market is a market for financial assets which have a long or
indefinite maturity. Generally, it deals with long term securities which have a period of
above one year. In the widest sense, it consists of a series of channels through which
the savings of the community are made available for industrial and commercial
enterprises and public authorities. As a whole, capital market facilitates raising of
capital.
The major functions performed by a capital market are:
1. Mobilization of financial resources on a nation-wide scale.
2. Securing the foreign capital and know-how to fill up deficit in the required
resources for economic growth at a faster rate.
3. Effective allocation of the mobilized financial resources, by directing the same
to projects yielding highest yield or to the projects needed to promote balanced
economic development.
Capital market consists of primary market and secondary market.
Primary market
Primary market is a market for new issues or new financial claims. Hence it is
also called as New Issue Market. It basically deals with those securities which are
issued to the public for the first time. The market, therefore, makes available a new
block of securities for public subscription. In other words, it deals with raising of fresh
capital by companies either for cash or for consideration other than cash. The best
example could be Initial Public Offering (IPO) where a firm offers shares to the public
for the first time.
Secondary market
Secondary market is a market where existing securities are traded. In other
words, securities which have already passed through new issue market are traded in this
market. Generally, such securities are quoted in the stock exchange and it provides a
continuous and regular market for buying and selling of securities. This market consists
of all stock exchanges recognized by the government of India.
38
Money Market
Money markets are the markets for short-term, highly liquid debt securities.
Money market securities are generally very safe investments which return relatively
low interest rate that is most appropriate for temporary cash storage or short term time
needs. It consists of a number of sub-markets which collectively constitute the money
market namely call money market, commercial bills market, acceptance market, and
Treasury bill market.
Derivatives Market
The derivatives market is the financial market for derivatives, financial instruments
like futures contracts or options, which are derived from other forms of assets. A
derivative is a security whose price is dependent upon or derived from one or more
underlying assets. The derivative itself is merely a contract between two or more
parties. Its value is determined by fluctuations in the underlying asset. The most
common underlying assets include stocks, bonds, commodities, currencies, interest
rates and market indexes. The important financial derivatives are the following:

Forwards: Forwards are the oldest of all the derivatives. A forward contract
refers to an agreement between two parties to exchange an agreed quantity of an
asset for cash at a certain date in future at a predetermined price specified in that
agreement. The promised asset may be currency, commodity, instrument etc.

Futures: Future contract is very similar to a forward contract in all respects
excepting the fact that it is completely a standardized one. It is nothing but a
standardized forward contract which is legally enforceable and always traded on
an organized exchange.

Options: A financial derivative that represents a contract sold by one party
(option writer) to another party (option holder). The contract offers the buyer
the right, but not the obligation, to buy (call) or sell (put) a security or other
financial asset at an agreed-upon price (the strike price) during a certain period
of time or on a specific date (exercise date). Call options give the option to buy
39
at certain price, so the buyer would want the stock to go up. Put options give the
option to sell at a certain price, so the buyer would want the stock to go down.

Swaps: It is yet another exciting trading instrument. Infact, it is the combination
of forwards by two counterparties. It is arranged to reap the benefits arising
from the fluctuations in the market – either currency market or interest rate
market or any other market for that matter.
Foreign Exchange Market
It is a market in which participants are able to buy, sell, exchange and speculate
on currencies. Foreign exchange markets are made up of banks, commercial
companies, central banks, investment management firms, hedge funds, and retail forex
brokers and investors. The forex market is considered to be the largest financial market
in the world. It is a worldwide decentralized over-the-counter financial market for the
trading of currencies. Because the currency markets are large and liquid, they are
believed to be the most efficient financial markets. It is important to realize that the
foreign exchange market is not a single exchange, but is constructed of a global
network of computers that connects participants from all parts of the world.
Commodities Market
It is a physical or virtual marketplace for buying, selling and trading raw or
primary products. For investors' purposes there are currently about 50 major
commodity markets worldwide that facilitate investment trade in nearly 100 primary
commodities. Commodities are split into two types: hard and soft commodities. Hard
commodities are typically natural resources that must be mined or extracted (gold,
rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn,
wheat, coffee, sugar, soybeans, pork, etc.)
40
INDIAN FINANCIAL MARKETS
India Financial market is one of the oldest in the world and is considered to be
the fastest growing and best among all the markets of the emerging economies. The
history of Indian capital markets dates back 200 years toward the end of the 18th
century when India was under the rule of the East India Company. The development of
the capital market in India concentrated around Mumbai where no less than 200 to 250
securities brokers were active during the second half of the 19th century. The financial
market in India today is more developed than many other sectors because it was
organized long before with the securities exchanges of Mumbai, Ahmadabad and
Kolkata were established as early as the 19th century. By the early 1960s the total
number of securities exchanges in India rose to eight, including Mumbai, Ahmadabad
and Kolkata apart from Madras, Kanpur, Delhi, Bangalore and Pune. Today there are
21 regional securities exchanges in India in addition to the centralized NSE (National
Stock Exchange) and OTCEI (Over the Counter Exchange of India).
However the stock markets in India remained stagnant due to stringent controls
on the market economy that allowed only a handful of monopolies to dominate their
respective sectors. The corporate sector wasn't allowed into many industry segments,
which were dominated by the state controlled public sector resulting in stagnation of
the economy right up to the early 1990s. Thereafter when the Indian economy began
liberalizing and the controls began to be dismantled or eased out; the securities markets
witnessed a flurry of IPO’s that were launched. This resulted in many new companies
across different industry segments to come up with newer products and services.
A remarkable feature of the growth of the Indian economy in recent years has
been the role played by its securities markets in assisting and fuelling that growth with
money rose within the economy. This was in marked contrast to the initial phase of
growth in many of the fast growing economies of East Asia that witnessed huge doses
of FDI (Foreign Direct Investment) spurring growth in their initial days of market
decontrol. During this phase in India much of the organized sector has been affected by
high growth as the financial markets played an all-inclusive role in sustaining financial
41
resource mobilization. Many PSUs (Public Sector Undertakings) that decided to offload
part of their equity were also helped by the well-organized securities market in India.
The launch of the NSE (National Stock Exchange) and the OTCEI (Over the
Counter Exchange of India) during the mid 1990s by the government of India was
meant to usher in an easier and more transparent form of trading in securities. The NSE
was conceived as the market for trading in the securities of companies from the largescale sector and the OTCEI for those from the small-scale sector. While the NSE has
not just done well to grow and evolve into the virtual backbone of capital markets in
India the OTCEI struggled and is yet to show any sign of growth and development. The
integration of IT into the capital market infrastructure has been particularly smooth in
India due to the country’s world class IT industry. This has pushed up the operational
efficiency of the Indian stock market to global standards and as a result the country has
been able to capitalize on its high growth and attract foreign capital like never before.
The regulating authority for capital markets in India is the SEBI (Securities and
Exchange Board of India). SEBI came into prominence in the 1990s after the capital
markets experienced some turbulence. It had to take drastic measures to plug many
loopholes that were exploited by certain market forces to advance their vested interests.
After this initial phase of struggle SEBI has grown in strength as the regulator of
India’s capital markets and as one of the country’s most important institutions.
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.
42
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. Chaired by C B Bhave, 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.
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
43
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:

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.
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,
44
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.
List of Stock Exchanges in India
Bombay Stock Exchange
National Stock Exchange
OTC Exchange of India
Regional Stock Exchanges
1. Ahmedabad
16. Meerut
2. Bangalore
17. Pune
3. Bhubaneswar
18. Saurashtra Kutch
4. Calcutta
19. Uttar Pradesh
5. Cochin
20. Vadodara
6. Coimbatore
7. Delhi
8. Guwahati
9. Hyderabad
10. Jaipur
11. Ludhiana
12. Madhya Pradesh
13. Madras
14. Magadh
15. Mangalore
45
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 corporatised entity incorporated under the provisions of the
Companies Act, 1956, pursuant to the BSE (Corporatisation 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."
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.
46
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.
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 market.
47
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 (FI’s)
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 taxpaying 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.
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 frontend and back-office, clearing and settlement, web-based, insurance, etc. Along with
48
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 cobranding 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.
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.
49
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 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 government’s 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.
50
CHAPTER IV
COMPANY PROFILE
51
ABOUT INDIABULLS
India bulls are India’s leading Financial Services and Real Estate company
having over 640 branches all over India. Indiabulls serves the financial needs of more
than 4,50,000 customers with its wide range of financial services and products from
securities, derivatives trading, depositary services, research & advisory services,
consumer secured & unsecured credit, loan against shares and mortgage & housing
finance. With around 4000 Relationship Managers, Indiabulls helps its clients to
satisfy their customized financial goals. Indiabulls through its group companies has
entered Indian Real Estate business in 2005. It is currently evaluating several largescale projects worth several hundred million dollars.
India bulls Financial Services Ltd is listed on the National Stock Exchange,
Bombay Stock Exchange and Luxembourg Stock Exchange. The market
capitalization of India bulls is around USD 3,330 million (30th September 2007).
Consolidated net worth of the group is around USD 950 million (30th September
2007). India bulls and its group companies have attracted more than USD 800 million
of equity capital in Foreign Direct Investment (FDI) since March 2000. Some of the
large shareholders of India bulls are the largest financial institutions of the world such
as Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley and Farallon
Capital.
Business of the company has grown in leaps and bounds since its inception.
Revenue of the company grew at a CAGR of 159% from FY03 to FY07. During the
same period, profits of the company grew at a CAGR of 184%. Indiabulls
Abulls
Indiabulls became the first company to bring FDI in Indian Real Estate
through a JV with Farallon Capital Management LLC, a respected US based
investment firm. Indiabulls has demonstrated deep understanding and commitment to
Indian
Real Estate market by winning competitive bids for landmark properties in
Mumbai and Delhi.
52
Indiabulls is India’s leading Financial Services and Real Estate company
having over 640 branches all over India. Indiabulls serves the financial needs of more
than 4,50,000 customers with its wide range of financial services and products from
securities, derivatives trading, depositary services, research & advisory services,
consumer secured & unsecured credit, loan against shares and mortgage & housing
finance. With around 4000 Relationship Managers, Indiabulls helps its clients to
satisfy their customized financial goals. Indiabulls through its group companies has
entered Indian Real Estate business in 2005. It is currently evaluating several largescale projects worth several hundred million dollars.
Indiabulls Financial Services Ltd is listed on the National Stock Exchange,
Bombay Stock Exchange and Luxembourg Stock Exchange. The market
capitalization of Indiabulls is around USD 3,330 million (30th September 2007).
Consolidated net worth of the group is around USD 950 million (30th September
2007). Indiabulls and its group companies have attracted more than USD 800 million
of equity capital in Foreign Direct Investment (FDI) since March 2000. Some of the
large shareholders of Indiabulls are the largest financial institutions of the world such
as Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley and Farallon
Capital.
Business of the company has grown in leaps and bounds since its inception. Revenue
of the company grew at a CAGR of 159% from FY03 to FY07. During the same
period, profits of the company grew at a CAGR of 184%.
Indiabulls became the first company to bring FDI in Indian Real Estate
through a JV with Farallon Capital Management LLC, a respected US based
investment firm. Indiabulls has demonstrated deep understanding and commitment to
Indian
53
Real Estate market by winning competitive bids for landmark properties in Mumbai
and Delhi
With a market value of Rs 29,000 crore and a net worth of Rs 8,000 crore, the eightyear-old Indiabulls group has sky-high ambitions. Property development and
consumer finance are the current thrust areas. Retailing, insurance, banking, mutual
funds, power and telecom are on the cards.
Chairman Sameer Gehlaut (34) and Co-founder Rajiv Rattan (35) are in build-up
mode, but are the foundations strong enough.
February 2000: On a wintry morning in London, four gentlemen get into a
huddle at the headquarters of Mittal Steel (now Arcelor-Mittal), the world’s largest
steel manufacturer. It’s biting cold outside, but inside an air of warm optimism
prevails.
Sameer Gehlaut and Saurabh Mittal, two of the co-founders of Indian stock
broking upstart Indiabulls Financial Services Ltd (IBFSL), are in the last lap of
negotiations for angel funding from steel baron Lakshmi N. Mittal (no relation to
Saurabh Mittal). Present at the meeting are Mittal’s son, Aditya Mittal, then Vice
Chairman on the board of directors of LNM Holdings, and Rishi Khosla, Mittal’s
fund manager.
The three promoters of Indiabulls (the third is Rajiv Rattan), all alumni of IIT
Delhi, had mandated a Mumbai-based investment bank, Avendus Advisors, to scout
around for an investor.
54
Gaurav Deepak, cofounder of Avendus, stumbles upon Khosla, who is
sniffing for potential growth stories across the globe. Aditya Mittal and Gehlaut, from
Mumbai, begin negotiations on the phone. Mittal obviously liked what he heard. The
numbers—an investment of $1 million at Rs 5 per share—are agreed upon
telephonically. The deal is signed in London.
“It was pure gut feel that made us invest in Indiabulls. We backed the
individual after we were confident about his business plans (e-trade broking) and
execution capabilities,” says Khosla. Adds Sameer Gehlaut, the “individual” Khosla
is talking about, and the Founder & Chairman of the Indiabulls group: “Mittal Saab
came in as an angel investor in Indiabulls perhaps after seeing the success of similar
business models in the US, of firms like Charles Schwab and E-Trade.”
The Early Days, It’s an investment Mittal won’t forget in a hurry. For one, it
was his first in India. More importantly, it’s yielded him returns of a phenomenal 100
times. ‘Of all our global investments, Indiabulls has given us the highest return,”
beams Khosla. Mittal was back seven years later to put more money into the
Indiabulls group.
The difference? He was now investing at not Rs 5 per share but at Rs 531 per
share (via an issue of global depository receipts, or GDR’s). Mittal today has a net
worth of Rs 1,200 crore in the group by virtue of LNM India Internet Ventures’ 1.85
per cent in flagship IBFSL and 1.60 per cent in a recently de-merged property
developer, IBREL. In addition, the global metals magnate has committed Rs 120
crore to a multi-project special economic zone (SEZ) that IBREL is putting up at
Raigad in Maharashtra.
If corporate growth is expected at 15 per cent, financial services will grow at
30 per cent. And in the next 10 years we will grow 10 times in the consumer finance
business from $3 billion to $30 billion (in market cap),” says Gehlaut, who after
working with petroleum and energy giant Halliburton in the US came to India to start
a mining and earth moving business. In October 1999, along with Rattan and Mittal,
Gehlaut started Indiabulls after acquiring a Delhi brokerage.Analysts tracking the
55
group expect these three companies to rack up total sales of roughly Rs 3,600 crore
by the year ending March 2008, with profits of around Rs 1,500 crore and a net worth
of a little over Rs 10,000 crore.
That would be a mind-boggling growth of 228 per cent in profits (at the group
level) over the previous year. Significantly, broking, the business that Indiabulls
started out with, will account for just 10 per cent of revenues.
That’s not bad going at all for an eight-year-young upstart. “We were extremely lucky
to be at the forefront of the India growth story. We did not have much clarity when
we started with the broking business. However, as we went about penetrating the
retail market, we realized there was huge untapped potential in the consumer finance
and real estate businesses,” says the 34-year-old Gehlaut. In real estate, IBREL has
put together a land bank of 4,000 acres, at an acquisition cost of over Rs 2,250 crore.
That makes it the country’s third-largest property developer, after DLF and Unitech—
again, not bad for a company that came into being only six months ago.
Gagan Banga
The real estate push also gives Indiabulls an opportunity to diversify into
another sunrise sector, that of organised retailing. Here, the promoters are exploring
formats like hypermarkets and multiplex-cum-mall, and are busy acquiring properties
for this purpose. Gehlaut has earmarked Rs 1,500 crore for this project, and has been
busy acquiring land via auctions in cities like Madurai, Jodhpur, Hyderabad, Agra
and Kanpur. “Financial services, real estate and retail are the key sectors for growth
that will deliver double-digit growth over the next 20 years. Retail is a missing piece
in our pie and we are seeing it as a definite business option as the sector coincides
with the real estate story,” says Rattan, the 35-year-old CFO of the group, who
worked as an operations manager for Schlumberger before confounding Indiabulls.
56
Indiabulls is also keen to merge with an existing bank by swapping shares,
rather than applying for a new licenses or throwing its hat into the ring whenever a
bank is put under moratorium by the Reserve Bank—the company had earlier
unsuccessfully bid for United Western Bank.
Divyesh Shah
Outside of financial services, Indiabulls will be one of the many firms keen to
redevelop the slum of Dharavi. It also has telecom in its sights—it has applied for
licenses for 22 circles, although operating these circles will be a strategic partner. For
its Nashik SEZ, Indiabulls has also lined up a 500 MW power plant. For all these new
ventures, the group will invest a little over Rs 4,500 crore over the next couple of
years.
Such aggression, such risk taking, such haste haven’t been heard of in a long
time—certainly not from an eight-year-young wannabe mega-corp. Are Gehlaut and
company for real, and are they here to stay? These are questions that sections of the
market have been pondering for some time now. Competitors who’ve been around for
decades privately wonder how Indiabulls has been able to grow at such a heady pace;
others can’t hide their awe about the group’s marquee of investors. Blame it on envy
or competitive rivalry, but most of Indiabulls’ competitors in the broking space have
few kind words for them—all of them in anonymous whispers, needless to say.
The charges range from an expertise in “managing the environment” to
trading with investor money, without their knowledge. Says the promoter of a
Mumbai brokerage: “At times they’ve got away with murder (figuratively, of course)
57
courtesy their financial muscle power and close proximity to 10 Janpath (the
residence of Sonia Gandhi, President of the Congress party and Chairperson of the
ruling UPA).” Adds a fund manager: “Corporate governance levels are very low at
the group. I wouldn’t touch the stocks with a barge pole.”
Reinforcing such theories are a couple of facts: Market regulator, the
Securities & Exchange Board of India (Sebi), came after Indiabulls not once, not
twice but three times. This, argue detractors, is evidence of the malpractices taking
place at the group. However, on all three occasions, Indiabulls emerged unscathed,
getting away with just a rap on the knuckles (see Run-ins with Sebi). In fact, during
last year’s IPO scam, when Sebi ordered a ban on Indiabulls for allegedly trying to
corner shares during allotment, the order was dust-binned in less than 24 hours. The
company top brass was apparently able to convince Sebi that the IPO shares heaped
in their accounts were those of clients.
Rashesh Shah
As one market man points out: “The day after the order was passed the doors
of Sebi were opened as early as 6:30 in the morning for them.” This proves that their
connections with people in power are adequate to override the regulators, say the
Let’s move on to the run-ins with Sebi. Consider the first one, during the penny stock
scandal of 2005, when micro-cap stocks in the B2, S and Z categories were rigged up
to ridiculous levels. Sebi came down on Indiabulls, amongst other brokerages, for
58
contributing to the increase in turnover in a few penny stocks. This in turn could be
construed as price manipulation by these brokerages. Indiabulls’ defence has been
that it is not possible to keep a tab on such rogue clients, and the contribution to
turnover from such stocks was a minuscule part of total turnover. However, since that
scandal Indiabulls decided not to trade ever in such stocks; today they restrict
themselves only to the large and mid caps in the A and B1 groups.
Road Ahead
Clearly, Gehlaut believes in being proactive in protecting the firm, with the
benefit of hindsight. Consider, for instance, the charge of playing around with the
portfolio of retail investors without their knowledge. No action was taken against
Indiabulls but the dirt has stuck. Now, to counter such negative perceptions, the
company records every single call that comes into its 400 broking branches
nationwide.
“Some 6,000 lines are recorded and archived daily. It’s an expensive solution,
which costs Rs 10 lakh per day,” says Gagan Banga, CEO, Indiabulls Credit Services.
Shrugs Gehlaut. “Broking is a thankless business.” With new ventures likes consumer
finance and real estate, broking has been relegated to the backburner. But he says he
won’t let go of it, and the leadership status that he claims, with a 6 per cent market
share. “It’s close to our hearts, it would be bad for the morale of the army if we lose
on our home turf,” adds the Chairman.
In the IPO scam, Indiabulls officials explain that they arranged meetings in
Kolkata between Sebi officials and 230 of the 559 clients from which it had received
credits in its accounts. They also claim to have taken them to the residences of 30-40
of the clients. As for Mittal and the Farallon connection, Rattan and Gehlaut rubbish
the link, although agreeing that Mittal’s presence in the US financial markets
provides a huge leg-up when it comes to raising funds from international investors.
59
The clamour in some nooks of Dalal Street not withstanding, there are those
who admire Indiabulls for the fire in their belly, their entrepreneurial skills and their
execution capabilities. Says Rashesh Shah, CEO & Managing Director, Edelweiss
Securities, a Mumbai based investment bank: “They entered the market when
competition in retail broking was low. Retail broking is a high-risk, high-reward
segment and they were aggressive in tapping that sector. Remember this was at a time
when small players were shutting shop as they couldn’t come to terms with the sea
change in the broking environment following the closure of regional stock exchanges,
the abolition of badla (an indigenous form of carry-forward trading) and the
introduction of screen-based trading. They saw the opportunity and capitalized by
investing heavily in setting up broking facilities and that has paid off.” Adds
Ambareesh Baliga, Vice President, Karvy Stock Broking: “Since the beginning they
had strong system and processes in place. Their impressive back office operations
provide them with an edge over other brokerages.”
Cautious, but Aggressive
In many ways Indiabulls is a business house that’s pretty much a typical one
from the rest of the crowd (although Gehlaut quips: “We are the crowd; the only
difference is that we are more efficient.”) For instance, the promoters don’t like
putting big-ticket numbers in terms of investments for their proposed ventures; they
don’t talk about acquisitions or joint venture partners, preferring to build rather than
buy (although in insurance there’s a view that a partner may be needed, and in a
proposed foray into institutional broking an acquisition may be considered); and
they’re not taken in by the other flavors of the season—going international is not a
priority, staying focused on the domestic consumption-oriented growth story is.
Couple the group’s aggression with the India growth story, and you have a
business group that’s aiming for leadership status in each of its ventures; and one that
believes in setting new standards and benchmarks. In insurance, for instance (where
A.K. Shukla, a former Chairman of Life Insurance Corporation, has been roped in to
60
head the foray), the plan is to break even in three years, something no private sector
player has been able to do since the sector was opened up eight years ago.
As Rattan points out: “Our advantage will be our low operating costs, as we
will be targeting the same customer in the securities business for our life insurance
business.” And also for mutual funds. “By the fiscal year-end we will have 1 million
customers in the securities business. If we can penetrate 30-40 per cent of that
customer base with our new mutual fund products, then on day zero I will have a
customer base of 3-4 lakh in the urban and semi-urban regions of the country,” adds
Gehlaut.
The aggression, insists Gehlaut, is tempered with conservatism. “We take
calculated risks. Being cautious (about capital) doesn’t mean we can’t be aggressive,”
he points out. That attitude can be illustrated with the group’s approach to retail. It’s
starting small, with a rollout of small formats in a few cities. “If those stores make
profits we will scale up. If they don’t we will not hesitate to back out of the retail
project,” says the Chairman. Adds Khosla (L.N. Mittal’s fund manager quoted
earlier): “So far the group has diversified successfully, but if a project isn’t going to
be viable, they won’t hesitate to book losses.”
Caution, however, doesn’t involve any compromise with speed. Standing atop
the storey Jupiter Mills commercial complex that’s under development, Gehlaut takes
in a bird’s eye view of the frenetic construction activity that’s under way in Central
Mumbai. A few kilometers towards the suburb is another one of his properties,
Elphinstone Mills, where IBREL will put up Mumbai’s tallest tower with all of 65storeys. But Gehlaut is quick to focus on how fast work is taking place at Jupiter
Mills. He points to an adjoining mill where a retail project is under way. Both mills
were acquired at the same time, and it’s clear that the IBREL project has made rapid
progress.
61
Completion is scheduled for April 2008. “By the next calendar year we will
start receiving nearly Rs 1,100 crore of rent from the 3.5 million square feet of
commercial space from the two mills (Jupiter and Elphin stone) in Mumbai,” says
Banga, one of the group’s first employees. Knight Frank, a Mumbai based real estate
consultancy, has valued the 3.5 million sq. ft of land at Rs 7,700 crore. Indiabulls had
purchase the two mills for Rs 1,100 crore. That’s just the real estate activity under
way in Mumbai. “In the next 24-36 months we will be ready with 50,000 apartments
in Delhi and Chennai,” adds Banga. Says Nirmal Jain, Chairman & Managing
Director, India Infoline, a Mumbai brokerage that started roughly around the same
time Indiabulls did: “Along with their ability to raise capital, Indiabulls’ master stroke
was to enter the real estate business at the right time.”
As Indiabulls moves into larger-scale, high growth areas, the mother business
of securities isn’t being given the short shrift. Divyesh Shah, CEO, ISL (the to-besoon demerged securities firm), says a portfolio management scheme (PMS) is on the
cards. For this, ISL’s base of six lakh customers along with its 400 offices in 200
cities will provide it with a head start. A foray into institutional broking might just
take off too.
“We want PMS to account for 20 per cent of our securities business, which
will grow by 40 per cent in the next two years. For our institutional business we may
take the inorganic route,” adds Shah. “When we began we were clear that we couldn’t
beat the Merrill Lynchs and Morgan Stanleys of the world.
62
RULES & BY-LAWS OF EXCHANGE
A Stock Exchange is recognized only after the govt. is satisfied that its rules
and By-Laws confirm to the conditions prescribed for ensuring for dealing and
protection to investors.
The rules of exchange are related in general to

The constitution of the exchange

The powers of the management of its governing body and its constitution

The admission for membership

The qualification for membership

The expulsion suspension and readmission of member
63
CHAPTER V
DATA ANALYSIS
&
INTERPRETATION
64
BSE 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 2010, exactly 16
months after its launch, the BSE IPO index was at 1,908.90, down almost 40 points.
In the same period, the Sensex is up by 28%.
65
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 how many companies are listed, as an IPO company is kept on the index only for
two years.
Interpretation
In the above sales Analysis we can see the ratio from August 2009 to April
2010 the index remained almost constant with minimum and negligible fluctuations
but from April 2010 to December 2010 we can see a considerable price in the index.
IPO Monthly Trends
Month
Jan-
Feb-
Mar-
Apr-
May-
Jul-
Aug-
Sep-
Oct-
Nov-
Dec-
11
11
11
11
11
11
11
11
11
11
11
4
9
6
5
6
4
3
2
18
2
5
# of
IPOs
Interpretation
The total no of companies coming for IPO have increased in 2011 compared
to 2010. There were 65 IPOs that were listed in 2011 as compared to only 17 IPOs in
2010. 2010 was mostly affected by recession and companies were not coming for
IPOs due to lack of investor confidence. Of the 65 companies that have come for IPO,
only 21 companies are not trading at a profit while 43 companies are now trading at a
loss. Close to 100 companies are in the pipe line to raise money through IPOs in the
coming months.
66
10
ov
N
p1
0
0
Se
l-1
Ju
-1
0
ay
M
-1
0
ar
0
M
n1
Ja
09
ov
N
p0
9
9
Se
l-0
Ju
ay
M
ar
M
-0
9
20
18
16
14
12
10
8
6
4
2
0
-0
9
# of IPOs
IPOs By Month
Interpretation
From the above chart we can see that the monthly trends from September
2009 to November 2009 was constant with following a decline in November 2009
which till January 2010. In March 2010 we can analyse a considerable price in the
monthly trend. The highest trend was recorded in the month of November 2010.
67
Trend of IPOs Year on Year
Financial Year
Offer
Total Amount
for
Raised (in Rs
Number
Fresh
of Issue
Capital Sale
crore)
FPO
IPO
2001-2002
6
1013
0
1013
0
1013
2002-2003
6
980
59
1039
0
1039
2003-2004
28
2293
15514
17807
14616
3191
2004-2005
29
14869
6563
21432
6769
14663
2005-2006
102
21998
1668
23666
12868
10798
2006-2007
85
24033
961
24994
1287
23707
2007-2008
90
49530
2689
52219
10896
41323
2008-2009
21
1985
49
2034
0
2034
2009-2010
44
24537
22404
46941
21993
24948
32
8090
4195
12,285
1000
11285
2010-2011 (Till
September 2010)
68
Performance of Book Running/Lead
Book Running/Lead
Managers
Total
Total
Issues
Issues 2010
Good
Bad
2009
Good
Bad
Limited,
10
8
2
10
5
5
Enam Securities Private Limited
9
3
6
9
5
4
SBI Capital Market
7
3
4
9
6
3
IDFC Capital Limited
6
3
3
4
4
JM Financial Consultants Private Limited
6
2
4
5
4
1
ICICI Securities Limited
5
1
4
3
2
1
Edelweiss Capital Limited
4
2
2
3
2
1
Limited
3
2
1
6
3
3
Axis Bank
3
1
2
1
Keynote Corporate Services Limited
2
2
Kotak Mahindra Capital Company
Morgan Stanley India Company Private
69
3
1
1
2
90
80
70
60
50
East
West
North
40
30
20
10
0
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Interpretation
In the above graph we can see that the performance in the first and second
quarter was almost constant. In the third quarter the performance of the east was at its
highest level thus we can conclude that there was optimum utilization of all the
resources, where as the fourth quarter experienced a fall in its performance.
70
TOP IPOs IN PIPELINE
Company
Issue Size
(Rs. Cr)
Indian Oil
20000
Sail
18000
ONGC
15000
Jindal Power
7200
Sterlite Energy
5100
Reliance Infratel
5000
Power Grid
4000
Lodha Developers
2500
Embassy Property Developments
2400
Gujarat State Petroleum
2050
Lavasa Corporation
2000
Emaar MGF Land
1600
BPTP
1500
Hindustan Copper
1500
L&T Finance Holdings
1500
Ambience
1293
Avantha Power & Infrastructure
1250
Ind-Barath Power
1140
Kalpataru
1008
Raheja Universal
864
71
Indian Oil
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Sail
ONGC
Jindal Power
Sterlite Energy
Issue Size
(Rs. Cr)
Reliance Infratel
Power Grid
Interpretation
In the above graph we can see that the highest performance was recorded by
the Indian oil company followed by SAIL and ONGC performance of Jindal Power,
Sterlite Energy, Reliance Infratel was acceptable the performance by Ind-Barath,
Kalpataru, Raheja Universal Power can be said to be underprivileged.
72
TOP IPO GAINER
Name of the issue
ASTER SILICATES
TIRUPATI INKS
TARAPUR
TRANSFORMERS
Book
Running
Lead
Manager
Saffron,Capital
Advisors Pvt
Ltd
Ashika Capital
Ltd
Comfort
Securities Pvt
Ltd
Spa Merchant
Bankers Ltd
Avendus
Capital Pvt Ltd
SBI Capital
Markets Ltd
CANTABIL
RETAIL INDIA
PARABOLIC
DRUGS
MICROSEC
FINANcCIAL
SERVICES
RAMKY
Enam
INFRASTRUCTURE Securities Pvt
Ltd
INDOSOLAR
Enam
Securities
Private
Limited
NITESH ESTATES
ICICI
Securities
ENGINEERS INDIA IDFC Capital
Pvt Ltd
OBEROI REALTY
Kotak
Mahindra Pvt
Ltd
Issue
Size
Total
Issue Current %
Subscription Price Price
chg
(Rs.)
53.1
4.68
118
49
-58
51.5
9.2
43
19.95
-54
63.75
1.65
75
35.75
-52
105
1.98
135
92.55
-31
200
1.03
75
55.35
-26
147.5
11.99
118
89.1
-24
530
2.73
450
356.25
-21
357
1.43
29
23.3
-20
405
1.13
54
43.55
-19
959.35
13.35
290
350.25
21
1028.61 10.12
260
295.4
14
73
CHAPTER VI
FINDINGS,
SUGGESTIONS &
CONCLUSION
74
FINDINGS

IPOs have fared very badly in the last one year in spite of a drastic increase in
the number of IPOs compared to 2009.

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 2010, exactly 16 months after its launch, the BSE
IPO index was at 1,908.90, down almost 40 points. In the same period, the
Sensex is up by 28%.

The total no of companies coming for IPO have increased in 2010 compared
to 2009. There were 65 IPOs that were listed in 2010 as compared to only 17
IPOs in 2009.

2009 was mostly affected by recession and companies were not coming for
IPOs due to lack of investor confidence.

Of the 65 companies that have come for IPO, only 21 companies are not
trading at a profit while 43 companies are now trading at a loss.

Close to 100 companies are in the pipe line to raise money through IPOs in
the coming months.
75
SUGGESTIONS

Looking at the historical trends, Investors should be cautious while investing
in Initial Public Offerings.

Investors in IPOs should look at the growth the company and the industry in
which it is operating in.

Investors should also look at the overall market conditions before investing in
an IPO.

Investors should come out of the opinion that all the IPOs will be traded at a
premium.

For companies, Book-building is preferred over the fixed price method in
IPOs, because the allotment of shares is generally done at a price determined
by the lead merchant banker and issuer within the price band. Since QIBs are
the dominant players and bid at somewhat higher prices within the band, the
issuer and merchant banker fix the price at the higher end such that retail
investors have to accept it.

The grading process will not take into account price valuation, a key
parameter in any stock investment decision. The market does not work on
fundamentals. A good company is a bad investment at a high price. The small
investors, for whom the grading exercise is basically meant, would despite
disclaimers expect a high graded IPO to quote above the offer price. The
whole purpose of grading an IPO would be defeated if it cannot help an
investor decide what stock to choose and at what price.
76
CONCLUSIONS
Companies should be careful while going for an IPO as well as after the IPO
process. The essential points to take care of to see that IPOs are successful and
investors benefit from investing in the IPOs include:
1. The underwriter is focused on your industry: The IPO marketplace is a crowded
marketplace and the significant sums you are spending for professional advice to go
public need to be targeted to a firm with real expertise in your industry. Partial
evidence of appropriate expertise would be having an analyst devoted to your
industry.
2. The market relies heavily on analyst projections and recommendations:
Specifically, the underwriting firm's analyst in your industry must: Have the capacity
to cover your company with sufficient attention; Understand your company,
customers, and competition; and Indicate sincere commitment to covering your
company.
3. Due to the importance of a successful road show, the underwriter must have the
ability and contacts to identify the right investor groups for your presentation 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. Finally, but rarely understood by many companies, there must be 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.
77
ANNEXURES
Annexure -1: Initial Public Offerings in 2009-2010
Equity
Issue Price
Current Price
%Gain/Loss
Month
MOIL
375
435.15
16.04
Dec-10
Punjab & Sind
120
118.85
-0.96
Dec-10
Claris Life
228
192.95
-15.37
Dec-10
75
57.3
-23.6
Dec-10
A2Z Maintenance
400
300.7
-24.83
Dec-10
Gravita India
125
224.4
79.52
Nov-10
Coal India
245
310.15
26.59
Nov-10
Career Point
310
363.85
17.37
Oct-10
Va Tech Wabag
1310
1507.45
15.07
Oct-10
Tecpro Systems
355
353.5
-0.42
Oct-10
Oberoi Realty
260
245.9
-5.42
Oct-10
Ashoka Buildcon
324
285.1
-12.01
Oct-10
Electrosteel St
11
9.17
-16.64
Oct-10
Bedmutha Ind
102
82.25
-19.36
Oct-10
Eros Intern
175
136.9
-21.77
Oct-10
Prestige Estate
183
140.5
-23.22
Oct-10
Ramky Infra
450
307
-31.78
Oct-10
Orient Green
47
30
-36.17
Oct-10
BS TransComm
248
125.9
-49.23
Oct-10
Microsec Fin
118
52.15
-55.81
Oct-10
Cantabil Retail
135
54.05
-59.96
Oct-10
Sea TV Network
100
36.8
-63.2
Oct-10
Commercial Eng
127
45.4
-64.25
Oct-10
Gyscoal Alloys
71
22.9
-67.75
Oct-10
Tirupati Inks
43
13.6
-68.37
Oct-10
RPP Infra Proj
78
Gujarat Pipavav
46
58.15
26.41
Sep-10
Indosolar
29
22.05
-23.97
Sep-10
Midfield Ind
133
79.8
-40
Aug-10
Prakash Steelag
110
125.85
14.41
Aug-10
Bajaj Corp
660
490.3
-25.71
Aug-10
Hindustan Media
166
172.55
3.95
Jul-10
Parabolic Drugs
75
53.7
-28.4
Jul-10
Technofab Engg
240
171.35
-28.6
Jul-10
Aster Silicates
118
34.65
-70.64
Jul-10
Mandhana Ind
130
267.75
105.96
May-10
Talwalkars Fitn
128
228.8
78.75
May-10
26
21.95
-15.58
May-10
102
67.9
-33.43
May-10
Nitesh Estates
54
31.35
-41.94
May-10
Tarapur Trans
75
27.8
-62.93
May-10
Persistent
310
436.05
40.66
Apr-10
Shree Gan Jewel
260
188.6
-27.46
Apr-10
Pradip Oversea
110
68.95
-37.32
Apr-10
Intrasoft Tech
145
82.3
-43.24
Apr-10
Goenka Diamond
135
70.8
-47.56
Apr-10
ARSS Infra
450
685.2
52.27
Mar-10
United Bank
66
92.65
40.38
Mar-10
DQ Entertain
80
88.9
11.13
Mar-10
ILandFS Trans
258
272.75
5.72
Mar-10
Man Infra
252
193.85
-23.08
Mar-10
Texmo Pipes
90
40.9
-54.56
Mar-10
Jubilant Food
145
562
287.59
Feb-10
Thangamayil
75
161.5
115.33
Feb-10
Infinite Comp
165
199
20.61
Feb-10
SJVN
Jaypee Infra
79
VasconEngg
165
124.05
-24.82
Feb-10
Hathway Cable
240
148
-38.33
Feb-10
Syncom Health
75
40.7
-45.73
Feb-10
468
191.15
-59.16
Feb-10
45
15.8
-64.89
Feb-10
Aqua Logistics
220
34.4
-84.36
Feb-10
Godrej Proper
490
599.2
22.29
Jan-10
DB Corp
212
244.2
15.19
Jan-10
MBL Infra
180
200.05
11.14
Jan-10
JSW Energy
100
90.1
-9.9
Jan-10
Cox & Kings
330
487.6
47.76
Dec-09
82
55.85
-31.89
Nov-09
Den Networks
195
159.25
-18.33
Nov-09
IndiaBPower
45
26.4
-41.33
Oct-09
Thinksoft
125
79
-36.8
Oct-09
EuroMult
75
21.05
-71.93
Oct-09
Pipavav
58
80.3
38.45
Oct-09
1050
1309.35
24.7
Sep-09
100
157.45
57.45
Sep-09
Jindal Cotex
75
106.85
42.47
Sep-09
NHPC
36
26.9
-25.28
Sep-09
Adani Power
100
122.25
22.25
Aug-09
Raj Oil Mills
120
39.75
-66.88
Aug-09
85
39.7
-53.29
Jul-09
Mahindra Holida
300
367.7
22.57
Jun-09
Rishabhdev Tech
33
5.3
-83.94
Mar-09
DB Realty
Emmbi Polyarns
Astec Life
Oil India
Globus Spirits
Excel Infoways
80
Annexure -1: Upcoming IPOs (2010 Filings with SEBI)
Company Name
Date of Filing
Lokmat Media
Dec-10
Max Flex and Imaging System
Dec-10
Modern Tube Industries
Dec-10
Net Alter Software
Dec-10
Olympic Cards
Dec-10
Onelife Capital Advisors
Dec-10
PTC India Financial Services
Dec-10
Reid and Taylor India
Dec-10
Sabari Inn
Dec-10
Shree Hanuman Sugar and Industries
Dec-10
VRL Logistics
Dec-10
Bharatiya Global Infomedia
Nov-10
Brooks Laboratories
Nov-10
Gemini Engi-Fab
Nov-10
Lovable Lingerie
Nov-10
Palco Recycle Industries
Nov-10
Plastene India
Nov-10
Readymade Steel India
Nov-10
Semantic Space Technologies
Nov-10
81
Emaar MGF Land
Oct-10
Endurance Technologies
Oct-10
Innoventive Industries
Oct-10
Marck Biosciences
Oct-10
Micromax Informatics
Oct-10
Muthoot Finance
Oct-10
Nimbus Communications
Oct-10
Pride Hotels
Oct-10
Scotts Garments
Oct-10
Shipping Corporation of India
Oct-10
Sonear Industries
Oct-10
Tara Health Foods
Oct-10
Tara Jewels
Oct-10
Tijaria Polypipes
Oct-10
Unijules Life Science
Oct-10
Vaswani Industries
Oct-10
Aanjaneya Lifecare
Sep-10
AGS Transact Technologies
Sep-10
Blend Financial Services
Sep-10
Fineotex Chemical
Sep-10
Hindustan Copper
Sep-10
82
IOT Infrastructure and Engergy Services
Sep-10
Kalpataru
Sep-10
L and T Finance Holdings
Sep-10
Lavasa Corporation
Sep-10
Midvalley Entertainment
Sep-10
Paramount Printpackaging
Sep-10
PG Electroplast
Sep-10
Rama Medicares
Sep-10
Sanghvi Forging and Engineering
Sep-10
Servalakshmi Paper
Sep-10
Shilpi Cable Technologies
Sep-10
Sudar Garments
Sep-10
SVEC Constructions
Sep-10
Timbor Home
Sep-10
Betul Oil (DRHP)
Aug-10
Birla Pacific Medspa
Aug-10
Dev Procon
Aug-10
Future Ventures India
Aug-10
Galaxy Surfactants
Aug-10
Omkar Speciality Chemicals
Aug-10
Punjab and Sind Bank
Aug-10
83
A2Z Maintenance and Engineering Services
Jul-10
Embassy Property Developments
Jul-10
Entertainment World Developers
Jul-10
Jain Infraprojects
Jul-10
Milestone Capital Advisors
Jul-10
NKG Infrastructure
Jul-10
Rajputana Stainless
Jul-10
RPP Infra Projects
Jul-10
Shekhawati Poly-yarn
Jul-10
SRS
Jul-10
Tunip Agro
Jul-10
Virgo Engineers
Jul-10
VMS Industries
Jul-10
Ind-Barath Power Infra
Jun-10
Planet 41 Mobi-Venture
Jun-10
Greatship ( India)
May-10
One97 Communications
May-10
C Mahendra Exports
Apr-10
Claris Lifesciences
Apr-10
ICOMM Tele
Apr-10
JP Infrastructure
Apr-10
84
Raheja Universal
Apr-10
Ravi Kumar Distilleries
Apr-10
Shirdi Industries
Apr-10
You Broadband and Cable India
Apr-10
Acropetal Technologies
Mar-10
Avantha Power and Infrastructure
Mar-10
Commercial Engineers and Body Builders Co
Mar-10
Genus Paper Products
Mar-10
Gujarat State Petroleum Corporation
Mar-10
RDB Rasayans
Mar-10
Rushil Décor
Mar-10
SEL Textiles
Mar-10
Asian Business Exhibition and Conferences
Feb-10
Inventure Growth and Securities
Feb-10
Mittal Corp
Feb-10
Jindal Power
Jan-10
Neptune Developers
Jan-10
85
BIBLIOGRAPHY
BOOKS
1. Khan M. Y .and Jain. P.K (2009). Financial management. Pearson publications
2. Meir Kohn, “Financial Institutions and Markets”, 2009 2nd Ed. Oxford
University Press.
3. Khan. M.Y., “Financial Services”, 2010, 5th Ed. Tata McGraw-Hill, Pvt. Ltd.,
New Delhi.
4. Gordon and Natarajan, “Financial Markets and Services’, 2009, HPH, 7th Ed.
Mumbai.
5. Avadhani. V.A., “Financial Services in India”, 2009, 1st Ed. HPH.
6. Vasant Desai, “Financial Markets and Financial Services”, 2009, HPH, 1st Ed.,
Mumbai.
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.icraratings.com
NEWSPAPERS
1. Economic Times
86
Project Summary
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.
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 issuer’s securities. The sale of
securities can be through book building or normal public issue.
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.
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.
87