INVESTORS PERCEPTION

ABOUT INDIAN IPOs HAVING

SAFETY NETS

SUBMIT
TED IN
THE PARTIAL FULFILLMENT
OF DEGREE IN MASTER OF BUSINESS
MANAGEMENT

PROJECT SUPERVISOR:CANDIDATE:-

PROJECT

DR. RAKESH KUMAR AGRAWAL

Academic councellor, IGNOU.
Faculty of Commerce and Bus. Adm. Meerut College, meerut.

SANDEEP PATHAK (Enrl. No. 091414720) Address:- 1252/3, Shastri

Nagar,
Meerut.(U.P.)
Mobile No. +919897606318

Submi

tted to
Indira Gandhi National Open University, New
Delhi.
School Of Management
Studies(SOMS)
MEERUT CENTER
(2728), MEERUT
COLLEGE,
MEERUT.
INTRODUCTION

Alarm bells always tend to ring loud and clear in primary market circles. of late,
many stocks are logging only a marginal increase in prices immediately and
within days of their IPOs getting listed. The recent boom in the stock markets
has again motivated many corporates to tap money from the market. During the
past few months, the stock markets have scaled new heights, surpassing the
previously insurmountable barriers. As the same time, it is to be noted that falls
have eroded thousands of crores of investor wealth. For retail investors,
especially those who earlier flocked to IPOs of smaller cap stocks, this
scenario is unwelcome.
Retail investors form an integral part of the stock markets. The markets cannot
survive without their participation. So the loss of wealth had put off the retail
investors from the market.
In order to bring back the investors to the stock markets and regain their

confidence, the Securities Exchange Board of India (SEBI) has taken some
steps. However, law alone cannot achieve the goal. A lot would also need to be
done by the issuer companies, their
merchant bankers, lead managers and book runners. Safety net options are
one of the
measures taken by them.
INVESTORS PERCEPTION
Initial Public Offer is a mechanism to raise capital from the public. In the recent
years there are number of Initial Public Offers [IPO] in India. The present study
tries to find out the risk perception of the investors in respect of IPO investment
and the degree of influence of the elements of marketing mix on the overall
level of risk perception. The
study is carried out on the registered investors of the leading share broking
firms of Silchar town of Assam, India. It is found that the equity investors
perceive equity investment through IPO as moderately risky. The degree of
influence of promotion feature driven measure of risk perception is highest.
Second, third and forth factors affecting the risk perception in respect of
equity investment through IPO are price, product and place feature driven
measure of risk perception.
Shanmnga Sundaram V (2011) examined the impact of behavioural dimensions
of investors in Capital market and found that investor decisions are influenced by
psychological factors as well as behavioural dimensions and this psychological
effect is created by the fear of losing money, sudden decline in stock indices,
greed and lack of confidence about their decision making capability. Lovric M. et
al., (2008), presented a description model of individual investor behaviour in
which investment decisions are seen as an iterative process of interactions
between the investor and the investment environment. The investment process was
influenced by a number of interdependent variables. They suggested that this
conceptual model can be used to build stylized representations of individual
investors and further studied using the paradigm of agent- based artificial financial
markets. Szyska Adam (2008) analysed how investors psychology changes the
vision of financial markets and discussed the consequences of the new view of
finance by capital market practitioners-investors, corporate policy makers and
concluded with some thoughts on the future development of the capital market
theory. Hvidkjaer S (2008) analysed the relationship between retail investor
trading behaviour and the cross section of future stock returns. The result suggests
that

stocks favoured by retail investors subsequently experience prolonged

underperformance relative to stock out of favour with them. This results link the
systematic component of retail investor behaviour to future returns, i.e.,
informed investors might begin selling stocks that they believe to be
overvalued. The overvaluation that these investors perceived could be driven by
changes in firms fundamental values.

INITIAL PUBLIC OFFER

An initial public offering (IPO) is the first sale of a corporation's common
shares to public investors. The main purpose of an IPO is to raise capital
for the corporation. While IPOs are effective at raising capital, they also impose
heavy regulatory compliance and reporting requirements. The term only
refers to the first public issuance of a company's shares; any later public
issuance of shares is referred to as a Secondary Market Offering.
There are several reasons for which a private company may wish to become a
public company.
SAFE
TY
NET
It is actually a put option given to the investors, which gives the right but not the
obligation to the investors to sell the stock to issuer at a particular price before a
certain period. Any safety net scheme of the shares proposed in any public
issue shall be finalized by an issuer company with the lead merchant banker in
advance and disclosed in the prospectus. Such buy back or safety net
arrangements shall be made available only
to all original individual allottee limited up to a maximum of 1000 shares per
allottee and the offer is kept open for a period of 6 months from the last date of
dispatch of securities. For exp. IPO hits the market with a final price of Rs 50
with safety net option attached to it. The subscribers to IPO can sell the shares

to Issuer before 6 month at a price of Rs 50 per share. The investors, thus, have
a put option with a strike price of Rs 50 per share with an expiry of six
months. As it gives the investors the right to sell the shares at any time before
the expiry of six months, the safety net is just like an American option. Such an
option makes the instrument attractive to investors.
Working of Safety Nets
Suppose the above stock falls to Rs 25 three months hence, an investor would lose
Rs 25 (Rs 50-25) per share on his investment. A safety option, however, enables
the investor to sell the stock to issuer at the strike price of Rs 50 per share.
Next, suppose the stock moves up to Rs 60, the investor can sell it in the market
and pocket the gains. He is under no compulsion to sell the share to issuer which
is why the safety net is an option.

CHAPT
ER: 1
THE INDIAN CAPITAL MARKET - AN OVERVIEW

Capital market in any country plays an important role in supporting technological

progress and in economic development by channeling funds for investment
in productive assets, contributing to long term growth prospects of the economy. The
direct influence of capital market is seen in the growth of corporate sector, that have
reduced the dependent on bank as a source of finance to raise in the capital market.

It consists of primary and secondary markets. The primary market deals with the issue
of new instruments by the corporate sector such as equity shares, preference shares
and debt instruments. Central and State governments, various public sector
industrial units (PSUs), statutory and other authorities such as state electricity boards

and port trusts also issue bonds/debt instruments.

The primary market in which public issue of securities is made through a prospectus is a
retail market and there is no physical location. Offer for subscription to securities
is made to investing community. The secondary market or stock exchange is a market
for trading and settlement of securities that have already been issued. The investors
holding securities sell securities through registered brokers/sub-brokers of the stock
exchange. Investors who are desirous of buying securities purchase securities through
registered brokers/sub-brokers of the stock exchange. It may have a physical location
like a stock exchange or a trading floor. Since
1995, trading in securities is screen-based and Internet-based trading has also made an
appearance in India.

The secondary market consists of 23 stock exchanges including the National Stock
Exchange, Over-the-Counter Exchange of India (OTCEI) and Inter Connected Stock
Exchange of India Ltd. The secondary market provides a trading place for the
securities already issued, to be bought and sold. It also provides liquidity to the initial
buyers in the primary market to re-offer the securities to any interested buyer at any
price, if mutually accepted. An active secondary market actually promotes the growth
of the primary market and capital formation because investors in the primary market
are assured of a continuous market and they can liquidate their investments. The
securities market moved from T+3 settlement period to T+2 rolling settlement
with effect from April 1, 2003

1.1
CAPITAL
PARTICIPANTS:

MARKET

There are several major players in the primary market. These include the merchant
bankers, mutual funds, financial institutions, foreign institutional investors (FIIs) and
individual investors. In the secondary market, there are the stock brokers (who are
members of the stock exchanges), the mutual funds, financial institutions, foreign
institutional investors (FIIs), and individual investors. Registrars and Transfer Agents,

Custodians and Depositories are capital market intermediaries that provide important
infrastructure services for both primary and secondary markets.

1.2
MARKET
REGULATION:
It is important to ensure smooth working of capital market, as it is the arena where the
players in the economic growth of the country come together. Various laws have
been passed from time to time to meet this objective.

The financial market in India was highly segmented until the initiation of reforms in
1992-93 on account of a variety of regulations and administered prices including
barriers to entry. The reform process was initiated with the establishment of Securities
and Exchange Board of India (SEBI).

The legislative framework before SEBI came into being consisted of three major Acts
governing the capital markets:

1. The Capital Issues Control Act 1947, which restricted access to the securities market
and controlled the pricing of issues.
2. The Companies Act, 1956, which sets out the code of conduct for the corporate
sector in relation to issue, allotment and transfer of securities, and disclosures to
be made in public issues.
3. The Securities Contracts (Regulation) Act, 1956, which regulates transactions in
securities through control over stock exchanges. In addition, a number of other Acts,
e.g., the Public Debt Act, 1942, the Income Tax Act, 1961, the Banking Regulation Act,
1949, have substantial bearing on the working of the securities market.

1.3

PRIMARY

MARKET:
Companies raise funds to finance their projects through various methods. The
promoters can bring their own money of borrow from the financial institutions or
mobilize capital by issuing securities. The funds maybe raised through issue of fresh
shares at par or premium, preferences shares, debentures or global depository
receipts. The main objectives of a capital issue are given below:

To promote a new
company

To expand an existing
company

To diversify the
production

To meet the regular working capital

requirements

To capitalize the
reserves

Stocks available for the first time are offered through primary market. The issuer may be
a new company or an existing company. These issues may be of new type or the security
used in the past. In the primary market the issuer can be considered as a manufacturer.
The issuing houses, investment bankers and brokers act as the channel of distribution for
the new issues. They take the responsibility of selling the stocks to the public.

1.3.1 THE FUNCTION OF PRIMARY

MARKET:
The main service functions of the primary market are origination, under writing
and distribution. Origination deals with the origin of the new issue. The proposal is
analyzed in terms of the nature of the security, the size of the issue, timing of the issue
and floatation method of the issue. Underwriting contract makes the share
predictable and removes the element of uncertainty in the subscription (underwriting
is given in the latter part of this chapter). Distribution refers to the sale of securities to
the investors. This is carried out with the help of the lead managers and brokers to the
issue.

1.3.2 FACTORS
INVESTORS:

CONSIDERED

BY

THE

Promoters
Credibility
Promoters past performance with reference to the companies
promoted by them earlier.
The integrity of the promoters should be found out with enquiries and from financial
magazines and newspapers.Efficiency of the
Management
The managing directors background and experience in the field. The composition of the
Board of Directors is to be studied to find out whether it is broad based and professionals
are included.
Project Details
The credibility of the appraising institution or agency.
The stake of the appraising agency in the forthcoming issue.
Product

Reliability of the demand and supply projections of the product.

Competition faced in the market and the marketing strategy.
If the product is export oriented, the tie-up with the
foreign collaborator or agency for the purchase of
products.

Financial Data

Accounting policy.
Revaluation of the assets, if any.
Analysis of the data related to capital, reserves,

turnover, profit, dividend record and profitability ratio.

Litigation
litigations
and totheir
profitability
of the
company. Default inPending
the payment
of dues
the effect
banks on
andthe
financial
institutions.

Risk Factors

A careful study of the general and specific risk factors

should be carried out.

Auditors Report

A through reading of the auditors report is needed

especially with reference to significant notes to accounts,
qualifying remarks and changes in the accounting policy.
In the case of letter of offer the investors have to look for
the recently audited working result at the end of letter of
offer.

Statutory
Clearance
Investor should find out whether all the required statutory clearance has been obtained, if
not, what is the current status. The clearances used to have a bearing on the
completion of the project.
Investor Service
Promptness in replying to the enquiries of allocation of
shares, refund of money, annual reports, dividends and
share transfer should be assessed with the help of past
record.

1.4 INITIAL PUBLIC OFFERINGS:

The first offering of a companys shares to the public. The shares offered may be
existing ones
held privately, or the company may issue new shares to the public.

1.4.1 PARTIES INVOLVED IN THE IPO:

The promoters also should have a clear idea about the agencies to coordinate their
activities effectively in the public issue. The various parties involved are:

The manager to the issue,

The registrars to the issue,

Underwriters,

Bankers,

Advertising agencies,

Financial Institutions and

Government /Statutory Agencies.

The Managers To The

Issue:
Lead managers are appointed by the company to manage the initial public offering
campaign. Their main duties are:

Drafting of
prospectus

Preparing the budget of expenses related to

the issue

Suggesting the appropriate timings of the

public issue

Assisting in marketing the public issue

successfully

Advising the company in the appointment of registrars to the issue, underwriters,

brokers, bankers to the issue, advertising agents etc.

Directing the various agencies involved in the

public issue.

The merchant banking division of the financial institutions, subsidiary of commercial

banks, foreign banks, private sector banks and private agencies are available to act as
lead mangers. Such as SBI Capital Markets Ltd., Bank of Baroda, Canara Bank,
DSP Financial Consultant Ltd. ICICI Securities & Finance Company Ltd., etc.

The Registrar
The Issue

To

After the appointment of the lead managers to the issue, in consultation with
them, the Registrar to the issue is appointed. Quotations containing the details of the
various functions they would be performing and charges for them are called for
selection. Among them the most suitable one is selected. It is always ensured that the
registrar to the issue has the necessary infrastructure like Computer, Internet and
telephone.

The Registrars normally receive the share application from various collection centers.
They recommend the basis of allotment in consultation with the Regional Stock
Exchange for approval. Usually registrars to the issue retain the issuer records at least
for a period of six months from the last date of dispatch of letters of allotment to enable
the investors to approach the registrars for redressal of their complaints.

The
Underwrite
rs
Underwriting is a contract by means of which a person gives an assurance to the issuer
to the effect that the former would subscribe to the securities offered in the event of
non-subscription by the person to whom they were offered. The person who assures
is called an underwriter. The underwriters do not buy and sell securities. They stand as
back-up supporters and underwriting is done for a commission. Underwriting provides
an insurance against the possibility of inadequate subscription. Underwriters are
divided into two categories:

Financial Institutions
and Banks


Brokers and approved investment
companies.
The company after the closure of subscription list communicates in writing to the
underwriter the total number of shares/debentures under subscribed, the number of
shares/debentures required to be taken up by the underwriter. The underwriter would
take up the agreed portion. If the underwriter fails to pay, the company is free to allot
the shares to others or take up proceeding against the underwriter to claim damages for
any loss suffered by the company for his denial.

The Bankers To The Issue:

Bankers to the issue have the responsibility of collecting the application money along
with the application form. The bankers to the issue generally charge commission
besides the brokerage, if any. Depending upon the size of the public issue more than
one banker to the issue is appointed. When the size of the issue is large, 3 to 4
banks are appointed as bankers to the issue. The number of collection centers is
specified by the central government. The bankers to the issue should have branches in
the specified collection centers.

Advertising
Agents:
Advertising plays a key role in promoting the public issue. Hence, the past track record
of the advertising agency is studied carefully. Tentative program of each advertising
agency along with the estimated cost are called for. After comparing the effectiveness
and cost of each program with the other, a suitable advertising agency if selected in
consultation with the lead managers to the issue. The advertising agencies take the

responsibility of giving publicity to the issue on the suitable media. The media may be
newspapers/ magazines/ hoardings/press release or a combination of all.

The
Financial
Institutions
Financial institutions generally underwrite the issue and lend term loans to the
companies. Hence, normally they go through the draft of prospectus, study the
proposed program for public issue and approve them. IDBI, IFCI & ICICI, LIC, GIC
and UTI are the some of the financial institutions that underwrite and give financial
assistance. The lead manager sends copy of the draft prospectus to the financial
institutions and includes their comments, if any in the revised draft.

Government And Statutory

Agencies
The various regulatory bodies related with the public
issue are:
Securities Exchange Board
of India

Registrar of
companies

Reserve Bank of India (if the project involves foreign

investment)
Stock Exchange where the issue is going to
be listed

Industrial licensing
authorities
Pollution control authorities (clearance for the project has to be stated in the
prospectus)

1.4.2
COLLECTION
CENTERS

Generally there should be at least 30 mandatory collection centers inclusive of

the places where stock exchanges are located. If the issue is not exceeding Rs.10 Cr
(excluding premium if any) the mandatory collection centers are the four metropolitan
centers viz. Mumbai, Delhi, Kolkatta and Chennai and at all such centers where stock
exchanges are located in the region in which the registered office of the company is
situated. The regional divisions of the various stock exchanges and the places of their
locations are given in the following table:

Table 1.2: Collection

centres

Region

Exchange

City

Northern
Region
Ludhiana Stock
Exchange
Ludhiana
Delhi
Delhi Stock Exchange
Jaipur Stock Exchange
U P Stock Exchange
Jaipur
Kanpur
Southern
Region

Hyderabad Stock
Exchange
Bangalore Stock
Exchange
Mangalore Stock
Exchange
Madras Stock Exchange
Coimbatore Stock
Exchange
Cochin Stock Exchange

Hyderabad
Bangalore
Managlore
Chennai
Coimbatore
Cochin

Eastern Region

Calcutta Stock Exchange Gawahati Stock Exchange

Magadh Stock Exchange
Bhubaneswar Stock
Exchange
Kolkatta Gawahati Patna Bhubaneswar
Western
Region

Bombay Stock
Exchange
National Stock
Exchange
OTCEL Stock Exchange
M P Stock Exchange
Pune Stock Exchange
Vadodara Stock
Exchange
Ahmedabad Stock
Exchange
Sauashtra Kutch Stock
Exchange

Mumbai
Mumbai
Mumbai
Indore
Pune
Vadodara
Ahmedabad
Rajkot

In addition to the collection branch, authorized collection agents may also be appointed.
The names and addresses of such agent should be given in the offer documents. The
collection agents are permitted to collect such application money in the form of cheques,
draft, and stockinvests and not in the form of cash. The application money so collected should be
deposited in the special share application account with the designated scheduled
bank either on the same day or latest by the next working day.

The application collected by the bankers to the issue at different centers are forwarded
to the Registrar after realization of the cheques, within a period of 2 weeks from the
date of closure of the public issue. The applications accompanied by stock-invests are
sent directly to the Registrars to the issue along with the schedules within one week
from the date of closure of the issue. The investors, who reside in places other than

mandatory and authorized centers, can send their application with stock-invests to the
Registrar to the issue directly by registered post with acknowledgement due card.

1.4.3 PLACEMENT
THE IPO

OF

Initial public offers are floated through Prospectus; Bought out deals/offer for sale;
Private
Placement
Building.

and Book

OFFER
PROSPECTUS

THROUGH

According to Companies (Amendment) Act 1985, application forms for shares of a

company should be accompanied by a Memorandum (abridged prospectus). In simple
terms a prospectus document gives details regarding the company and invites offers for
subscription or purchase of any shares or debentures from the public. The draft
prospectus has to be sent to the Regional Stock Exchange where the shares of the
company are to be listed and also to all other stock exchanges where the shares are
proposed to be listed. The stock exchange scrutinizes the draft
prospectus. After scrutiny if there is any clarification needed, the stock exchange
writes to the company and also suggests modification if any. The prospectus
should contain details regarding the statutory provisions for the issue, program of
public issue opening, closing and earliest closing date of the issue, issue to be
listed at, highlights and risk factors, capital structure, board of directions, registered
office of the company, brokers to the issue, brief description of the issue, cost of
the project, projected earnings and other such details. The board, lending
financial institutions and the stock exchanges in which they are to be listed should
approve the prospectus. Prospectus is distributed among the stock exchanges,
brokers and underwriters, collecting branches of the bankers and to the lead

managers.

Table 1.3: Salient Features of the

Prospectus

Salient Features of the

Prospectus:
General
Information
Name and address of the registered office of the company.
The name(s) of the stock exchange(s) where applications have been made for
permission to deal in and for official quotations of shares/debentures.
Opening, closing and earliest closing dates of the issue.
and address of lead managers.
Capital Structure of the Company
Issued, subscribed and paid-up capital.
Size of the present issue giving separately reservation for preferential
allotment to promoters and others.
Paid-up capital After the present issue
Details regarding the promoters contribution.
Terms of the
Present Issue
Authority for the issue, terms of payment, procedure and time schedule for
allotment, issue of certificate and rights of the instrument holders.
How to apply availability of forms, prospectus and mode of payment.
Special tax benefits to the company and share holders under the
Income Tax Act, if any.

Particulars of the
Issue
Object of the issue
Project cost
Means of financing (including promoters
contribution).
Company, Management and Project
History, main objects and present business of the company. Subsidiary
(ies) of the company, if any.
Promoters and their background.
Names, addresses and occupation of managing directors and other directors
including nominee directors and whole-time directors. Location of the project.
Plant and machinery, technological process etc. Collaboration, any
performance guarantee or assistance in marketing by the collaborators.
Infrastructure facilities for raw materials and utilities like water, electricity

Name

etc.
Schedule of implementation of the project and progress so far, giving details of
land acquisition, civil works, installation of plant and machinery, trail
production, consumer production etc.
The Product (a) Nature of the products Consumer or Industrial and the end
users; (b) Approach to marketing and proposed marketing set-up; (c) Export
possibilities and export obligations,
if any.
Future prospects expected capacity utilization during the first three years from
the date of commencement of production and the expected year when the
company would be able to earn cash
profit and net profit.
Stock market data for shares, debentures of the company (high
low price for each of the last years in consideration).
Particulars regarding the other listed companies under the same management, which
have made any capital issues during the last
three years.
Outstanding
Litigations
Details of the outstanding litigations pertaining to matters likely to affect the operations
and finances of the company including disputed tax liabilities of any nature, any other
default and
criminal prosecution launched against the company.
Risk Factors

Management perception of risk factors like

sensitivity to foreign exchange rate fluctuations,
difficulty in the availability of raw
materials or in marketing of products, cost, time over-run etc.

Justification of the issue

The justification for price is given, taking into account the following parameters:
premium

Performance of the company reflected by earnings

per share and book value of shares for the past five
years.
Future projections in terms of EPS and book value of
shares in the next three years.
Stock market data.
Net asset value as per the latest audited balance sheet.
If the projections are not based on the past data, appraisal made
by
a banker or financial institution should be specifically stated.

Financial
Information
Financial performance of the company for last five years should be given from
the audited annual accounts in tabular form. Balance sheet date equity capital,
reserves (revaluation reserve, the year of revaluation and its monetary effect on
assets) and borrowings.

Profit and loss data sales, gross profit, net profit, and dividend paid, if any.
Any change in the accounting policy during the last three years
and its effect on the profit and reserves of the company.
Statutory and other information
Minimum subscription.
Details of the fee payable to Advisers, Registrar, Managers, and underwriters.
Details regarding the previous issues, if any.

BOUGHT OUT DEALS (OFFER

FOR SALE)
Here, the promoter places his shares with an investment banker (bought out dealer
or sponsor) who offers it to the public at a later date. In other works in a bought out
deal, an existing company off-loads a part of the promoters capital to a wholesaler
instead of making a public issue. The wholesaler is invariably a merchant banker or
some times just a company with surplus cash. In addition to the main sponsor, there
could be individuals and other smaller companies participating in the syndicate. The
sponsors hold on to these shares for a period and at an appropriate date they offer
the same to the public. The hold on period may be as low as
70 days or more than a year.
In a bought out deal, proving is the essential element to be decided. The bought out
dealer decides the price after analyzing the viability, the gestation period, promoters
background and future projections. A bough out dealer sheds the shares at a premium to
the public.

PRIVATE
PLACEMENT
In this method the issue is placed with a small number of financial institutions,

corporate bodies and high net worth individuals. The financial intermediaries purchase
the shares and sell them to investors at a later date at a suitable price. The stock is
placed with issue house client with the medium of placing letter and other documents
which taken together contribute a prospectus, giving the information regarding the
issue. The special feature of the private placement is that the issues are negotiated
between the issuing company and the purchasing intermediaries. Listed public limited
company as well as closely held private limited company can access the public
through the private placement method. Mostly in the private placement securities are
sold to financial institutions like Unit Trust of India, mutual funds, insurance
companies, and merchant banking subsidiaries of commercial banks and so on.
Through private placement equity shares, preference shares, cumulative convertible
preference shares, debentures and bonds are sold.

BOOK
BUILDING

Book building is a mechanism through which the initial public offerings (IPOS) take
place in the U.S. and in India it is gaining importance with every issue. Most of the
recent new issue
offered in the market has been through Book Building process. Similar mechanisms are
used in the primary market offerings of GDRs also. In this process the price
determination is based on orders placed and investors have an opportunity to place
orders at different prices as practiced in international offerings.

The recommendations given by Malegam Committee paved way for the introduction
of the book building process in the capital market in Oct 1995. Book building involves
firm allotment of the instrument to a syndicate created by the lead managers
who sell the issue at an acceptable price to the public. Originally the potion of book
building process was available to companies issuing more than Rs.100 cr. The
restriction on the minimum size was removed and SEBI gave impression to adopt
the book building method to issue of any size. In the prospectus, the company
has to specify the placement portion under book building process. The securities
available to the public are separately known as net offer to the public. Nirma by
offering a maximum of 100 lakh equity shares through this process was set to be the
first company to adopt the mechanism.

Among the lead managers or the syndicate members of the issue or the merchant bankers
as member. The issuer company as a book runner nominates this member and his
name is mentioned in the draft prospectus. The book runner has to circulate the copy of
the draft prospectus to be filed with SEBI among the institutional buyers who are
eligible for firm allotment. The draft prospectus should indicate the price band within
which the securities are being offered for subscription.
The offers are sent to the book runners. He maintains a record of names and number of
securities offered and the price offered by the institutional buyer within the placement
portion and the price for which the order is received to the book runners. The book
runner and the issuer company finalize the price. The issue price for the placement
portion and offer to the public should be the same. Underwriting agreement is
entered into after the fixation of the price.

One day earlier to the opening of the issue to the public, the book runner

collects the application forms along with the application money from the institutional
buyers and the underwriters. The book runner and other intermediaries involved in the
book building process should maintain records of the book building process. The SEBI
has the right to inspect the records.

Book building as discussed is a process of offering securities in which bids at various

prices from investors through syndicate members are collected. Based on bids,
demand for the security is assessed and its price discovered. In case of normal public
issue, investor knows the price in advance and the demand is known at the close of the
issue. In case of public issue through book building, demand can be known at the end
of everyday but price is known at the close of issue.

An issuer company proposing to issue capital through book building has two options
viz., 75% book building route and 100% book building route. In case of 100% book
building route is adopted, not more than 60% of net offer to public can be
allocated to QIBs (Qualified
Institutional Buyers), not less than 15% of the net offer to the public can be allocated to
non- institutional investors applying for more than 1000 shares and not less than
25% of the net offer to public can be allocated to retail investors applying for up to
1000 shares. In case 75% of net public offer is made through book building, not more
than 60% of the net offer can be allocated to QIBs and not less than 15% of the net
offer can be allocated to non-institutional investors. The balance 25% of the net offer
to public, offered at a price determined through book building, are available to retail
individual investors who have either not participated in book building or have not
received any allocation in the book built portion. Allotment to retail individual or non-

institutional investors is made on the basis of proportional allotment system. In case of

under subscription in any category, the un-subscribed portions are allocated to the
bidder in other categories. The book built portion, 100% or 75%, as the case may be,
of the net offer to public, are compulsorily underwritten by the syndicate members or
book runners.

Other requirements for book building

include:
Bids remain open for at least
5 days.

Only electronic bidding is

permitted.

Bids are submitted through syndicate

members.
Bids can be
revised.

Bidding demand is displayed at the end of

every day.
Allotments are made not later than 15 days from the closure of the
issue etc.

The 100% book building has made the primary issuance process comparatively faster
and cost effective and trading can commence from T+16.

The SEBI guidelines for book building provides that the company should be
allowed to disclose the floor price, just prior to the opening date, instead of in the Red
herring prospectus, which may be done by any means like a public advertisement in

newspaper etc. Flexibility should be provided to the issuer company by permitting

them to indicate a 20% price band. Issuer may be given the flexibility to revise the
price band during the bidding period and the issuers should be allowed to have a closed
book building i.e. the book will not be made public. The mandatory requirement of
90% subscription should not be considered with strictness, but the prospectus should
disclose the amount of minimum subscription required and sources for meeting the
shortfall. The Primary Market Advisory Committee recommended the practice of
green-shoe option available in markets abroad which is an over allotment option
granted by the issuer to the underwriter in a public offering. This helps the syndicate
member to over allocate the shares to the extent of option available and to
consequently purchase additional shares from the issuer at the original offering price in
order to cover the over-allotments.

FIXED VERSUS BOOK BUILDING

ISSUES

The main difference between offer of shares through book building and offer of shares
through normal public issue can be identified on the following parameters:

Price at which securities will be allotted is not known in case of offer of shares

through Book Building while in case of offer of shares through normal public issue,
price is known in advance to investor. Under Book Building, investors bid for shares
at the floor price or above and after the closure of the book building process the price

is determined for allotment of shares.

In case of Book Building, the demand can be known everyday as the book is

being built. But in case of the public issue the demand is known at the close of the
issue.

1.4.4 ON-LINE INITIAL PUBLIC OFFERS (IPO)

A company proposing to issue capital to public through on-line system of the stock
exchange has to comply with Section 55 to 68A of the Companies Act, 1956 and SEBI
Guideline, 2000. The company is required to enter into an agreement with the stock
exchange(s), which have the requisite system for on-line offer of securities. The
agreement should cover rights, duties, responsibilities and obligations of the company
and the stock exchanges inter-se, with provision for a dispute resolution mechanism
between the company and the stock exchange. The issuer company appoints a Registrar
to the Issue having electronic connectivity with the stock exchanges. The issuer
company can apply for listing of its securities at any exchange through which it offers its
securities to public through on-line system, apart from the requirement of listing on the
regional stock exchange. The stock exchange appoints brokers for the purpose of
accepting applications and placing orders with the company. The lead manager would
co-ordinate all the activities amongst various intermediaries connected in the system.
In addition to the above, the SEBI guidelines also provide details of the contents of the
offer document and advertisement, other requirements for issues of securities, like
those under Rule
19(2)(b) of SC(R) Rules, 1957. The guidelines also lay down detailed norms for issue
of debt instruments, Issue of capital by designated financial institutions and
preferential/bonus issues.

1.4.5 ELIGIBILITY
SECURITIES

TO

ISSUE

The issues of capital to public by Indian companies are governed by the

Disclosure and Investor Protection (DIP) Guidelines of SEBI, which were issued in

June 1992. SEBI has been issuing clarifications to these guidelines from time to time
aiming at streamlining the public issue process. In order to provide a comprehensive
coverage of all DIP guidelines, SEBI issued a compendium series in January 2000,
known as SEBI (DIP) Guidelines, 2000. The guidelines provide norms relating to
eligibility for companies issuing securities, pricing of issues, listing requirements,
disclosure norms, lock-in period for promoters contribution, contents of offer
documents, pre-and post-issue obligations, etc. The guideline applies to all public
issues, offers for sale by listed and unlisted companies.

Eligibility Norms: Any company issuing securities through the offer document has to
satisfy the following conditions:

A company making a public issue of securities has to file a draft prospectus with
SEBI, through an eligible merchant banker, at least 21 days prior to the filing of
prospectus with the Registrar of Companies (RoCs). The filing of offer document
is mandatory for a listed
company issuing security through a rights issue where the aggregate value of
securities, including premium, if any, exceeds Rs.50 lakh. A company cannot make a
public issue unless it has made an application for listing of those securities with stock
exchanges(s). The company must also have entered into an agreement with the
depository for dematerialization of its securities and also the company should have
given an option to subscribers/ shareholders/ investors

to

receive the

security

certificates or securities in dematerialized form with the depository. A company

cannot make an issue if the company has been prohibited from accessing the capital
market under any order or discretion passed by SEBI.

An unlisted company can make public issue of equity shares or any other

security convertible into equity shares, on fixed price basis or on book building basis,
provided:
(i)

It has a pre-issue net worth of not less than Rs.1 crore in 3 out of the preceding

5 years and has minimum net worth in immediately preceding two years,
(ii)
It has a track record of distributable profits in terms of section 205 of the
Companies
Act, 1956, for at least 3 out of immediately preceding 5
years, and
(iii)

The issue size (offer through offer document + firm allotment + promoters

contribution through the offer document) does not exceed five times its pre-issue net
worth.
(iv)

A listed company is eligible to make a public issue, on fixed price basis or on

book building basis, if the issue size does not exceed five times its pre-issue net worth.
If the company, listed or unlisted, does not meet the above criteria, then the issue will
have to be compulsorily made through book building route. In such a case, 60% of the
issue size will have to be allotted to the Qualified Institutional Buyers (QIBs)
failing which the full subscription money shall be refunded.

Infrastructure companies are exempt from the requirement of eligibility norms

if their project

has

been

appraised

by a

public financial

institution

or

infrastructure development finance corporation or infrastructure leasing and financing

services and not less than 5% of the project cost is financed by any of the institutions,
jointly or severally, by way of loan and/or subscription to equity or a combination of
both. Banks and rights issues of listed companies are also exempt from the eligibility

norms.

Thus the quality of the issue is demonstrated by track record/appraisal by approved

financial institutions/credit rating/subscription by QIBs.

1.4.6 PRICING OF
ISSUES

The Controller of Capital Issues Act governed issue of capital prior to May 27, 1992
1947. Under the Act, the premium was fixed as per the valuation guidelines issued. The
guidelines provided for fixation of a fair price on the basis of the net asset value
per share on the expanded equity base taking into account, the fresh capital and the
profit earning capacity.

The repealing of the Capital Issue Control Act resulted in an era of free pricing of
securities. Issuers and merchant bankers fixed the offer prices. Pricing of the public issue
has to be carried out according to the guidelines issued by SEBI.
At Premium: Companies are permitted to price their issues at premium in the case of
the following:

First issue of new companies set up by existing companies with the

track record.

First issue of existing private/closely held or other existing unlisted

companies with three-year track record of consistent profitability.

First public issue by exiting private/closely held or other existing unlisted

companies without three-year track record but promoted by existing companies with a
five-year track record of consistent profitability.

Existing private/closely held or other existing unlisted company with three-

year track record of consistent profitability, seeking disinvestments by offers to public

without issuing fresh capital (disinvestments).

Public issue by existing listed companies with the last three years of dividend

paying track record.

At Par Value: In certain cases companies are not permitted to fix their issue
prices at premium. The prices of the share should be at par. They are for:

First public issue by existing private, closely held or other existing unlisted

companies without three-year track record of consistent profitability and

Existing private/closely held and other unlisted companies without three-year

track record of consistent profitability seeking disinvestments offer to public without
issuing fresh capital (disinvestments).

1.4.7 How to evaluate an

IPO ?
Whether you are buying stock from the secondary market or subscribing to an initial
public offering (IPO), make sure you have all the facts. That means going through
the small print in the IPO document with a fine-toothed comb. Don't let market hype,
investment trends or media reports influence you. Following these parameters should
help:

Promoters. Who runs the company? Professionals or a family? If the directors

are well known, it gives a company credibility. Check the credentials of the
promoters, directors and key managerial persons. See if they have at least five years'
experience in the company's line of business,

Industry outlook. There should be demand for the company's product or service,

with adequate profit potential.

Business plans. Check the progress made, and the money invested in aspects

such as land/office space, plant and machinery, utilities, regulatory clearances,

personnel, financing, projects in hand, sales and marketing, technical and marketing
tie-ups. High investments from promoters lend credibility to the IPO plan, as do project
appraisals by merchant bankers.

Financials. Check if the company is over-leveraged in terms of the equity and

debt on its books, and whether the additional issue of equity is justified.
Check for consistency in revenue, profit growth and margins for at least three years
before the
IPO. A
company.

steady

growth

rate

suggests

fundamentally

sound

More important, scale the historic trend into future projections: A company with a PAT
(profit after tax) of Rs 10 lakh will find it difficult to reach a projected PAT of
Rs 15 crore. Projections are based on assumptions, which give promoters leeway to
manipulate figures. A good way to check if projections are true is to see whether the
assumptions are realistic, given the company's scope of operations, and check how it

compares with competitors' figures.

Risk factors. This is the most relevant part of the offer document. General risk

factors are not as damaging as specific ones. Check for contingent liabilities, disputed
tax claims, litigation against promoters and directors, and delay in government
clearances. Assume a worst-case scenario, and see how such factors could impact the
company's operations.
Key names. An issue's lead managers and merchant bankers are the people who
manage the issue, from vetting the company's prospectus to seeing the issue through.
Check their track record. You could look up the Sebi website (www.sebi.com) for the
issues the merchant banker has managed in the recent past to see how they fared.

Pricing. For valuation purposes, compare a company's issue price-earnings

(P/E) multiple with that of similar players. Check if the earning projections are
achievable. If so, discount the issue price for the next two years to arrive at the
growth-adjusted P/E multiple. You invest in a company purely for returns. In the case of
primary equity issues, this can be a tricky proposition because there are no benchmarks
in the form of secondary market prices to go by.

When a stock is listed, market sentiment, technical factors and investor interest
influence share prices. But in the medium- to long-term, fundamentals take over,
which is what should matter to you if you're in for the long haul.

Listing. Ensure you have access to brokers of stock exchanges where the

company proposes to list. If you reside in, say, Delhi, and subscribe to an IPO that
is likely to be listed on the Hyderabad Stock Exchange, the time lag in selling can eat
into your returns.

CHA
PTE
R2
REVIEW OF LITERATURE
In an IPO, or initial public offering, a company issues its shares to the public for
the first time but Equity investments are risky. Ups and downs in the stock
markets are an integral part of equity investing. The rising ratio of underperformers need not be a major cause of concern as it is a part and parcel of a
very bullish market.
Still worse is the fact that it has time and again shaken the confidence of the retail
investors. Retail investors form an integral part of the stock markets. The markets
cannot survive without their participation. So the loss of wealth put off the retail
investors.
1

S Ramachandra lost heavily in IBP's divestment issue. Allotted 300 shares at

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

Sebi chairman U.K. Sinha called for introspection on the pricing of public
issues. Two thirds of all public issues in the past three years were trading below
their issue price, he said at the time.
Under the proposed mandatory safety norms, the regulator suggested that the
protection kicks in if, within three months of the share sale, the stock drops
from the issue price by at least 20% compared with the broader market. When
that happens, the company is obliged to buy back shares worth up to 5% of the
issue size from retail investors, and at the issue price, the discussion paper said.
However, according to securities market lawyers, introducing a safety net is not
the solution to address the issues of pricing and credibility in public offers.
No mature market has such a mechanism. It should simply not be introduced.
There is no place for it in a market, said Somasekhar Sundaresan, partner, J.
Sagar Associates.
At least 35% of an initial offering of shares is reserved for retail investors. The
paper added that the facility be made available only to those retail investors
buying stock for a maximum Rs.50,000, putting the focus on small investors.
The safety net mechanism had been considered in the 1990s when in the early
days of Sebis evolution, according to Sundaresan. Such a mechanism will
erode the foundation of a good market in which informed investors know how
to value equity, he said.
Today, it is an anachronism. Equity investments are about the risk of losing
everything. If someone has unfairly treated investors or has duped investors,
regulations prohibiting fraudulent and unfair trade practices should be used to
bring the violators to book. Introducing safety net would harm and erode the
very market in the name of protecting the market, he said.

At least 13 IPO applications were pending with Sebi on 15 March. Most of them
are
likely to launch their issues without a safety net, said the head of equity capital
markets at a multinational investment banking firm.
The first person cited above said the matter has not been included on the agenda
of the forthcoming board meeting in May. Mint reported on 18 February that
bankers were not keen to offer a safety net as equity investments are inherently
risky by nature and offering any form of guarantee may send the wrong signals
to investors.
To be sure, there was a wide variety of opinion in the comments made in
response to the discussion paper.
Some suggested that mandatory safety net should offer more benefits to retail
investors
and make rules tighter for bankers, while others suggested that safety net should
be
scrapped completely. Even without discussing the matter in a board meeting,
draft norms
could be formalized if PMAC arrives at a logical conclusion, added the first
person.

----------------------------------------------------------------------------------------------------------1. S. Ramchandra

2. U. K. Sinha, Sebi Chairman

Leading book manag ers of IPO s are tag gi ng safety net opti ons to
make be st use
of the motives of such investors and get back scared retail investors to
the
market.
A `safety net' implies a commitment to buy shares from the original investors
during a stipulated period at a price determined at the time of issue,
irrespective of the prevailing market price. But most merchant bankers do not
offer this option for public issues.
In a circular the central bank said these schemes were often offered without any
request from the company. There is also no income for the banks to correspond
with the risk of loss built into these schemes, as the investor will take recourse to
the safety net only when the market value of the shares falls below the predetermined price. "Banks/their subsidiaries have, therefore, been advised that
they should refrain from offering such `Safety Net' facilities by whatever name
they are called.
A large number of investors look at IPOs as a vehicle for quick gains, for
which
market sentiment does matter .So better for an investor is to consider
Growth
visibility and do valuation of the company before investing.

38
Ranjan, Madhusoodanan (2004) examines whether the introduction of Bookbuilding
has an impact on IPO pricing. The results suggest that IPOs are underpriced. The
results also suggest that bookbuilt IPOs show less underpricing than fixed price issues.
A more detailed study suggests that this has to do more with the size of the issue than
the issue process. A model describing the IPO process in the presence of asymmetric
information and heterogenous beliefs is presented. This model suggests that IPO
underpricing can be avoided in the presence of selectively informed investors. The
model includes the choices on signaling cost, homogenous and heterogeneous
beliefs among the investors, entrepreneur holding dilution and issue size that exist for a
firm while coming for an IPO. The model suggests that a larger amount of money is
left on the table if the entrepreneur holds a lesser amount with herself post IPO.
Despite asymmetric information, the high value firm can place an issue without leaving
money on the table. The model also suggests that IPO underpricing is
unavoidable in a market with information asymmetry and homogenous beliefs among
investors. The models predict that underpricing is more severe in the case of smaller
issue sizes. This is consistent with the empirical findings.

Guo, Lev, and Shi (2004) investigated the initial underpricing and long-term

underperformance of IPOs generally attribute these phenomena to information

asymmetry and investors misevaluations. Here, we identify a widespread source of
information asymmetry and valuation uncertaintythe R&D activities of issuersand
document that these activities significantly affect both the initial underpricing of
IPOs (R&D is positively
correlated with underpricing) and their long-term performance (R&D is positively
related to
39
long-term performance). Given the pervasiveness and constant growth of firms R&D
activities in modern economies, our identification of R&D as a major factor affecting
IPOs performance contributes to the understanding of this important economic and
capital market phenomenon.

Lian (2006) investigated that second time IPOs (issuers that return to the IPO market
successfully after withdrawing their first IPOs) sell at a significant discount
relative to similar contemporaneous first time IPOs (IPOs that succeed in their
first attempts). This result indicates that the withdrawal event, which is public
information, is incorporated into offer prices when withdrawn-IPO firms come back
for second IPO attempts. We also find that, 1) on the first trading day, second time
IPOs experience the same magnitude of initial returns as comparable first time IPOs, 2)
in the long run, second time IPOs do not underperform their contemporary first time
IPOs in either stock price or operating performance. These findings suggest that the
discount is appropriate and that the market fully adjusts the offer price of second time

IPOs to reflect the negative information conveyed by their previous withdrawals.

TEKER , EKIT (2000) assessed that Initial public offering (IPO) may be the lowest
cost financing for firms to obtain funds from small and institutional investors. The
commissions, fees and other related expenses incurred are considerably small
compared to those of short or long term loan or bond financing. This empirical study
examines the performance of all IPOs in Istanbul Stock Exchange during the year of
2000. The study employs standard event study
40
methodology for 34 IPOs over a 30 day event window. The empirical findings are
consistent with most of the previous literature. The results support that the first two
days of IPOs generally provide positive abnormal returns.

Ritter, Welch (2002) interpreted the theory and evidence on IPO activity: why firms
go public, why they reward first-day investors with considerable underpricing, how
underwriters choose these first-day investors, and how IPOs perform in the long run.
Our perspective on the literature is three-fold: First, we believe that many IPO
phenomena are not stationary. The long-run performance of IPOs is particularly
sensitive to choice of sample period, but not necessarily how one would expect it to
be. Second, we believe research into IPO share allocation issues is the most promising
area of research in IPOs at the moment. Third, we argue that asymmetric information

is not the primary driver of many IPO phenomena. Instead, we believe future
progress in the literature will come from non-rational and agency conflict explanations.
We describe some promising such alternatives.

Shah Ajay (2004), This article studies India's vibrant IPO market, via a data set of
the 2056
IPOs which took place in the last 4.5 years. We study the overall underpricing, the
delay between issue date and listing date, the time-series of monthly volume of IPO
issues and average underpricing in a given month, the cross-section of underpricing
across companies, the post-listing trading frequency, the long-run returns to new
listings, and price discovery by
the market shortly after first
listing.

41
Shachmurove (2004), investigated the incredible profits of Initial Public
Offerings have often been emphasized in the media as a popular investment for the
public. This paper takes a few steps towards refuting such an assertion by investigating
the performance of 2,895 venture capital backed IPOs between 1968 and September
1998. The paper finds that it is incorrect to assume that investors demand very high
annualized and cumulative rates of return to compensate for the risks they are taking
by financing ventures in different sectors of the economy. The mean rates of return are
found to be, in practice, very moderate, and often, negative.

Pandey, A. (2002) compared fixed priced and Book Building IPOs in terms of
issuers, initial returns and long run performance and found that Book Building process
for IPO was associated with lower underpricing or initial returns.

Keeping into

consideration the present review and need of conduct of comparative study of fixed
priced and Book Building tools used in pricing the issue, following specific
objectives were undertaken in conducting this
s
t
u
d
y
:

42

OBJECTIVES OF THE STUDY

The present research study has been undertaken in order to deepen the
understanding of the investors problems and needs and their perception while

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

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

Sub
objecti
ves

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

money in the stock market?)

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

43

4. How many investors are aware of these safety nets and how they

actually perceive it?

5. What do these investors should if such securities fall below issue price?
6. How many investors are aware of these safety nets and how they
actually perceive it?
So this research was being conducted to find out how many investors are really
aware of these safety nets and how they see these options. So that this
research could
eventually help those, who are unaware about the benefits of safety net.

44

CHAPT
ER 3
RESEARCH METHODOLOGY
Research methodology stands for the ways and means we adopt for conducting
the research. It gives a fair idea about the steps generally followed by researcher
in pursuing the research right from defining the problem to the final conclusion
and summary. This is how this research is going to be focused towards those
steps
Research Design and
Tools
A cross sectional descriptive research was conducted to know the perception
about safety nets among the investors with the help structured, questionnaire.
The questions started with an investor profile, followed by questions that helped
to determine the confidence level. Additional questions allow us to ascertain
whether investors feel that they can make money in the stock market, and also
to find out their perception especially when instruments tends to have some
safety mechanism attached to them.
Research
Approach
The investors problems and needs can be best known from the investors
themselves. So for this research surveys were conducted to fulfill the purpose ,

covering a variety of interrelated aspects, such as

the investors past

experiences, types of investments held currently, future investment intentions,

the important combination of decisions
taken by the investors while
investing.

45

Sampling technique and size

Random Sample of 50 investors was drawn from the universe of potential
investors Those having no voluntary savings for financial investments or no
ability to understand investments, like shares and bonds, were excluded, because
they were irrelevant for the purpose of the present survey. And to ensure nearrandomness and cross-sectional representation, relevant data was collected by
primary sources with the help of questionnaire.
Data
Analysis
Interpretation

and

To make the project understandable to the readers the various data,

information is being edited and tabulated using SPSS and other simple
statistical tools ,which is depicted by diagrams such as charts, graphs , pie
charts, histograms and percentages so as to make interpretations at a glance.
3.3 RESEARCH DESIGN

The research design in this study is Descriptive. Descriptive research studies are
those studies, which are concerned with describing the characteristics of a particular
individual, or of a group. The studies concerned with narration of facts and
characteristics concerning individual, group or situation are all examples of descriptive
research studies.

3.4 DATA COLLECTION

Collection of data is a very important step because accuracy in data is a factor of the
method used for data collected. Thus there are two ways of collecting appropriate data:

46
Primary Data
Secondary Data
Primary Data are those, which are collected for the first time, thus happen to be
original in character. For the purpose of collection of primary data personal interview
of respondents were conducted. An unbiased, undisguised structured questionnaire
was prepared which was administered to the respondents for the purpose of getting the
information.

Secondary Data are those, which have already been collected by someone else. For
the purpose of the study, the data were collected from secondary sources like Websites
of

NSE, Economic Times & related companies, Journals like The Chartered

Accountant, the Dalal Street, The Financial Analyst, Newspapers like The Economic

Times, The Times of India, The Financial Express etc.

3.5 SAMPLE
SIZE
In this research, a sample of 100 persons is
taken.
3.7
SAMPLING
TECHNIQUE
All the respondents who were easily accessible and willing to share the information
were administered the structured questionnaire to get the desired information. A nonprobability sampling technique i.e. convenience sampling technique was used.
3.8 STATISTICAL TOOLS
USED
Different statistical tools have been used in the
study.

47

LIMITATIONS

The study was to be completed in a short time; the time factor put a
considerable limit on the scope and the extensiveness of the study.

The unsupportive attitude of the respondents while responding to the questions,

requiring the qualitative information may have affected the final findings and
outcomes.
Because of the diversity of nature of respondents as well as due to conduction

of the study on very small scale, the findings of the survey could not be
generalized.
It was tried very harder to include the best of information from published and
unpublished sources available on internet, books and magazines but some of the
data required for the detailed study was not available freely.
As it is only the shares market price that played a major role in this study and
market price changes with the change in Indian market condition which is
depicted by two indices i.e. SENSEX & NIFTY.
When the market is in bull run the market price will increase and when in bear
run market price decreases. In this study, the market price is taken as on 31
December
2014. So this study was conducted keeping apart the major decline/increase
in the
market trend..

48

CHAPTE
R:4
ANALYSIS AND DISCUSSION

st

The whole study has been divided into 2

parts:
Part I focuses on performance of the IPOs,
whereas,
Part-II shows the investors perception of evaluating the Initial Public
Offerings.

4.1 PERFORMANCE OF THE

IPO:
The performance of the IPO can be
determined by;

I. The immediate and long run performance of the

IPOs,

II. The effect of subscription on immediate performance of the

issue,

4.1.1
IMMEDIATE
PERFORMANCE:

AND

LONG

TERM

This segment of the study analyses the immediate and long term performance of 260
st

st

IPOs which were issued from 1 January 2014 to 31 December 2014, a tenure of 5
years. This section also focuses on the aspect that; Can the immediate performance
of the IPO be taken as indicator of its success in secondary market? For this purpose,
coefficient of correlation (Karl Pearsons coefficient of correlation) was calculated
between percentage change in the issue price & list price and percentage change in the
issue price & current market price of the same.
The coefficient of correlation(Karl Pearsons coefficient of correlation) was calculated
in MS
Excel 2003 using correlation

function. Co-efficient of
correlation( r) = 0.14595
49
PROBABLE
ERROR
Here Probable Error is also introduced in order to access the significance of the degree
of correlation. Probable Error is a sort of instrument which confirms and measures the
reliability and dependability of the value of r, the Karl Pearsons co-efficient of
correlation.
Probable Error of r =
2
0.6745 1 r

N
Probable error = 0.6745
2
(0.14595)

1
260

Probable Error = 0.0409

Table 4.1.1 coefficient of correlation and probable error for immediate
performance &
long term performance.
Number of
IPO (N)
Coefficient of correlation
(r)
Probable Error
(PE)
260

0.14595

0.0409

Further, using Probable Error method, significance of the degree of correlation has

been tested. Results revealed that there is positive correlation between the immediate
performance and the long term performance. The co-efficient of correlation was
0.14595.
The probable error existed at 0.0409. However degree of correlation was not significant
as it was not 6 times greater than its Probable Error which was 0 .0409.
As for , 6 times probable error is equal to 6 * 0.0409, gives result 0.2454, Which is
greater than the degree of correlation.
Infe
renc
e:
Therefore, it can be concluded that there is no significant correlation between
immediate performance and long term performance.
50

4.1.2
SUBSCRIPTION
PERFORMANCE.

AND

IMMEDIATE

This part is devoted to the impact of over subscription of the issue on its immediate
performance.
Here over subscription means the times that the issue size of the IPO is being applied
for. We can say that the over subscription is the times of the issue size for which
application is being received.
When there over subscription exists then all the applicants does not get the desired
number of shares that they applied for, but the company decides to allot the shares
according to PRORATA BASIS. And here immediate performance is referred to
as the initial return the issue is giving at the time of its listing viz. the difference

between issue price and list price.

The initial return of the issue largely depends on the demand and supply factor.
Demand of the issue will only increase when the investor sees some growth
opportunity in the company or its past growth. And supply of the issue is being given
in the market when the company needs capital for its future projects. So all the things
are interrelated.

st

For the purpose of this section, a total of 260 IPOs have been taken from 1 January
2013 to
st

31 December 2014 (listed between these dates). Coefficient of correlation (Karl

Pearsons
coefficient of correlation) was calculated between percentage change in the issue price
& list price and subscription of the same.

51
The coefficient of correlation(Karl Pearsons coefficient of correlation) was calculated
in MS
Excel 2003 using correlation
function.

Co-efficient of correlation( r) =
0.6566
PROBABLE

ERROR
Here Probable Error is also introduced in order to access the significance of the degree
of correlation. Probable Error is a sort of instrument which confirms and measures the
reliability and dependability of the value of r, the Karl Pearsons co-efficient of
correlation.
Probable Error of r =
2
0.6745 1 r

N
Probable error = 0.6745
2
(0.6566)

1
260

Probable Error = 0.0238

Table 4.1.2 coefficient of correlation and probable error for immediate
performance
& subscription.
Number of
IPO (N)
Coefficient of correlation
(r)
Probable Error
(PE)
260

0.6566

0.0238

Further, using Probable Error method, significance of the degree of correlation has
been tested.

Results revealed that there is positive moderate degree of correlation

between the subscription and the immediate performance. The co-efficient of

correlation was 0.6566.
The probable error existed at 0.0238. Thus, degree of correlation was significant as it

was 6 times greater than its Probable Error which was 0 .0238.
As for , 6 times probable error is equal to 6 * 0.0238, gives result 0.1428, Which is
less than
the
degree
correlation.

of

52
Inference:
Therefore, it can be concluded that there is significant positive correlation
between
Subscription and Immediate performance of the issue.

53

4.2 Factors Affecting the IPO Purchase Decision of Retail Investors:

In order to access the investors perception of evaluating the Initial Public
Offerings, a
Questionnaire was filled in by 100 respondents. The question wise analysis is as under:

4.2.1 Number of years investors have been in the market.

Table 4.2.1 Number of years investors have been in the

market.

YEARS

NO. OF PERSONS

0-1 yrs
2-10 yrs
10+ yrs

40
53
7

TOTAL

100

Fig 4.2.1 Number of years investors have been in the market.

60
50
40

30
NO. OF PERSONS
20

5
3
40

1
0
7

0
0-1 yrs

2-10 yrs
10+ yrs
Y
E
A
R
S

INTERPRETATION
Out of 100, 53 investors i.e. Maximum Investors are in share trading for 2 to 10
years.
54
4.2.2

Average Yearly Investment

Table 4.2.2 Average Yearly Investment
YEARLY
PERSONS
Upto Rs. 1,00,000
Rs. 1,00,000 &
TOTAL
Fig 4.2.2 Average Yearly Investment

70
60

NO. OF INVESTMENT

62
38 above
100

50
40
62

30
NO. OF PERSONS
20

38

10
0
Upto Rs. 1,00,000

Rs. 1,00,000 &

above
INVEST
MENT

INTERPRETATION
Out of 100, 62 investors i.e. Maximum Investors are investing Less than Rs.
1,00,000
in the share market.

55

4.2.3 Primary Area of Interest:

Table 4.2.3 Primary Area of Interest
AREA OF
PERSONS

NO. OF INTEREST

IPO
Secondary
Securities
Others

30
43

TOTAL

100

27

Fig 4.2.3 Primary Area of Interest:

50
45
NO. OF PERSONS
40

35
30
25

43

20
15

30

27

10
5
0
IPO

Secondary Securities
Others
AREA OF
INTEREST

INTERPRETATION
Out of 100, 43 investors i.e. Maximum Investors are interested in
investing
Secondary Securities than IPOs.

56

4.2.4 Type of Investment:

Table 4.2.4 Type of Investment
NO. OF PERSONS
INCOME

MARGIN
FUNDING

SELF

HYBRID

TOTAL

Less than Rs.

2,00,000
Rs.2,00,000 Rs.5,00,000
Rs. 5,00,000
& above
TOTAL

24

30

10

37

50

16

20

44

100

28

28

Fig 4.2.4 Type of Investment

37

40

NO. OF PERSONS
35
30
25

24

20

16

15

10

10
5

0Less than Rs. 2,00,000

Rs.2,00,000 - Rs.5,00,000
YEARLY INCOME

Rs. 5,00,000 & above

MARGIN FUNDING

SELF

HYBRID

INTERPRETATION
Maximum of the Investors who have yearly income less than Rs. 2,00,000
opt for
Margin Funding.
Maximum of the Investors who have yearly income between Rs. 2,00,000
to Rs.
5,00,000 opt for Hybrid Type of Investment consisting of margin funding
and self.
Maximum of the Investors who have yearly income more than Rs. 5,00,000
opt for self.
57

4.2.5 Purpose of IPO Investment:

Table 4.2.5 Purpose of IPO Investment

PURPOSE OF IPO
PERSONS

PURPOSE
NO. OF INVESTMENT

Listing Gains
Long Term Gains

77
23

TOTAL

100

Fig 4.2.5 Purpose of IPO Investment

90
80
NO. OF PERSONS

70
60
50
40

77

30
20
23

10
0
Listing Gains
Long Term Gains
PURPOSE OF IPO
INVESTMENT

INTERPRETATION
Out of 100, 77 investors i.e. maximum of the Investors invest in IPOs for
Listing
Gains.

58

4.2.6 Professional Knowledge of Stock Market:

Table 4.2.6 Professional Knowledge of Stock Market
PROFESSIONAL
PERSONS

NO. OF KNOWLEDGE

YES
NO

69
31

TOTAL

100

Fig 4.2.6 Professional Knowledge of Stock Market

69

31

80
70
NO. OF PERSONS

60
50
40
30
20
10
0

YES
NO
HAVE PROFESSIONAL
KNOWLEDGE?

INTERPRETATION
Out of 100, 69 investors i.e. maximum of the Investors who invest in the share
market
have Professional Knowledge about Share Market.

59

Please specify views about investing in an IPO:

FACTORS

4.2.7

Financial statements

34

15

4.2.8

Business

22

4.2.9

Suppliers

4.2.10

4.2.12

Promoters
Past Growth of
Industry
Future Prospects of
Ind.

4.2.13

Objective of the Issue

4.2.14

Price Band

4.2.11

Strongly
Agree

Neither
Disagree Nor
Agree

S.
NO.

Disagree

Strongly
Disagree

30

12

46

21

10

39

31

16

67

23

13

35

29

18

37

22

19

20

19

48

20

41

27

11

19

Agree

4.2.15

Issue Size

15

61

14

4.2.16

Underwriter

14

66

13

4.2.17

Inflation
Interest Rates of
other Investment
Avenues

26

52

10

36

40

12

4.2.18

60

Z TEST:
Fig. 4.2.7 Factors affecting IPO Purchase Decision of Retail Investors
80
70
60
50
40
30
NO. OF PERSONS

20
10
0
Financial statements

Business

Suppliers

Promoters

Past Growth of
Industry
FACTORS

Future Prospects of Ind.

Strongly Agree
Disagree

Agree

Neither Agree Nor Disagree

Disagree

Strongly

Fig. 4.2.8 Factors affecting IPO Purchase Decision of Retail Investors

70
60
NO. OF PERSONS

50
40
30
20
10
0
Objective of the
Issue
Price Band

Issue Size

Underwriter

Inflation

Interest Rates of other

Investment

Avenues

FA
CT
OR
S
Strongly Agree Agree Neither Agree Nor Disagree Disagree Strongly
Disagree

61

4.2.7 FINANCIAL STATEMENT

Table 4.2.7 Financial Statement
X

fx

d = X-3

fd

fd

1
5

34

170

68

136

15

60

15

15

30

90

12

24

-1

-12

12

-2

-18

36

f = 100

fx = 353

X = fx = 353 = 3.53
f
100

Z TEST
N =100
=5
X =3.53
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f

fd = 53

fd =199

f
=

199 - 53 * 1
100 100

1.99 0.53

=
1
.
2
0
8
SE = = 1.208 = 0.1208
N
100
Z = | X - | = | 3.53 -5 | = 12.168
SE
0.1208
Zc = 12.168 > 1.65 = Zt
Ho is rejected and H1 is accepted
62

4.2.8 BUSINESS
Table 4.2.8 Business
X

fx

d = X-3

fd

fd

1
5

22

110

44

88

46

184

46

46

21

63

10

20

-1

-10

10

-2

-2

f = 100

fx = 378

X = fx = 378 = 3.78

fd = 78

fd =148

f
100

Z TEST
N =100
=5
X =3.78
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f
148 - 78 * 1
100 100

1.48 0.78

= 0.8366

SE = = 0.8366 = 0.08366
N
100
Z = | X - | = | 3.78 -5 | = 14.5828
SE
0.08366
Zc = 14.5828 > 1.65 = Zt
Ho is rejected and H1 is accepted

63

4.2.9 SUPPLIERS
Table 4.2.9 Suppliers
X

fx

d = X-3

fd

fd

1
5

25

10

20

36

39

117

31

62

-1

-31

31

16

16

-2

-32

64

f = 100

fx = 256

fd = -44

X = fx = 256 = 2.56
f
100

Z TEST
N =100
=5
X =2.56
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f
124 - (-44) * 1 =
100 100

1.24 + 0.44

SE = = 1.296 = 0.1296
N
100
Z = | X - | = | 2.56 -5 | = 18.827
SE
0.1296
Zc = 18.827 > 1.65 = Zt
Ho is rejected and H1 is accepted
64

4.2.10 PROMOTERS

= 1.296

fd =124

Table 4.2.10 Promoters

X

f d f d f
x = d d
X

5 67 33 2 13 4 26
5
4
8
4 23 92 1 23 1 23
3 2

6 0 0 0

2 5

10 -1 -5 1

1 3

3 -2 -6 4

12

f f
= x

f
d

f
d

X = fx = 446 = 4.46
f
100

Z TEST
N =100
=5
X =4.46
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

3 14 3. =
01 10 0
0 0
SE = = 1.27279 = 0.127279
N
100
Z = | X - | = | 4.46 -5 | = 4.24
SE
0.127279
Zc = 4.24 > 1.65 = Zt

Ho is rejected and H1 is accepted

65

4.2.11 PAST GROWTH OF INDUSTRY

Table 4.2.11 Past Growth of Industry
X

f d f d f
x = d d
X

5 13 65 2 26 4 52
4 35 14 1 35 1
0
3 5 15 0 0 0

35

2 29 58 -1 - 1
29
1 18 18 -2 - 4
36
f f
f
= x
d

29

0
72
f
d

X = fx = 296 = 2.96
f
100

Z TEST
N =100
=5
X =2.96
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1 (- 1.
81 10 8
0 0

SE = = 1.385 = 0.1385
N
100
Z = | X - | = | 2.96 -5 | = 14.729
SE
0.1385
Zc = 14.729 > 1.65 = Zt
Ho is rejected and H1 is accepted

66

4.2.12 FUTURE PROSPECTS OF INDUSTRY

Table 4.2.12 Future Prospects of Industry
X

f d f d f
x = d d
X

37 18 2 74 4 14
5
8
22 88 1 22 1 22

19 38 -1 - 1
19
20 20 -2 - 4
40
f f
f
= x
d

0
19
80
f
d

X = fx = 337 = 3.37
f
100

Z TEST
N =100
=5
X =3.37
SE =

Ho: Xs Xp
H1: Xs > Xp

fd - fd * i
f
f

2 37 1
2 =
61 *10 =
.
0 0
SE = = 1.523 = 0.1523
N
100
Z = | X - | = | 3.37 -5 | = 10.7025
SE
0.1523
Zc = 10.7025 > 1.65 = Zt
Ho is rejected and H1 is accepted

67

4.2.13 OBJECTIVE OF THE ISSUE

Table 4.2.13 Objective of the issue
X
5

f d f d f
x = d d
X

9 45 2 18 4 36

19 76 1

48 14 0 0 0
4
20 40 -1 - 1
20
4 4 -2 -8 4

f f
= x

f
d

2
1

19 1

f
d

19
20
16

X = fx = 309 = 3.09
f
100

Z TEST
N =100
=5
X =3.09
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

9 9
0 =
11 1
.
0 0
SE = = 0.9055 = 0.0905
N
100
Z = | X - | = | 3.09 -5 | = 21.104
SE
0.0905
Zc = 21.104 > 1.65 = Zt
Ho is rejected and H1 is accepted

68

4.2.14 PRICE BAND

Table 4.2.14 Price Band
X
5
4
3
2
1

f d f d f
x = d d
X

41 20 2 82 4 16
5
4
27 10 1 27 1 27
8
11 33 0 0 0 0
19 38 -1 - 1
19
2 2 -2 -4 4

19
8

f f
= x

f
d

f
d

X = fx = 386 = 3.86
f
100

Z TEST
N =100
=5
X =3.86
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

2
2
11 10
.
0 0
SE = = 1.148 = 0.1148
N
100
Z = | X - | = | 3.86 -5 | = 9.93
SE
0.1148
Zc = 9.93 > 1.65 = Zt
Ho is rejected and H1 is accepted

69

4.2.15 ISSUE SIZE

Table 4.2.15 Issue size

X
5
4
3
2
1

f d f d f
x = d d
X

15 75 2 30 4 60
61 24 1
4
7 21 0

61 1

61

14 28 -1 - 1
14
3 3 -2 -6 4

14

f f
= x

f
d

f
d

12

X = fx = 371 = 3.71
f
100

Z TEST
N =100
=5
X =3.71
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1
1
41 10
.
0 0
SE = = 0.8717 = 0.08717
N
100
Z = | X - | = | 3.71 -5 | = 14.79
SE
0.08717
Zc = 14.79 > 1.65 = Zt

Ho is rejected and H1 is accepted

70

4.2.16 UNDERWRITER
Table 4.2.16 Underwriter
X
5

f d f d f
x = d d
X

1 5 2 2 4 4

14 56 1

66 19 0 0 0
8
13 26 -1 - 1
13
6 6 -2 - 4
12
f f
f
= x
d

2
1

14 1

14
0
13
24
f
d

X = fx = 291 = 2.91
f
100

Z TEST
N =100
=5
X =2.91
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

5 (51 1
0 0

0
.

SE = = 0.8544 = 0.08544
N
100
Z = | X - | = | 2.91 -5 | = 24.46
SE
0.08544
Zc = 24.46 > 1.65 = Zt
Ho is rejected and H1 is accepted
71

4.2.17 INFLATION
Table 4.2.17 Inflation
X
5
4
3
2
1

f d f d f
x = d d
X

5 25 2 10 4 20
26 10 1 26 1
4
52 15 0 0 0
6
10 20 -1 - 1
10
7 7 -2 - 4
14
f f
f
= x
d

26
0
10
36
f
d

X = fx = 312 = 3.12
f
100

Z TEST
N =100
=5
X =3.12
SE =

Ho: Xs Xp
H1: Xs > Xp

fd - fd * i
f
f

9
21 1
0 0
SE = =
N

0
.
0.8944 = 0.08944
100

Z = | X - | = | 3.12 -5 | = 21.019
SE
0.08944
Zc = 21.019 > 1.65 = Zt
Ho is rejected and H1 is accepted
72

4.2.18 INTEREST RATES OF OTHER INVESTMENT AVENUES

Table 4.2.18 Interest Rates of other Investment Avenues
X
5
4
3
2
1

f d f d f
x = d d
X

9 45 2 18 4 36
36 14 1 36 1
4
40 12 0 0 0
0
12 24 -1 - 1
12
3 3 -2 -6 4

36

f f
= x

f
d

f
d

0
12
12

X = fx = 336 = 3.36
f
100

Z TEST
N =100
=5
X =3.36
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

9
61 1
0 0
SE = =
N

0
.

0.7745 = 0.07745
100

Z = | X - | = | 3.36 -5 | = 21.174
SE
0.07745
Zc = 21.174 > 1.65 = Zt
Ho is rejected and H1 is accepted
73

INTERPRETATION
Since null hypothesis is rejected in case of all the Factors so sample mean >
population mean.
Investors evaluate an IPO maximum from Promoters of the company & Issue Size of
the IPO
and minimum from Suppliers of the company.

74

Please specify views about investing in an IPO:

S
.

N
eit
Str
Str
FA on Ag he Di on
C gl re r sa gl

4.
2.
4.
2.
4.
2.
4.
2.
4.
2.
4.
2.
4.
2.
4.
2.
4.
2.
4.
2.
4.
2.

In
vol 18
ve
Du
rat 21
io
Fo
rei 16
gn
Pr
ev 65
aili
Co 16
. is
Re 50
ce
To
p 11
Fu
Ra 14
tin
Lis
tin 8
g
Pa 13
st
M 1
ed

4. M 27
2. ar

52
10 12

12
39 18 10
37
19 20

215

23
26 20 15
119 18 12
27
31 22

49
10 21

21
23 41

38
28 16

11
24 45 19
396 18 10

75

Z TEST:
Fig. 4.2.9 Factors affecting IPO Purchase Decision of Retail Investors
70
NO. OF PERSONS

60

50
40
30
20
10
0
Involvement of
Co. in Legal
Hassels

Duration of
Co. in
Business

Foreign

Listing in well
known Stock
Exchanges

Collaboration of Co.

Prevailing
Trend of the
Market

Co. is MNC or
Not

Recent IPO Performance

Strongly Agree
Disagree
Ratings of IPO

Market Volatility

FAC
TO
RS
Agree

Neither Agree Nor Disagree

Disagree

Strongly

Past
Performnce of
IPO
Media
Advertisements

Fig. 4.2.10 Factors affecting IPO Purchase Decision of Retail Investors

6
0

NO. OF PERSONS

5
0
4
0
3
0
2
0
1
0
Top Fund
Managers
Opinion

FAC
TOR
S
Strongly Agree
Disagree

Agree

Neither Agree Nor Disagree

76

4.2.19 Involvement of Co. In Legal Hassels

Table 4.2.19 Involvement of Co. in legal Hassels
X
5
4
3
2
1

f d f d f
x = d d
X

18 90 2- 36 4 72
52 20 1
8
10 30 0

52 1

52

12 24 -1 - 1
12
8 8 -2 - 4
16

12
32

Disagree

Strongly

f f
= x

f
d

f
d

X = fx = 360 = 3.60
f
100

Z TEST
N =100
=5
X =3.60
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1 60 1
61 *10 =
0 0

1.
68
=
1
.
0
3
9

SE = = 1.039 = 0.1039
N
100
Z = | X - | = | 3.60 -5 | = 13.4745
SE
0.1039
Zc = 13.4745 > 1.65 = Zt
Ho is rejected and H1 is accepted
77

4.2.20 Duration of Co. in Business

Table 4.2.20 Duration of Co. in Business
X

f d f d f
x = d d
X

5 21 10 2 42 4 84
5
4 12 48 1 12 1 12
3 39 11 0 0 0
7
2 18 36 -1 - 1
18
1 10 10 -2 - 4
20
f f
f
= x
d

0
18
40
f
d

X = fx = 316 = 3.16
f
100

Z TEST
N =100
=5
X =3.16
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1 16 1.
=
51 10 54
0 0
SE = = 1.1747 = 0.11747
N
100
Z = | X - | = | 3.16 -5 | = 15.6636

SE
0.11747
Zc = 15.6636 > 1.65 = Zt
Ho is rejected and H1 is Accepted
78

4.2.21 Foreign Collaboration of Co.

Table 4.2.21 Foreign Collaboration of Co.
X
5
4
3
2
1

f d f d f
x = d d
X

16 80 2- 32 4 64
37 14 1
8
19 57 0

37 1

37

20 40 -1 - 1
20
8 8 -2 - 4
16
f f
f
= x
d

20
32
f
d

X = fx = 256 = 3.33
f
100

Z TEST
N =100
=5
X =3.33
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1 33 1 1.5 =
51 *10 = 3 0 0
SE = = 1.095 = 0.1095
N
100
Z = | X - | = | 3.33 -5 | = 15.251
SE
0.1095
Zc = 15.251 > 1.65 = Zt
Ho is rejected and H1 is accepted

79

4.2.22 Prevailing Trend of the Market

Table 4.2.22 Prevailing Trends of the Market
X

f d f d f
x = d d
X

5 65 32 2 13 4 26
5
0
0
4 21 84 1 21 1 21
3 5

15 0 0 0

2 4

8 -1 -4 1

1 5

5 -2 - 4
10
f f
f
= x
d

20
f
d

X = fx = 437 = 4.37
f
100

Z TEST
N =100
=5
X =4.37

Ho: Xs Xp
H1: Xs > Xp

SE =

N
=

fd - fd * i
f
f

3 13 3. =
01 10 0
0 0
SE = = 1.2961 = 0.12961
N
100
Z = | X - | = | 4.37 -5 | = 4.86
SE
0.12961
Zc = 4.86 > 1.65 = Zt

80
Ho is rejected and H1 is accepted

4.2.23 Co. is MNC or Not

Table 4.2.23 Co. is MNC or Not
X

f d f d f
x = d d
X

5 16 80 2 32 4 64
4 23 92 1 23 1

23

3 26 78 0 0 0

2 20 40 -1 - 1
20
1 15 15 -2 - 4
30
f f
f
= x
d

20
60
f
d

X = fx = 305 = 3.05

f
100

Z TEST
N =100
=5
X =3.05
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1 5
61 10
0 0
SE = =
N

1
.

1.273 = 0.1273
100

Z = | X - | = | 3.05 -5 | = 15.318
SE
0.1273
Zc = 15.318 > 1.65 = Zt
Ho is rejected and H1 is accepted
81

4.2.24 Recent IPO Performance

Table 4.2.24 Recent IPO Performance
X

f d f d f
x = d d
X

50 25 2 10 4 20
0
0
0
11 44 1 11 1 11

27 0

18 36 -1 - 1
18

18

12 12 -2 - 4
24
f f
f
= x
d

48
f
d

X = fx = 369 = 3.69
f
100

Z TEST
N =100
=5
X =3.69
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

2 69 1
2 =
71 *10 =
.
0 0
SE = = 1.442 = 0.1442
N
100
Z = | X - | = | 3.69 -5 | = 9.085
SE
0.1442
Zc = 9.085 > 1.65 = Zt

82
Ho is rejected and H1 is accepted

4.2.25 Top Fund Managers Opinion

Table 4.2.25 Top Fund Managers Opinion

f d f d f
x = d d
X

11 55 2 22 4 44

5
4

27 10 1
8
31 93 0

3
2

27 1

27

22 44 -1 - 1
22
9 9 -2 - 4
18
f f
f
= x
d

22
36
f
d

X = fx = 309 = 3.09
f
100

Z TEST
N =100
=5
X =3.09
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1 9
21 10
0 0
SE = =
N

1 =
.
1.9055 = 0.1905
100

Z = | X - | = | 3.09 -5 | = 10.026
SE
0.1905
Zc = 10.026 > 1.65 = Zt

83

Ho is rejected and H1 is accepted

4.2.26 Ratings of IPO

Table 4.2.26 Rating of IPO
X
5
4
3
2
1

f d f d f
x = d d
X

14 70 2- 28 4 56
49 19 1
6
10 30 0

49 1

49

21 42 -1 - 1
21
6 6 -2 - 4
12
f f
f
= x
d

21
24
f
d

X = fx = 344 = 3.44
f
100

Z TEST
N =100
=5
X =3.44
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1
1=
51 10
. 1
0 0
SE = = 1.029 = 0.1029
N
100

Z = | X - | = | 3.44 -5 | = 15.16
SE
0.1029
Zc = 15.16 > 1.65 = Zt

84
Ho is rejected and H1 is accepted

4.2.27 Listing in well known Stock Exchanges

Table 4.2.27 Listing in well known Stock Exchanges
X
5

f d f d f
x = d d
X

8 40 2- 16 4 32

21 84 1

21 1

21

23 69 0

41 82 -1 - 1
41
7 7 -2 - 4
14
f f
f
= x
d

41
28
f
d

X = fx = 282 = 2.82
f
100

Z TEST
N =100
=5
X =2.82
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1 (- 1
21 10 .
0 0
SE = = 1.1832 = 0.11832
N
100
Z = | X - | = | 2.82 -5 | = 18.42
SE
0.11832
Zc = 18.42 > 1.65 = Zt

85
Ho is rejected and H1 is accepted

4.2.28 Past Performance of IPO

Table 4.2.28 Past Performance of IPO
X

f d f d f
x = d d
X

5 13 65 2 26 4 52
4 38 15 1 38 1
2
3 28 84 0 0 0

38

2 16 32 -1 - 1
16
1 5 5 -2 - 4
10
f f
f
= x
d

16

0
20
f
d

X = fx = 338 = 3.38
f
100

Z TEST
N =100
=5
X =3.38

Ho: Xs Xp
H1: Xs > Xp

SE =

N
=

fd - fd * i
f
f

1
1=
21 10
. 0
0 0
SE = = 0.9381 = 0.09281
N
100
Z = | X - | = | 3.38 -5 | = 17.27
SE
0.09381
Zc = 17.27 > 1.65 = Zt

86
Ho is rejected and H1 is accepted

4.2.29 Media Advertisements

Table 4.2.29 Media Advertisement
X
5

f d f d f
x = d d
X

1 5 2 2 4 4

11 44 1

11 1

11

24 72 0

45 90 -1 - 1
45
19 19 -2 - 4
38
f f
f
= x
d

45
76
f
d

X = fx = 230 = 2.30

f
100

Z TEST
N =100
=5
X =2.30
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

1 (1=
31 10 . 1.
0 0
SE = = 1.4353 = 0.14353
N
100
Z = | X - | = | 2.30 -5 | = 18.81
SE
0.14353
Zc = 18.81 > 1.65 = Zt

87
Ho is rejected and H1 is accepted

4.2.30 Market Volatility

Table 4.2.30 Market Volatility
X

f d f d f
x = d d
X

5 27 13 2 54 4 10
5
8
4 39 15 1 39 1 39
6
3 6 18 0 0 0 0

2 18 36 -1 - 1
18
1 10 10 -2 - 4
20
f f
f
= x
d

18
40
f
d

X = fx = 355 = 3.55
f
100

Z TEST
N =100
=5
X =3.55
SE =

Ho: Xs Xp
H1: Xs > Xp

N
=

fd - fd * i
f
f

2
2 =
01 10 .
0 0
SE = = 1.2247 = 0.12247
N
100
Z = | X - | = | 3.55 -5 | = 11.84
SE
0.12247
Zc = 11.84 > 1.65 = Zt
Ho is rejected and H1 is accepted

88

INTERPRETATION
Since null hypothesis is rejected in case of all the Factors so sample mean >

population mean.
Investors evaluate an IPO maximum from prevailing Market Trend & Recent
IPO performance and minimum from Listing in Well Known Stock
exchanges & Media Advertisements.

CHAPT
ER 5
FINDINGS AND CONCLUSION
From the forgoing analysis followings were the findings:

Immediate performance of IPO can be relied upon for the equity in the long
run was rejected. It was proved from the fact that over last five years,
there existed statistically insignificant positive correlation between percentage
change in the issue price & list price of the IPO and percentage change in
the issue price & current market price of the same. Therefore, We can
conclude that immediate performance of a particular IPO can not be relied upon
for the equity in the long run.

More the subscription (times of issue size) of the IPO, more is the immediate
performance, was accepted. As there existed statistically significant
positive

89
correlation between subscription (times of issue size) of the IPO and its
immediate performance at the time of listing. Thus, we can judge that the IPO
will give high immediate returns, by the times of its oversubscription.

Out of 100, 53 investors i.e. Maximum Investors are in share trading for 2 to 10
years.
Out of 100, 62 investors i.e. Maximum Investors are investing Less than Rs.
1,00,000 in the share market.
Out of 100, 43 investors i.e. Maximum Investors are interested in
investing
Secondary Securities than
IPOs.
Maximum of the Investors who have yearly income less than Rs. 2,00,000
opt for
Margin
Funding.
Maximum of the Investors who have yearly income between Rs. 2,00,000
to Rs.
5,00,000 opt for Hybrid Type of Investment consisting of margin funding
and self.
Maximum of the Investors who have yearly income more than Rs. 5,00,000
opt for self.
Out of 100, 77 investors i.e. maximum of the Investors invest in IPOs for
Listing
G
a
i
n

s
.
Out of 100, 69 investors i.e. maximum of the Investors who invest in the share
market have Professional Knowledge about Share Market.
Since null hypothesis is rejected in case of all the Factors so sample
mean >
population
mean.
Investors evaluate an IPO maximum from Promoters of the company,
prevailing
Market Trend & Recent IPO performance & Issue Size of the IPO and
minimum from

90
Suppliers of the company, Listing in Well Known Stock exchanges &
Media
Advertisements..

RECOMMENDATIONS

Initial return given by the IPO should not be treated as indication of its
success or failure in the long run.

 Investors of the secondary market must take part in the primary markets as it
has been seen that IPO activity in Indian Stock Market has been tremendously
growing. And IPO is the safest stock market investment.

Over subscription should be treated as indication of success of the issue.

Whole amount for shares applied should be received in advance from QIBs
just like retail investor so that they can quote real worth of the company in
terms of money that they are ready to pay for it.

91
Investors must analyze all the sectors before investing in the IPO, in order
to get maximum returns.

Investors should take into consideration the promoters of the business, the
prevailing market trend & Recent IPO performance before investing in an IPO.

QUESTIONNA
IRE
Dear
Mam/Sir,

This information provided by you will be utilized in completion of my MBA

project report on IPO in India: Performance Evaluation & Investors Perception
which will enable me to study the factors affecting IPO purchase decision of retail
investors.

PERSONAL DETAILS
Name: Mr./Ms
Address:
Contact Number:
Gender:
Male

Female

Age Group:
18-25 Years

26-40 Years

40+ Years

Yearly Income:
< Rs 2, 00,000
Rs. 2, 00,000 Rs. 5, 00,000
> Rs. 5, 00,000
1.

How long have you been active in the market (In terms of trade done in years)?
0-1

2-10

10+

92
2. Av
era
00
ge
+
3. Pri
ma
I Oth
O rs
4.
S
cM h
a y
5.
g b
Listing gains

Long Term gains

6. I have professional knowledge in Stock Markets:

Yes

No

Please specify your views about investing in an IPO:

5:-Stronly Agree 4:-Agree 3:-Neither Disagree nor Agree 2:-Disagree 1:-Stronly
Disagree
5

7. I look at the Financial statements of the company.

8. I look at the business of the company.
9. I look at the suppliers of the company.
10. The reputation of the promoters doesnt affect my decision.
11. I look at the Past growth of the Industry.
12. I look at the Future Prospects of the Industry.
13. I consider the objective of the issue very important.
14. The price band is an important consideration for me.
15. I consider the issue size very important for IPO.
16. I consider the underwriter of the issuing company.
17. Inflation is an important consideration.
18. I tend to invest more in IPOs when interest rates
in other investments are lower.
Please specify your views about investing in an IPO:

93
5:-Stronly Agree 4:-Agree 3:-Neither Disagree nor Agree 2:-Disagree 1:-Stronly
Disagree
5
19. Involvement of companies in legal hassles does
not affect my purchase decision of its IPOs.
20. The duration for which the company has been in
business does not affect my purchase decision of
IPOs.

21. Foreign collaborations of a company do not matter when

I decide for purchasing IPOs.
22. I do not focus on the prevailing trend (uptrend/downtrend)
of the market before investing in an IPO.
23. I prefer to invest in IPO of an MNC.

24. Recent IPO performances does not affect my decision of investing in an

IPO.
25. I get influenced by Top Fund managers opinions of an IPO.
26. I follow the ratings provided by a research analyst before investing in
IPO.
27. Listing in well known Stock exchanges (like BSE, NSE)
influences my decision in investing for an IPO.
28. The performance of IPOs in the market in recent past is a good indicator
of future.
29. My purchases are greatly affected by media advertisements.
30. Market volatility is not an important factor to me to make my purchase
5

decision of IPOs.
3
2
1

I am thankful for the time and effort you have spent in filling this
questionnaire.

9
4