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A PROJECT REPORT ON IPO

NAME MILAN TIMBADIYA CLASS PGDM IV GUIDED BY PROF. CHHAVI MANRA ACADEMIC YEAR 2011-2013 COLLAGE MARWADI EDUCATION FOUNDATIONS GROUP OF INSTITUTIONS

INTRODUCTION
An initial public offering (IPO) is the first public offer of securities by a company since its inception. The security offered in an IPO is generally either equity or convertible instrument. The decision to go public is a critical one as it results in dilution of ownership stake and diffusion of corporate control. An IPO can be used both as a financing strategy and exit strategy. In a financing strategy, the main purpose of the IPO is to raise funds for the company. An IPO can be used as an exit strategy when the existing investors offload their equity holdings to the public. The industrial securities market generally comprises two important constituents for smooth operations in the securities dealings, namely: 1.) Primary or New Issues Market, 2.) Secondary Market or Stock Market or Stock Exchange

The Primary market is a mechanism through which the resources of the community are mobilized and invested in the various types of industrial securities. New Issues are made in the primary market. The secondary market, that is the stock exchanges taken together, is a mechanism which provides easy liquidity, transferability and continuous price formation of securities to enable investors to buy and sell them with ease. The primary market is a reflection of the secondary market, two major factors, interest earning rate for an individual and corporate expansion govern for the latter. Equity investments are made not for yield but for capital gains, the latter is directly dependent on corporate retained earning and critically, their direction into funding expansion. The New Issue Market is a perennial source of industrial securities of the secondary market. The secondary market activates the primary when it is buoyant and vice-versa. The primary market provides securities to the investors and assists to the corporate sector in raising funds

through new issues. The secondary market provides liquidity and market ability to the existing securities. The New Issue Market deals with the new securities, which were not previously tradable to the investing public. The main functions of the new issue market is to facilitate the transfer of resources from savers to entrepreneurs seeking to establish or to expand diversify existing events. The investors in these securities are banks, insurance companies, Investment Trust companies and Individuals. The New Issue Market (IPO) is an important tool by which the new concerns raise the capital with the aid of public money.

Introduction of IPO
IPO or Initial Public Offer is a way for a company to raise money from investors for its future projects and get listed to Stock Exchange. Or An Initial Public Offer (IPO) is the selling of securities to the public in the primary stock market. Company raising money through IPO is also called as company going public'. From an investor point of view, IPO gives a chance to buy shares of a company, directly from the company at the price of their choice (In book build IPO's). Many a times there is a big difference between the price at which companies decides for its shares and the price on which investor are willing to buy share and that gives a good listing gain for shares allocated to the investor in IPO. From a company prospective, IPO help them to identify their real value which is decided by millions of investor once their shares are listed in stock exchanges. IPO's also provide funds for their future growth or for paying their previous borrowing.

What is primary & secondary market?


Primary market is the market where shares are offered to investors by the issuer company to raise their capital. Secondary market is the market where stocks are traded after they are initially offered to the investor in primary market (IPO's etc.) and get listed to stock exchange. Secondary market comprises of equity markets and the debt markets. Secondary market is a platform to trade listed equities, while Primary market is the way for companies to enter in to secondary market.

Who decides the Price Band?


Company with help of lead managers (merchant bankers or syndicate members) decides the price or price band of an IPO. SEBI, the regulatory authority in India or Stock Exchanges do not play any role in fixing the price of a public issue. SEBI just validate the content of the IPO prospectus. Companies and lead managers does lots of market research and road shows before they decide the appropriate price for the IPO. Companies carry a high risk of IPO failure if they ask for higher premium. Many a time investors do not like the company or the issue price and doesn't apply for it, resulting unsubscribe or undersubscribed issue. In this case companies' either revises the issue price or suspends the IPO.

Who decides the date of the issue?


Once Draft Prospectus' of an IPO is cleared by SEBI and approved by Stock Exchanges then it's up to company going public to finalize the date and duration of an IPO. Company

consult with the Lead Managers, Registrar of the issue and Stock Exchanges before decides the date.

Role of registrar of an IPO?


Registrar of a public issue is a prime body in processing IPO's. They are independent financial institution registered with SEBI and stock exchanges. They are appointed by the company going public. Responsibility of a registrar for an IPO is mainly involves processing of IPO applications, allocate shares to applicants based on SEBI guidelines, process refunds through ECS or cheque and transfer allocated shares to investors Demat accounts.

Role of Lead Managers in an IPO


Lead managers are independent financial institution appointed by the company going public. Companies appoint more then one lead manager to manage big IPO's. They are known as Book Running Lead Manager and Co Book Running Lead Managers. Their main responsibilities are to initiate the IPO processing, help company in road shows, creating draft offer document and get it approve by SEBI and stock exchanges and helping company to list shares at stock market.

Book Building Issue and Fixed Price Issue


Initial Public Offering can be made through the fixed price method, book building method or a combination of both. Difference between shares offered through book building and offer of shares through normal public issue (Source: BSE): Features Fixed Price process Book Building process
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Price Pricing

at

which

the

securities

are Price at which securities will be offered/allotted is not known in

offered/allotted is known in advance to the advance to the investor. Only an indicative price range is investor. known.

Demand

Demand for the securities offered is known Demand for the securities offered can be known everyday as only after the closure of the issue. the book is built.

Payment

Payment if made at the time of subscription wherein refund is given after allocation.

Payment only after allocation

Life cycle of an IPO:


Below is the detail process flow of a 100% Book Building Initial Public Offer IPO. This process flow is just for easy understanding for retail IPO investors. The steps provided below are most general steps involve in the life cycle of an IPO. Real processing steps are more complicated and may be different. Please visit SEBI website, stock exchange website or consult an expert for most current information about IPO life cycle in Indian Stock market. 1. Issuer Company - IPO Process Initialization 1. Appoint lead manager as book runner. 2. Appoint registrar of the issue. 3. Appoint syndicate members.

2. Lead Manager's - Pre Issue Role - Part 1 1. Prepare draft offer prospectus document for IPO. 2. File draft offer prospectus with SEBI. 3. Road shows for the IPO.

3. SEBI Prospectus Review 1. SEBI review draft offer prospectus. 2. Revert it back to Lead Manager if need clarification or changes (Step 2).
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3. SEBI approve the draft offer prospectus, the draft offer prospectus is now become Offer Prospectus.

4. Lead Manager - Pre Issue Role - Part 2 1. Submit the Offer Prospectus to Stock Exchanges, registrar of the issue and get it approved. 2. Decide the issue date & issue price band with the help of Issuer Company. 3. Modify Offer Prospectus with date and price band. Document is now called Red Herring Prospectus. 4. Red Herring Prospectus & IPO Application Forms are printed and posted to syndicate members; through which they are distributed to investors.

5. Investor Bidding for the public issue 1. Public Issue Open for investors bidding. 2. Investors fill the application forms and place orders to the syndicate members (syndicate member list is published on the application form). 3. Syndicate members provide the bidding information to BSE/NSE electronically and bidding status gets updated on BSE/NSE websites. 4. Syndicate members send all the physically filled forms and cheques to the registrar of the issue. 5. Investor can revise the bidding by filling a form and submitting it to Syndicate member. 6. Syndicate members keep updating stock exchange with the latest data. 7. Public Issue Closes for investors bidding.

6. Lead Manager Price Fixing 1. Based on the bids received, lead managers evaluate the final issue price. 2. Lead managers update the 'Red Herring Prospectus' with the final issue price and send it to SEBI and Stock Exchanges.

7. Registrar - Processing IPO Applications 1. Registrar receives all application forms & cheques from Syndicate members. 2. They feed applicant data & additional bidding information on computer systems. 3. Send the cheques for clearance. 4. Find all bogus application. 5. Finalize the pattern for share allotment based on all valid bid received. 6. Prepare 'Basis of Allotment'. 7. Transfer shares in the demat account of investors. 8. Refund the remaining money though ECS or Cheques.

8. Lead manager Stock Listing 1. Once all allocated shares are transferred in investors DP accounts, Lead Manager with the help of Stock Exchange decides Issue Listing Date.
2. Finally share of the issuer company gets listed in Stock Market.

Potential investor and their perception on price band


1. Income investor: An income investor is the who is looking for steadily rising profits that will distributed to shareholders regularly so, perception of such investor about price band is that price band is lower then invest more amount in the IPOs. 2. Growth Investor: A growth investor is the one who is looking for potential steady increase in the profit that are re invested for further expansion perception of such investors about pricing decision & evaluation company plan, retained earning of company.

3. Speculators:
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A speculator looks for short term gains or where more earning available to them. So, they will attract into anywhere in market, where profit opportunities with lower price band arise to them.

Types of investors in IPOS categories:

Investors can apply for shares in an IPO in 4 different categories 1. RetailIndividualInvestor(RII) In retail individual investor category, investors can not apply for more then Rs .one lakh (Rs. 1,00,000) in an IPO. Retail Individual investors have an allocation of 35% of shares of the total issue size in Book Build IPO's.

NRI's who apply with less then Rs. 1,00,000 /- are also considered as RII category. 2. SEBI like RII's Non-institutional bidders have an allocation of 15% of shares of the total issue size in Book Build IPO's. 3. QualifiedInstitutionalBidders(QIB's)

Financial Institutions, Banks, FII's and Mutual Funds who are registered with SEBI are called QIB's. They usually apply in very high quantities. QIBs are mostly representatives of small investors who invest through mutual funds, ULIP schemes of insurance companies and pension schemes.
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QIB's have an allocation of 50% of shares of the total issue size in Book Build IPO's .In a book built issue allocation to Retail Individual Investors (RIIs), Non Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of 35:15: 50 respectively.

Issue open As per Clause 8.8.1 of SEBI Act, Subscription list for public issues shall be kept open for at least 3 working days and not more than 10 working days. In case of Book built issues, the minimum and maximum period for which bidding will be open is 3 - 7 working days extendable by 3 days in case of a revision in the price band. The public issue made by an infrastructure company, satisfying the requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for a maximum period of 21 working days. As per clause 8.8.2., Rights issues shall be kept open for at least 30 days and not more than 60 days.

1.2 INSUDTRY PROFILE


1.2.1 Stock Market History: When did the Stock Market Begin
Historical evidences reveal that the 11th century Muslim and Jewish Merchants in Cairo had a trade association and their own methods of credit and payment. This is believed to be the beginning of stock market.

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In the 12th century, courratiers de change of France managed and regulated the debts of agricultural communities on behalf of the banks. Since these men traded with debts, they were also known as "brokers". Venetian bankers traded in government securities in the 13th century. In the 14th century, the Dutch started joint stock companies which encouraged the shareholders to invest in business ventures. In 1602, Dutch East India Company established Amsterdam Stock Exchange and they were the first company to issue stocks and bonds. The Dutch pioneered in "option trading", "short-selling" and debt-equity swaps" and in other speculative financial instruments.

London Stock Exchange: This is one of the oldest stock exchanges in the world and was established in 1698. The founder of London Stock Exchange was John Castaing. Today, London Stock Exchange lists 3,500 companies, representing 84 countries.

New York Exchange: The New York Exchange is the oldest and the most wellknown of all American stock markets. This was established in 1792. NYSE has a total capitalization of nearly $20 trillion and lists 2,800 companies.

American Stock Exchange: The American Stock Exchange is also known as Amex. This stock exchange was established in 1849 during the California Gold Rush and the Curb Exchange. The American Stock Exchange was associated with the mining industry and played a major rule during the 19th century. In 1921, American Stock Exchange enlisted companies, which did not meet the standards of the New York Stock Exchange. In 1998, Amex was purchased by NASDAQ, but regained its independence in 2003.

Bombay Stock Exchange: One of the oldest stock exchange markets in Asia is Bombay Stock Exchange and it was established in 1875. Today, around 2,000,000 shares of stock are traded daily.

NASDAQ: National Association of Securities Dealers Automated Quotation or NASDAQ was established in 1971. This was the first stock exchange to introduce the
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concept of electronics in stock trading. It is one of the most efficient stock exchanges in the world and it surpassed the average trading volume of the NYSE in October 2004.

History of the Indian Stock Exchange:

The corporate securities market dates back to the 18th century when the securities of East India Company were traded in Mumbai and Kolkata. The brokers used to gather under a banyan tree in Mumbai and under a Neem tree in Kolkata for the purpose. However, the real beginning came in the 1850s with limited liability. The 1860s witnessed beverish dealing in securities and securities speculation. This brought brokers to Bombay together in July 1875 to boom the first organized stock exchange Mumbai, Ahmadabad stock exchange in 1894 and 22 others followed with 20th century. 1830's: Business on corporate stocks and shares in Bank and Cotton presses started in Bombay. Trading list by the end of 1839 got broader. 1840's: 1850's: Recognition from banks and merchants to about half a dozen brokers. Rapid development of commercial enterprise saw brokerage business attracting more people into the business. 1860's: 1860-61: The number of brokers increased to 60. The American Civil War broke out which caused a stoppage of cotton supply from United States of America; marking the beginning of the "Share Mania" in India. 1862-63: The number of brokers increased to about 200 to 250.

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1865:

A disastrous slump began at the end of the American Civil War (as an example, Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87).

Before Independence situation - Establishment of Different Stock Exchanges 1874: With the rapidly developing share trading business, brokers used to gather at a street (now well known as "Dalal Street") for the purpose of transacting business. 1875: "The Native Share and Stock Brokers' Association" (also known as "The Bombay Stock Exchange") was established in Bombay. 1880's: 1894: 1880 - 90's: Development of cotton mills industry and set up of many others. Establishment of "The Ahmadabad Share and Stock Brokers' Association". Sharp increase in share prices of jute industries in 1870's was followed by a boom in tea stocks and coal. 1908: 1920: "The Calcutta Stock Exchange Association" was formed Madras witnessed boom and business at "The Madras Stock Exchange" was transacted with 100 brokers. 1923: When recession followed, number of brokers came down to 3 and the Exchange was closed down. 1934: 1936: 1937: Establishment of the Lahore Stock Exchange. Merger of the Lahore Stock Exchange with the Punjab Stock Exchange Re-organization and set up of the Madras Stock Exchange Limited (Pvt.) Limited led by improvement in stock market activities in South India with establishment of new textile mills and plantation companies. 1940: Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited were established. 1944: 1947: Establishment of "The Hyderabad Stock Exchange Limited". "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and Shares Exchange Limited" were established and later on merged into "The Delhi Stock Exchange Association Limited". 13

1.2.5 after Independence Scenario: Delhi Stock Exchange Bangalore Stock Exchange (1963) Cochin Stock Exchange (1980)

Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982) Pune Stock Exchange Limited (1982) Ludhiana Stock Exchange Association Limited (1983) Gauhati Stock Exchange Limited (1984) Kanara Stock Exchange Limited (at Mangalore, 1985) Magadh Stock Exchange Association (at Patna, 1986) Jaipur Stock Exchange Limited (1989) Bhubaneswar Stock Exchange Association Limited (1989) Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989) Vadodara Stock Exchange Limited (at Baroda, 1990) Coimbatore Stock Exchange Meerut Stock Exchange
Source: - (Stock Market of India)

1.2.6 Market Players of Industries:


Chart 1.1: Financial Player

SURPLUS UNITS Individual Company Intermediaries

DEFICIT UNITS Individual Company

Soverign/Country

Soverign/Country

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Industry analysis:
It is related with the no of issue and amount raised in the primary market. In the following manner, we directly described no of amount invested in the market i8t can be interpreted in the following way. It described preference towards the IPOs market.

Money Raised By Indian Companies


India has very huge capital market. Companies find IPO as the most attractive instrument for raising the capital from the public. The table given below shows the no. of issues for the particular year and size of the primary market.

Amount Raised Year No. of issues (Rs. Crore) 2005 2006 2007 2008 2009 76 96 112 38 15 22590 29845 45663 18520 14674

source: handbook on investment in India,

There is no consistency on the new issues considering the no. of issues and amount raised during the particular period. It shows that there are various factors which affect the primary market. The no. of new issues has drastically decreased from 2008 onwards. One of the resons behind that can be the global recession period. But there are also other factors like investors perception, regulation, market condition etc There is something amiss in the festivities in the primary market. On the one hand we see the issues getting oversubscribed; on the other hand, listing of this IPOs arent exciting enough. For example Adani power got listed at just rupees 102 over its issue price of Rs.100. there are many issues like den network, N.H.P.C etc. who got listed below the issue price. In fact
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the average listing gains for the 12 issues of 2007 stands at a mere 4.57%.This is quite contrast to the sensex,which is up by 84%. There is need of such research today as the performance in primary market is declining. The facts given below justify the need of improvement in the primary market. Out of the 12 issues listed in 2009 till now, seven issues are quoting below their issue price. Out of the total 38 issues in 2008, 30 issues are quoting below issue price. The total amount lost in IPOs since 2007 stands at Rs.7200 crore. This is almost 10% of the total funds raised since 2007

INDIAS TOP TEN IPOs


1.2 Indias Top TEN IPOs: Company Deal size (Rs. Cr) Year

Coal India Reliance Power ONGC


DLF Cairn India* TCS NTPC Reliance Petroleum** Idea Cellular Reliance Petroleum***

15000 11700 9500


9188 5788 5420 5368 2700 2443 2172

2010 2008 2004


2007 2006 2004 2004 2006 2007 1993

This is the table which displays the top most IPO issued by the companies in the market. So from the above table it can seen that Highest IPOs credits to company Coal India in the year 2010.

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Literature Review
uncertainty of investors regarding the IPO firms value. For investors , the costly information in the IPO process is analogous to a call option on IPO with strike price. price as the IPO offer

In the Indian context, Gupta (1996) has indicated that from the angle of investor protection, the regulation of new issue market is important for several reasons. The number of small investors in new issue market is massive. Most of new investors make the first entry into equity investments via the new issue market. So retaining common investor confidence in primary market is important. Murali (2000) has indicated that new issues market (NIM) focuses on decreasing information asymmetry, easy accessibility of capital by large sections of medium and small enterprises, national level participation in promoting efficient investment, and increasing a culture of investments in productive sector. In order that these goals are achieved, a substantial level of improvement in the regulatory standards in India at the voluntary and enforcement levels is warranted. The most crucial steps to achieve these goals would be to develop measures to strengthen the new issues market.

Separately, the credit rating literature has shown that credit rating convey information beyond what have incorporated into the price of financial claims.

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Research Methodology

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Title of the Study:


There is a very vast area in financial market. So in front of my eyes there were many topics among them I have selected one of the title FACTORS INFLUENCING INVESTORS TO GO FOR IPO

Objectives of the Study


The basic purpose of the report is to define the perception of the investors on IPOs pricing apart from this some other objectives can be defined as under: 1. The factors affecting the perception of investors on IPO pricing . 2. Importance of credit rating agencies for subscribing IPO. 3. To study, what factors should any investor need to know to invest in the IPO?

And also as we know that service industry has been growing by leaps and bounds and to get the know-how of market in general and service in particular I have conducted the research in the ordering pattern of the individual clients. And so by that way we can get the overall picture of the perception on IPOs about pricing decisions of the investors.

Rationale of the Study


Through my whole study I came with many results which are beneficial for me. In the sense of my view towards my topic FACTORS INFLUENCING INVESTORS TO GO FOR IPO As a student I expand my ideas about IPOs pricing decisions. During analysis I had talked with some of the respondents of various groups of the people. During analysis I had talked with some of the IPOs investors at field research and present investors of IPOs .so trough this way I can know the perception of the investors . In future time it help me a lots.
Now we talk about the organization point of view, from the research of my study the Marwadi Shares and Finance Ltd got plenty of information. They came to know in which area the improvement is required. So that they find the investors benefit& investment as a IPOs.

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Sample Design:

Research design in case of exploratory research design.

Research design in case of descriptive and diagnostic research studies.

The market area is very wide so it is more difficult to take all items as a sample is most important thing in the market. When the universe is a small one, there is a no need to sample or sample survey. But when universe is large, requirement of sample survey is very high. A sample design is a definite plan for obtaining a sample from given population. It refers to the technique or the procedure the researcher would adopt in selecting items for a sample. Sample design is a determined before data are collected. There are many recollect search design from which researcher can choose It.

Sample size :100 respondents

Sampling

Sampling is widely used in business as a means of gathering useful

information about a population. Data are gathered from samples and conclusions are drawn about the population as a part of inferential statistics process sampling Reason for sampling
There are many reasons for taking sample size like,

The sample can save money. The sample can save time. The research report will be based on probability sampling. As per research scope and objective simple random sampling technique will be better option for sampling as we are using subpopulation for our research..

sampling size of 100 is chosen as per the current market

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Collection of Data: Data Collection


The task of data collection begins after a research problem has been defined and research plan chalked out. While deciding about the method of data collection to be used for study ,the researcher should keep in mind two types of data like primary and secondary data.

Primary data Secondary data

1.Primary Data
Primary data is the one, which is collected by the investigator himself for the purpose of a specific inquiry or study. Such data is original in character and is generated by survey conducted by individuals so research institution or any organization. The classification of primary data is according to nature and function of data. Collection of data can be made by broker of the Rajkot city .it is taken by way of filling of questionnaire.

1. Observation method 2. Interview method 3. Questionnaire method

From these methods, I have concentrated on a basic method of research named questionnaire method for the present research.

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Observation Method
Observation may be defined as a systematic viewing of a specific phenomenon in its proper setting of gathering data for particular study. Observation method includes both seeing and hearing.

Interview Method
The interview method of collecting data involves presentation of oral verbal stimuli and reply in terms of oral verbal responses. This method can be used to collect the information from the customer.

Questionnaire Method
In this method the questionnaire is sent to all the persons concerned with request to answer the questioner and return it. A questionnaire consists of number of question type on printed in definite order. A schedule questionnaire with multiple choice question was designed which were both open ended and close ended question. I have taken 8to 9 question for filling of IPOs.

2. Secondary Data
Secondary data are those which have been already collected by someone else and which have been passed through statistical process for the purpose of conducting this research I have used various secondary data such as o o o Reference book Articles, News paper Websites

The whole research is a primary study but even though I will use the secondary data to make the argument stronger. The past research and articles will also be analyzed during the research process. It will be qualitative research. And I have used all 3 alternatives method of primary data. I have collected both the primary data as well as secondary data. I have collected the primary data through

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interview, in which I have asked 8 to 9 questions to the respondents. While the secondary data is in the internal form I use the website of BSE and NSE. The formal data are available in a regularly basis, such as monthly, quarterly or annually in a form of IPOs that allows comparisons through time to time..

Method of research
Research design in case of exploratory research design. Data are collected from way of respondents questionnaire and analyzed through Charts and percentage method.

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ANALYSIS AND INTERPRETATION OF DATA

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Gender of Investors

Male Female

79 21

Female, 21

Male, 79

Data Interpretation:

The above chart clearly describes the gender of the various respondents who have given their opinion in the survey. We can see that the number of males is more compared to that of the number of females. We have males to be 79% of the total sample size surveyed and females to be just 21% of the total sample size surveyed. This clearly talks about the interests of the female population in investments.

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Occupation wise distribution

Business Job Student Other

47 38 22 5

50 45 40 35 30 25 20 15 10 5 0 Business Job Student Other Business Job Student Other

Data Interpretation:

The above mainly talks about the various occupational details of various respondents who participated in the survey. We can see that the maximum number of respondents were Business persons followed by jobbers, students and others. This clearly shows us that the maximum number of people who are interested in investment activities are business persons, they have the panache for investment activities. They are nearly 47% of the sample. The interesting factor is that the jobbers are also very much interested in investment activities which is a very good sign.

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Your annual Income?

Less Than 3,00,000 3,00,000 to 5,00,000 5,00,001 to 10,00,000 More Than 10,00,001

39 20 24 17

RESPONDENTS
45 40 35 30 25 20 15 10 5 0 Less Than 3,00,000 3,00,000 to 5,00,001 to More Than 5,00,000 10,00,000 10,00,001 Less Than 3,00,000 3,00,000 to 5,00,000 5,00,001 to 10,00,000 More Than 10,00,001

Data Interpretation:

The income level of various respondents is depicted in the above chart. We can see that the maximum number of people fall in the category of less than 3,00,000 lakhs category followed by the people falling in 5,00,000 to 10,00,000 lakhs category. There are comparatively less people in the 3,00,000 to 5,00,000 category and very few people in the more than 10,00,001 category. This shows that the investors fall in both high income and low income categories. These are those people who are interested in investing in IPOs.

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Which area you belong?

Rural Urban

23 77

Chart Title

Rural 23%

Urban 77%

Data Interpretation:

The above chart mainly talks about the area to which the people belong to, we can clearly see that the urban people are dominating the chart with almost 77% of the total sample size whereas, the people from the rural areas are just 23%. It is still a good point to be noted that even though people live in rural areas, they are still interested in investments. This also shows that the literacy rate of the rural population is also increasing day by day. This also stands as a testimony for the fact that financial literacy is increasing in rural areas.

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Do you invest in Primary (IPO) Market?

Yes No

77 23

Yes No

Data Interpretation: This chart mainly talks about the respondents interest in investing in Initial Public Offers. Out of 100 people surveyed it is seen that 77% of the people are investing in IPOs whereas just 23% of the people are not investing in IPO. This shows that IPO is considered as a good option for investment by most of the respondents.

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2. How much do you invest in IPOs?

Less Than 10,000 10,001 to 50,000 50,001 to 1,00,000 More Than 1,00,000

31 36 9 10

40 35 30 25 20 15 10 5 0 Less Than 10,000 10,001 to 50,000 50,001 to 1,00,000 More Than 1,00,000 Series1 Series2

Data Interpretation: When the investors were asked as to how much they invest in an IPO, we found that maximum number of the people invest somewhere between 10,000 to Rs 50,000 in an IPO. There are also some people who invest less than Rs 10,000 in an IPO. There are very few people who invest in IPO for an amount more than Rs 1,00,000.

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3. What is the source of Information you use?

Print Media Electronic Media Expert Opinion Friend Advice

31 46 31 30

Chart Title
50 45 40 35 30 25 20 15 10 5 0 Print Media Electronic Media Expert Opinion Friend Advice

Series1 Series2

Data Interpretation: This chart mainly talks about the source of information for IPO investors. It is clearly seen that the electronic media stands first as the main source of information followed by print media, expert opinion and friends advice. The point to be noted is that people do prefer friends advice before investing in IPO. The main source of information regarding an IPO comes mainly from the electronic media rather than the other forms of media.

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Factors considered for IPO


(1- Not Consider, 2- Low consider, 3-High consider, 4-Very high consider)

S. NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Factors Company Goodwill Corporate Profile Board Member Size of the IPO Issued Credit Rating Current Financial Position Future Prediction and Forecast Corporate Governance Practices Broker Advice Comments in the Media Share Price

1 4 3 7 5 5 7 6 6 8 5 6 17 19 24 15 16 19 17 20 19 27 13

2 26 34 30 33 30 27 32 30 32 31 27

3 42 33 28 36 38 36 34 32 30 26 43

45 40 35 30 25 20 15 10 5 0 Series1 Series2 Series3 Series4

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Data Interpretation: The chart and the data presented above mainly talk about the various factors that are considered by the investors while investing in an IPO. After a clear observation of the data presented above, we see that the company Goodwill and Share price are the most considered factors for investment in IPO. The least considered factors stand out to be Corporate profile, Size of the IPO issued, etc. Credit Rating is also considered as one of the important factors for IPO investment where as the brokers advice is not so much regarded compared to the credit rating factor. It is also to be noted that the comments that are being passed in the media and also the people who are part of the board of directors do affect the investors sentiment towards IPO investment. Overall, all the factors are taken in to consideration before making any investment in the IPO. So a company has to mainly focus on share price that would be listed on the stock exchange and also its goodwill in the market.

5. How long are you trading in Primary Market and Secondary Market.?

00 year - 02 years 02 years - 05 years 05 years - 10years 10 years and Above

47 23 12 4

50 45 40 35 30 25 20 15 10 5 0 00 year - 02 years 02 years - 05 years 05 years 10years 10 years and Above Series1 Series2

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Data Interpretation: This chart mainly talks about the association of people with the primary and the secondary markets in terms of time period. It is found that most of the investors are trading in the primary and the secondary market since last 2 years and not more. Their number stands to be at 47% followed by 23% people who are trading in these markets more than 2 years but less than 5 years and there are just 4% of the people who are dealing in these markets since 10 years or more.

6. What is your advice to new investors in IPO?

Go by only promoters Go by only Credit Rating Go by only sectors performance Go by all of the above

8 29 21 43

45 40 35 30 25 20 15 10 5 0 Go by only promoters Go by only Credit Rating Series2 Series1

Go by only sectors performance

Go by all of the above

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Data Interpretation: The chart talks mainly about the various factors that should be considered before investing in an IPO. Out of 100 samples taken, 43% of the people believe that one should consider all the factors like promoters of the company, Credit Rating, Sector performance whereas 21% believe that sector performance needs to be considered compared to others, 29% believe that Credit rating should be considered compared to others and the rest 8% feel that the promoters are the most important factor for taking a decision in the investment of IPO

7. How much percentages have you gained on IPO listing? Below 10% up to10% 10%-15% 15% and Above 14 22 37 14

40 35 30 25 20 15 10 5 0 Below 10% up to10% 10%-15% 15% and Above Series1 Series2

Data Interpretation: The chart mainly talks about the returns that the investors have received by investing in an IPO. We can see that most of the investors have received 10 15% of returns on their investment in IPO. And there are also some people who received above 15% as well.

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8. Is it better to invest in IPO or Pick the same stocks on listing?

Invest in IPOs Pick the same stock on listing Partly invest in IPO and pick the stock on listing Wait sometime after listing

37 12 32 5

40 35 30 25 Series2 20 15 10 5 0 Invest inPartly invest onIPO and pick the Pick the IPOs stock in listing same Wait sometime after listing Series1

Data Interpretation: When the respondents were asked about their opinion to whether invest in only IPO or Listed stocks, they came up with the above answers. 37% of the respondents are of the opinion that it is always better to invest only in IPO 32% of the people are of the opinion that there should be some part of the investment in IPO and the other should in Listed securities. 12% of the investors believe that they should pick up the same stock after listing and 5% of the respondents are of the opinion that they should wait till listing before investing.

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9. What is the purpose of IPO investment?

Listing Gain Long term Gain

49 40

58% 48%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 Long term Gain Listing Gain

Data Interpretation: 49% of the respondents invest in an IPO just for the purpose of obtaining the listing gain and only 40% of the respondents are of the opinion that they invest in an IPO for the purpose are obtaining in the long term gains. This clearly shows us that the main purpose of investing in an IPO is Listing gain.

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10. How do you feel about the procedure for IPOs?

Very Easy Easy Nutaral Difficult Very Difficult

13 31 27 11 4

Very Easy Easy Nutaral Difficult Very Difficult

Data Interpretation: Respondents feeling about the IPO procedure is discussed in the above chart. It is seen that 31% of the respondents are of the opinion that the IPO listing procedure is easy. 27% of the respondents are neutral where 11% of the people feel that it is difficult and 4% of the people feel that it is very difficult. The overall opinion of the respondents is that the IPO procedure is easy and not very difficult.

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11. What difficulties did you face after applying IPOs?

Refund Problem Delay in crediting allotted shares to your DEMAT Account No clarity in allotment None of the above. Other

14 19 22 31 19

35 30 25 20 15 10 5 0 Refund Problem Delay in crediting allotted shares to your DEMAT Account No clarity in allotment None of the above. Other Series1 Series2

Data Interpretation: The chart above mainly talks about the problems faced by the investors investing IPO. We can see that 31% of the respondents do not have any problems where as 22% of the people have the problem with allotment. They are of the opinion that there is no proper clarity in the allotment. 19% of the people find problem in credit of shares to Demat account.

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CONCLUSION

The objective behind this paper is to identify the major factors which directly or indirectly affect the investors decision on IPO investment. 2009 year shown the worst performance in primary market. Investor lost around Rs.7000 crore during the same period .Reliance power, NHPC, Den network, Adani power etc. companies have failed to gain the trust from the investors. The question here was that how investor look at the price of IPO , do they make any analysis of the company or just they invest with the market trend. If the price of company reasonable, there is no scope of discounting the IPO. Even if we ignore the short term gain, the company must give reasonable return in the long term. But this has not happened. Investors are losing money in the short term as well as in the long term also.

The relative action should be from the both side , investors and issuer. Investors should more focus on fundamentals of the company rather than outside trend or rumour. In this research, first of all we try to find the investors perception on how they select the company for the investment. Generally investors dont take much effort on analyzing the companys performance, about promoters and current valuation of the company. Either they lack of knowledge of they dont have time to do this. In this situation, Broker is the only option with them. The research says that around 46% of the total sample respondents invest on the basis of brokers advice. Now issuer may take the benefit of this situation. Issuer by giving various incentives and commission tries to force brokers to give advice to investors for subscribing the particular IPO.

In the second part, we try to analyze the impact of past IPO returns on investment decision. The interesting conclusion came out is that there is impact of past return s on investors perception for investment. Generally company used to go for public during the good market condition as well as past performance and response of IPOs. There are example of companies who have suffered due to bad timing for the issue like Wockhard Hospital. It has to withdraw from the market due to bad response from the investors.

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SUGGESTIONS
The research clearly indicates that there is a still need of improvement in primary market in terms of transparency and accountability. The detail recommendation can be given specific head.

INFORMATION RELATED MEASURES

Latest and easy availability of information Public information should be available Education of investors Transparency in the system Improve awareness of investors the primary market sensitive Information

should be made available to everyone at the same time.

PROMOTERS:

Strict action against cheaters Moral character of board of directors to be checked Only experienced promoters should be allowed More transparency in activities Dishonest promoters not to be allowed to raise funds. Disclosure of loans taken from various sources

PUBLIC: More active investor association to be provided

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Public consciousness development is important Understanding the riskiness associated with investment in shares

RELATIONSHIP WITH SHAREHOLDERS:

Provide better service Investor to have a say in decision making process Better communication between top management and shareholders Shareholders interest to be considered while companies take decision

GOVERNMENT:

Improve infrastructure Improve economic condition Promote and attract investors Corruption to be checked at various levels Introduce rating of equity Take step to protect small investors

INTERMEDIARIES:

Improve faith in brokers Honesty and fair dealing in brokers should be encouraged Lower brokerage Improve relationship with customers Brokers activities are to be regulated Reduce no. of brokers Take action against brokers with bad conduct

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Mutual should be allowed to actively invest in primary markets

MARKETS:

Improve trust of small investors Transparency of markets Volatility to be checked Proper audit of exchanges should take place Improve liquidity Allow good issue managers to manage issues Delisting of companies should be avoided Ensure new investors confidence in the market Small investor to get firm allotment More margin to be taken from brokers Liquidity should be improved

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BIBLIOGRAPHY
Websites: www.nse-india.com www.bseindia.com www.sebi.in.org

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