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Overview of Indian Capital Market

The Indian capital market is more than a century old. Its history goes back to 1875, when 22 brokers formed the Bombay Stock Exchange (BSE). Over the period, the Indian securities market has evolved continuously to become one o the most dynamic, modern, and efficient securities markets in Asia. Today, Indian market confirms to best international practices and standards both in terms of structure and in terms of operating efficiency .Indian securities markets are mainly governed by a) The Companys Act1956, b) the Securities Contracts (Regulation) Act 1956 (SCRA Act), and c) the Securities and Exchange Board of India (SEBI) Act, 1992. A brief background of these above regulations are given below a) The Companies Act 1956 deals with issue, allotment and transfer of securities and various aspects relating to company management. It provides norms for disclosures in the public issues, regulations for underwriting, and the issues pertaining to use of premium and discount on various issues. b) SCRA provides regulations for direct and indirect control of stock exchanges with an aim to prevent undesirable transactions in securities. It provides regulatory jurisdiction to Central Government over stock exchanges, contracts in securities and listing of securities on stock exchanges. c) The SEBI Act empowers SEBI to protect the interest of investors in the securities market, to promote the development of securities market and to regulate the security market. The Indian securities market consists of primary (new issues) as well as secondary (stock) market in both equity and debt. The primary market provides the channel for sale of new securities, while the secondary market deals in trading of securities previously issued. The issuers of securities issue (create and sell) new securities in the primary market to raise funds for investment. They do so either through public issues or private placement. There are two major types of issuers who issue securities. The corporate entities issue mainly debt and equity instruments (shares, debentures, etc.), while the governments (central and state governments) issue debt securities (dated securities, treasury bills). The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk
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and return. A variant of secondary market is the forward market, where securities are traded for future delivery and payment in the form of futures and options. The futures and options can be on individual stocks or basket of stocks like index. Two exchanges, namely National Stock Exchange (NSE) and the Stock Exchange, Mumbai (BSE) provide trading of derivatives in single stock futures, index futures, single stock options and index options. Derivatives trading commenced in India in June 2000 In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in industrial advancement under Indian enterprise was reached. There are two major indicators of Indian capital market1. SENSEX 2. NIFTY: The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE. Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is the National Stock Exchange. The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE. Most of the stock trading in the country is done though the BSE & the NSE . Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the BSE Mid-cap Index. There are many other types of index. Unless stock markets provide professionalized service, small investors and foreign investors will not be interested in capital market operations. And capital market being one of the major
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source of long-term finance for industrial projects, India cannot afford to damage the capital market path. In this regard NSE gains vital importance in the Indian capital market but if we see the sensex & nifty graph there is a great variation. RBI to keep a close watch on liquidity Finance Minister P Chidambaram today said the Reserve Bank of India (RBI) will keep a close watch on liquidity and state-run banks are ready to provide credit to the small and medium business sectors. Further, in the context of forex outflows in the recent period, RBI has decided to conduct buy back of MSS dated securities so as to provide another avenue for injecting liquidity of a more durable nature into the banking system. RBI indicated that this would be calibrated with the marketborrowing programme of the Government of India.

What is an IPO ?
IPO is an acronym for Initial Public Offering. This is the first sale of stock by a company to the public. A company can raise money by issuing either debt (bonds) or equity. If the company has never issued equity to the public, it's known as an IPO. Companies fall into two broad categories: private and public. A privately held company has fewer shareholders, if any, and its owners don't have to disclose much information about the company. Anybody can go out and incorporate a company: just put in some money, file the right legal documents, and follow the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too. It usually isn't possible to buy shares in a private company. You can approach the owners about investing, but they're not obligated to sell you anything. Public companies, on the other hand, have sold at least a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is also referred to as "going public." Public companies have thousands of shareholders and are subject to strict rules and regulations. They must have a board of directors and they must report financial information every quarter. In the United States, public companies report to the SEC. In other countries, public companies are overseen by governing bodies similar to the SEC. From an investor's standpoint, the most exciting thing about a public company is that the stock is traded in the open market, like any other commodity. If you have the cash, you can invest. The CEO could hate your guts, but there's nothing he or she could do to stop you from buying stock.

Why do companies do IPOs?

Raise cash for growth The biggest reason companies do IPOs is to raise capital to meet the capital needs of the business. If a small company is doing $100 million in sales and it believes it could get up to $2 billion then it might take a while if it's growth is funded from internal profits. So it sells part of the company to investors (the public) and uses the money to grow quicker than it would have otherwise.

Raise cash for other reasons For example, having cash makes it easier to acquire other companies. Buying other companies requires a lot of cash. Doing an IPO allows companies to raise cash as well as utilize their publicly traded stock as a currency to purchase other companies (called a "stock swap").

Cachet Being a public company can also give you cachet because people tend to trust a company more if it is public. A small company looking to create a strong brand with their customers may be able to use their status as a publicly traded company as a marketing tool - although this reason by itself is rarely enough for a company to do an IPO.

Create liquidity for their stock options program If a company is a private company and they give out stock options to employees then there is no public market for them to trade on. Having a publicly traded stock makes it easier for option holders to realize the value of their options. When Microsoft did their IPO in 1986, they weren't hampered by venture cpaitalists looking to cash in their profits. Nor did they need the cash with profit margins in the 30% range. But Gates had granted so many stock options (and stock) to managers and programmers in order to attract the best talent, yet there was no public market for the option and stock owners to trade their shares.

Regulations The SEC has a rule that once a company reaches 500 shareholders (including stock options), they must register their financial information with the SEC. Although an IPO is not necessarily required, the additional costs and hassle of doing an IPO are not minimal, considering that they the company is already paying a lot of money to meet it's regulatory reporting requirements. Google was forced to file for an IPO in 2004 after they hit the 500 mark. Face book, in January 2012 stated that they would surpass the 500 mark during the year, and would likely do an IPO

Exit strategy Sometimes a company is taken public because the owners believe the best times for a company (from a valuation standpoint) are behind it. In this case the IPO serves as an "exit strategy", or a way to sell the company so the owners can cash in their profits (also referred to as a "liquidation event"). Some investors may think this is unfair. But as long as there is enough information for investors to make an accurate assessment of the company's value then it isn't. If investors want to pay too much for a stock based on that information then they have a right to do that. Most investors operate under the illusion that all IPOs are growth companies with great prospects. People forget sometimes that the IPO process is simply a process where a seller sells a stock to a buyer. An owner of a stock usually sells the stock because they think the value has been realized. This happens with IPOs too.

Terms In An IPO
Bid: A bid is the demand for a security that can be entered by the syndicate/sub syndicate members in the system. the two main components of bid are the price and quantity. Bidder: The person who has placed a bid in the book building process. Bid Opening Date: Means the date on which the syndicate members / brokers to the issue would start accepting bids; such date shall be the date which shall be notified and communicated through a notice in an English national newspaper with wide circulation. Bidding Period: Means the period between the bid opening Date and the Bid Closing Date inclusive of both days and during the period prospective investors can submit their bids. Book Built Portion: Means the Public Issue less the Fixed Price Portion. Bid Closing Date: Means the date after which the syndicate Members / Brokers to the Offer would not accept any Bids; such date shall be notified and communicated through a notice in an English national newspaper, Hindi national newspaper and a Regional language newspaper. Bid Cum Application Form: Means the form in terms of which the Bidder shall bid for equity shares of the Company and shall, upon allocation of the equity shares by the BRLM and filling of the offer Document with the RoC, be considered as the application for the allotment of the equity shares in terms of this Draft Offer Document.

Order Book: It is an electronic book that shows the demand for the shares of the company at various prices. Price Brands: Price band comes into play when IPOs are done through a book-building process. IPOs if they have gone for the book-building route will mention a price band. For instance Bicorn which has declared a price band of Rs. 270 to Rs. 315 per equity share of face value of Rs. 5. Or ONGC which has set a price band of Rs. 680-750. Draft Prospectus: Draft prospectus is prepared giving out the detailed of the company, promoters background, management, terms of the issue, project details, mode of financing, past financial performance, projected profitability and others. Issue Opening Date: Means the date on which the Book Built Portion opens for automatic subscription by bidders who have received allocation have paid at least the Issue/Offer price for their allocation into the Escrow Account. This date shall also mean the date on which the Fixed Price Portion opens for subscription by the public. Issue Period: Means the period between the Issue Opening Date for Fixed Price Portion and includes both these dates. Issue Price: Means the price determine by the Company in consultation with the BRLM /Joint BLRM on the Pricing Date after the Bidding Period and which shall be set forth in the Final Offer Document to be filed with the RoC at which equity shares of the Company would be allotted.

Maximum Issue Price: Means the price as advertised by the Company being price above which the Issue Price will not be finalized for the issue. Pricing Date: Means the date on which the Company in consultation with the BRLM finalizes the Issue Price. Minimum Lot Size: This is the minimum number of shares for the which an application can be made. Application can also be for higher amounts. Applicants may, or may not, get full allotment or partial allotment in the case of over-subscription. The payment may also be split into several stages. All these details plus tax benefits etc. and time-period before allotment and listing etc. are described in a section of the OD or form called The Terms of the Issue. Issue Size: Means the issue of a new equity shares of Rs.10/- each at the issue price by the Company aggregating Rs. 1800 lacs. Floor Price: Those of you who know the ways of the bulls and bears of the stock market can find this question a piece o cake. But others might find a question marks surrounding their heads. Floor Price is defined as the price at which a transaction is executed. Every stock exchange has a few listed and permanent securities, which are traded on the floor or the premises of the stock exchange. This trading of the shares on the floor is limited to the members of their authorized representatives only. Those who are interested to buying or selling shares, place their orders with their respective brokers who in turn congregate in the trading grounds to execute them (whoa! The orders, not the investors!). Bids are made and bargains are struck. The price at which there is mutual agreement is called floor price of security. This can vary any number of times in a day due to the offer and bargain process.

Thus the minimum offer price below which bids cannot be entered. The Issuer Company in consultation with the Book Running Lead Manager fixes the floor price. Listing Price: The IPO process ends when the share starts trading on stock exchange. The listing price is the price at which the stock is first quoted on an exchange. This may differ substantially from the issue price.

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TEAM BEHIND AN IPO:


Book Running Lead Manager: A Lead merchant Banker who has been appointed by the Issuer Company as the Book Runner Lead Manager. The name of the Book Runner Lead Manager is mentioned in the offer document of the Issuer Company. Lead Manager: When new issues are floated, there maybe a number of Underwriters; the one among them who has the primary responsibility of managing the affairs of the syndicate and the issue is the lead manager. The Lead Managers and Book Running Lead Managers are the merchant bankers, who handle the details of pricing issues, determine issue size and perform a due diligence exercise on the company. We assume our reader has enough common sense to learn the name of the company making the issue, the business it is in, and the size of the offer. He can also easily learn the stock exchanges where the company will be listed. But when it comes to the issue price, book building may puzzle him. CO BOOK RUNNING LEAD MANAGERS: Depository Participant Dematerialisation (usually known as demat) is converting physical certificate to electronic form. Rematerialisation, known as remat, is reverse of demat, i.e. getting physical certificates from the electronic certificates from the electronic securities. Transfer of securities, change of beneficial ownership. Settlement of trades done on exchange connected to the depository. Pledge/Hypothecation of demat shares, viz. Loan against shares. Electronic credit in public offering of the Companies Non-Cash corporate benefits, viz. Bonus/Rightsdirect credit into electronic form.

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Syndicate Members: Syndicate Members are the intermediaries registered with the Board and permitted to carry on activity as underwriters. The Book Runner Lead Managers to the issue appoints the Syndicate Members. Merchant Banker: An entity registered under the Securities and Exchange Board of India (Merchant Bankers) Regulation 1999. Retail Bidders: Mean the Bidders who are individuals and who have not bid for higher than 1000 equity shares in any of their bidding. Bankers To An Issue: Appointment of Bankers: Bankers along with their branch network act as the collecting agencies and process the funds procured during the public issue. The Bank provide temporary loans for the period between the issue date and the date the issue proceeds becomes available after allotment, which is referred to as a bridge loan. Underwriters: The underwriters are appointed who commit to shoulder the liability and subscribe to the shortfall in case the issue is under-subscribed. For this commitment they are entitled to a maximum commission of 2.5% on the amount underwritten. Issuers: An Issuer Company can issue capital through book building in following two ways: 75% Book Building Process

The option of 75% Book Building is available to all body corporates that are otherwise eligible to make an issue of capital to the public. The securities issued through the book building process are indicated as placement portion category and securities available to public are identified as net offer to public. In this option, underwritten is mandatory to

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the extent of the net offer to the public. The issue price for the placement portion and offers to public are required to be same. 100% of the net offer to the public through Book Building process

In the100% of the net offer to the public, entire issue is made through Book Building Process. The number of bidding centers, in case of 75% book building process should not be less than the number of mandatory process, the bidding centers should be at all the places where the recognized stock exchanges are situated. Trading Members The Book Runner Lead Manager will give the list of trading members who are eligible to participate in the Book Building Process to the Exchange. Members have to submit a one time undertaking to the Exchange. Eligible trading members have to give in the prescribed format details of the user IDs that they would like to use. Subscribers: Subscribers can approach any of the approved trading members for the submitting bids in the NEAT IPO system. On line transaction registration slip are generated automatically after entering the bids in to the system which acts as proof of the registration of each Bid option.

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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 managers. Such as SBI Capital Markets Ltd., Bank of Baroda, Canara Bank, DSP Financial Consultant Ltd. ICICI Securities & Finance Company Ltd., etc The Registrar To The Issue 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
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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 redress of their complaints. The Underwriters 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 nonsubscription 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: 1. Financial Institutions and Banks 2. 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
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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)

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Types of offer documents


Draft offer document It refers to the first document filed by companies with SEBI and stock exchanges for approval, who after reviewing, communicate their observations to the Company, which the company has to incorporate in the offer document. SEBI typically requires a period of 30 days for processing a draft offer document. The draft offer document is placed by SEBI on its website for public comments for a period of 21 days. Red herring prospectus A red herring prospectus (RHP) is a preliminary registration document that is filed with SEBI in the case of book building issue which does not have details of either price or number of shares being offered or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. In the case of book-built issues, it is a process of price discovery as the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus. Offer document Means the final prospectus in the case of a public issue/offer for sale which is filed and registered with the Registrar of Companies and the stock exchanges. An offer document covers all the relevant information required to be disclosed under various regulations and incorporates the observations of the Registrar of Companies and SEBI. Abridged Prospectus It means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies the application form of public issues.

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Accessing draft offer documents before even the IPO is cleared by SEBI The draft offer document/letter of offer remains posted on SEBI website for a period of 21 days from the date of filing the same to SEBI and can also be downloaded from there. Public comments/complaints on the issuer company or others connected with the issue The objective of making an offer document public is to invite public comments. The comments should be submitted within 21 days of the filing of the draft offer document by the company with SEBI. Obtaining full copy of the offer document Full copy of the offer document is available from the company, its lead managers and syndicate members. These are also available on the websites of SEBI, the lead managers, the stock exchanges and the company.

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SEBI Guidelines for IPOs


IPOs of small companies Public issue of less than five crores has to be through OTCEI and separate guidelines apply for floating and listing of these issues. Size of the Public Issue Issue of shares to general public cannot be less than 25% of the total issue, incase of information technology, media and telecommunication sectors this stipulation is reduced subject to the conditions that:

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

Promoter Contribution

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

Collection centers for receiving applications

There should be at least 30 mandatory collection centers, which should include invariably the places where stock exchanges have been established.

For issues not exceeding Rs.10 crores (including premium, if any), the collection centres shall be situated at:-

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

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Regarding allotment of shares

Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock exchange.

It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located.

In an Issue of more than Rs. 25 crores the issuer is allowed to place the whole issue by book-building

Minimum of 50% of the Net offer to the Public has to be reserved for Investors applying for less than 1000 shares.

There should be atleast 5 investors for every 1 lakh of equity offered (not applicable to infrastructure companies).

Quoting of Permanent Account Number or GIR No. in application for allotment of securities is compulsory where monetary value of Investment is Rs.50,000/- or above.

Indian development financial institutions and Mutual Fund can be allotted securities upto 75% of the Issue Amount.

A Venture Capital Fund shall not be entitled to get its securities listed on any stock exchange till the expiry of 3 years from the date of issuance of securities.

Allotment to categories of FIIs and NRIs/OCBs is upto a maximum of 24%, which can be further extended to 30% by an application to the RBI - supported by a resolution passed in the General Meeting.

Timeframes for the Issue and Post- Issue formalities

The minimum period for which a public issue has to be kept open is 3 working days and the maximum for which it can be kept open is 10 working days. The minimum period for a rights issue is 15 working days and the maximum is 60 working days.

A public issue is effected if the issue is able to procure 90% of the Total issue size within 60 days from the date of earliest closure of the Public Issue. In case of oversubscription the company may have the right to retain the excess application money

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and allot shares more than the proposed issue, which is referred to as the green -shoe option.

A rights issue has to procure 90% subscription in 60 days of the opening of the issue. Allotment has to be made within 30 days of the closure of the Public Issue and 42 days in case of a Rights issue.

All the listing formalities for a public Issue has to be completed within 70 days from the date of closure of the subscription list.

Despatch of Refund Orders


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

Other regulations pertaining to IPO

Underwriting is not mandatory but 90% subscription is mandatory for each issue of capital to public unless it is disinvestment in which case it is not applicable.

If the issue is undersubscribed then the collected amount should be returned back (not valid for disinvestment issues).

If the issue size is more than Rs. 500 crores voluntary disclosures should be made regarding the deployment of the funds and an adequate monitoring mechanism to be put in place to ensure compliance.

There should not be any outstanding warrants or financial instruments of any other nature, at the time of initial public offer.

In the event of the initial public offer being at a premium, and if the rights under warrants or other instruments have been exercised within the twelve months prior to such offer, the resultant shares will not be taken into account for reckoning the minimum promoter's contribution and further, the same will also be subject to lock-in.

Code of advertisement specified by SEBI should be adhered to.

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Draft prospectus submitted to SEBI should also be submitted simultaneously to all stock exchanges where it is proposed to be listed.

Restrictions on other allotments


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

Relaxations to public issues by infrastructure companies. These relaxations would be applicable to Infrastructure Companies as defined under Section 10(23G) of the Income Tax Act, 1961, provided their projects are appraised by any Developmental Financial Institution (DFI) or IDFC or IL&FS. The projects must also have a participation of at least 5% of the project cost (in debt and/or equity) by the appraising institution. The infrastructure companies will be exempted from the requirement of making a minimum public offer of 25 per cent of its securities.

The requirement of 5 shareholders per Rs. 1 lakh of offer is also waived in case of offerings by infrastructure companies.

For public issues by infrastructure companies, minimum subscription of 90% would no longer be mandatory provided disclosure is made about the alternate source of funding which the company has considered, in the event of under subscription in the public issue.

Infrastructure companies are permitted to freely price the offerings in the domestic market provided that the promoter companies along with Equipment Suppliers and other strategic investors subscribe to 50% of the equity at the same or a higher price than what is being offered to the public. Adequate disclosures about the justification for the pricing will be required to be made in the offer documents.

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The Infrastructure Companies would be allowed to keep their issues open for 21 days. The relaxation would give infrastructure companies sufficient time to mobilise funds for their issues.

Infrastructure Companies would not be required to create and maintain a Debenture Redemption Reserve (DRR) in case of Debenture Issues.

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ELIGIBILITY TO ISSUE SECURITIES 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,
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(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.

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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

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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)

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THE UNDERWRITING PROCESS


When a company wants to go public, the first thing it does is hire an investment bank. A company could theoretically sell its shares on its own, but realistically, an investment bank is required. Underwriting is the process of raising money by either debt or equity (in this case we are referring to equity). we can think of underwriters as middlemen between companies and the investing public. The biggest underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse First Boston, Lehman Brothers and Morgan Stanley.

The company and the investment bank will first meet to negotiate the deal. Items usually discussed include the amount of money a company will raise, the type of securities to be issued and all the details in the underwriting agreement.

The role of Investment Banks in the process- When a corporation first makes stock available for public purchase, it works with an investment banking firm to arrange an initial public offering (IPO). The investment bank acquires the first issue of stocks from the corporation at a negotiated price, and then makes the shares available for sale to its clients and other investors. Corporations that have IPOs are usually young companies in need of large amounts of capital.

The deal can take place in several ways which are as follows..
Firm commitment The underwriter guarantees that a certain amount will be raised by buying the entire offer and then reselling to the public. Best efforts The underwriter sells securities for the company but doesn't guarantee the amount raised. Also, investment banks are hesitant to shoulder all the risk of an offering. Instead, they form a syndicate of underwriters. One underwriter leads the syndicate and the others sell a part of the issue.

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Once all sides agree to a deal, the investment bank puts together a registration statement to be filed with the SEC. This document contains information about the offering as well as company info such as financial statements, management background, any legal problems, where the money is to be used and insider holdings.

COOLING OFF PERIOD


After underwriting proposal, SEBI requires the cooling off period in which they investigate and make sure all material information has been disclosed. Once the SEBI approves the offering, a date (the effective date) is set when the stock will be offered to the public. An important phenomenon takes place during the cooling off period which is known as the Red Hearing. Red Hearing- This is an initial prospectus containing all the information about the company except for the offer price and the effective date, which aren't known at that time. With the red herring in hand, the underwriter and company attempt to hype and build up interest for the issue. They go on a road show where the big institutional investors are courted.

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PRICE DETERMINATION FOR OFFER


As the effective date approaches, the underwriter and company sit down and decide on the price. it depends on the company, the success of the road show and, most importantly, current market conditions. Of course, it's in both parties' interest to get as much as possible.

Usually there are two methods for this purpose..

Fixed Price Issue


The offer price for shares in a public offer can be fixed before the issue. It can also be discovered by gauging the demand in the market for shares at various price points.

Book Building Issue


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
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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
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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.

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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.

Price Levels
An investor can bid for shares at various price levels. Normally the demand for shares at the minimum price level is maximum. But when the market is booming, the issue is often oversubscribed at the higher end of the band itself. In such a case, the offer price is ultimately fixed at the upper end of the band. OVERPRICING & UNDERPRICING Historically, IPOs both globally and in the US have been underpriced. The effect of underpricing an IPO is to generate additional interest in the stock when it first becomes publicly traded. This can lead to significant gains for investors who have been allocated shares of the IPO at the offering price. However, underpricing an IPO results in "money left on the table"lost capital that could have been raised for the company had the stock been offered at a higher price. The danger of overpricing is also an important consideration. If a stock is offered to the public at a higher price than what the market will pay, the underwriters may have trouble meeting their commitments to sell shares. Even if they sell all of the issued shares, if the stock falls in value on the first day of trading, it may lose its marketability and hence even more of its value

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IPO DUE DILIGENCE


One of the most important factors in a successful IPO is the due diligence process. The due diligence process ensures that whatever you state in your prospectus can be substantiated. From both a company perspective and a sponsors perspective it means credibility and increases the chances of a successful IPO. Legal Due diligence and Financial due diligence are well understood, but equally important are technical and intellectual capital due diligence. Both these aspects of due diligence concern knowing the business and identifying the risks which the business faces. This article touches briefly on how these two facets of the due diligence process work.

Intellectual Capital Due Diligence

This covers four key areas of the business; the business recipe, the internal structural capital, human capital and external structural capital. The following chart shows these and the topics underlying each area:

As well as determining the current status of the business in terms of these four areas, we also look at what measures the business is taking to improve its position and what risks it faces in these areas. The intellectual capital assessment is forward-looking, as opposed to financial reports which deal with historical fact, and is therefore a much better predictor of future performance.

In performing intellectual capital due diligence, senior management, middle management, customers, suppliers, industry experts and other stakeholders such as bankers, legal advisors, insurance brokers and industry experts are interviewed in a structured manner. The results of the interviews, both qualitative and quantitative responses, are carefully collated and cross-checked for consistency and then analysed and compared against industry benchmarks. The final results can provide useful insights for both the company and its sponsor and are often used beyond the IPO issue itself, frequently being worked into future business models.

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Technical Due Diligence

This aspect of due diligence doesn't apply to all IPO's. This is most relevant to manufacturing companies, infrastructure companies or high-technology companies where future earnings are largely dependent upon physical assets of some sort. For manufacturing companies, future earnings are directly related to production capacity, quality of outputs and ability to withstand (or respond to) future technological changes. The technical due diligence report deals with these issues.

Typically an industry expert would review the existing manufacturing facilities and future capital

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Case Study Of Ipo Scam


New Delhi: When the Securities Exchange Board of India (SEBI) started scanning an entire spectrum of IPOs launched over 2003, 2004 and 2005, it ended digging up more dirt and probably prevented a larger conspiracy to hijack the market. What is the scam? It involved manipulation of the primary marketread initial public offers (IPOs)by financiers and market players by using fictitious or benaami demat accounts. While investigating the Yes Bank scam, Sebi found that certain entities had illegally obtained IPO shares reserved for retail applicants through thousands of benaami demat accounts. They then transferred the shares to financiers, who sold on the first day of listing, making windfall gains from the price difference between the IPO price and the listing price. When was the scam detected? The IPO scam came to light in 2005 when the private 'Yes Bank' launched its initial public offering. Roopalben Panchal, a resident of Ahmedabad, had allegedly opened several fake demat accounts and subsequently raised finances on the shares allotted to her through Bharat Overseas Bank branches. The SEBI started a broad investigation into IPO allotments after it detected irregularities in the buying of shares of YES Banks IPO in 2005. What triggered the SEBI probe? On October 10 last year, an Income Tax raid on businessman Purushottam Budhwani accidentally found he was controlling over 5,000 demat accounts. SEBI finds this suspicious.

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On December 15, SEBI declared results of its probe, how a few people cornered a large chunk of YES Bank IPO shares.On January 11 this year, SEBI discovered huge rigging in the HDFC IPO. Roopalben Panchal was found to be controlling nearly 15,000 demat accounts. It was found that once they obtained these shares, the fictitious investors transferred them to financiers. The financiers then sold these shares on the first day of listing, reaping huge profits between the IPO price and the listing price. The SEBI report covered 105 IPOs from 20032005. The SEBI probe covered several IPOs dating back to 2005, 2004 and 2003 to detect misuse. These included the offerings of Jet Airways, Sasken Communications, Suzlon Energy, Punjab Lloyds, JP Hydro Power, NTPC, PVR Cinema, Shringar Cinema and others. A lot more dubious accounts across several IPOs are expected to tumble out in the next few days. It also detected similar irregularities in the IDFC IPO, in which over 8 per cent of the allotment in the retail segment was cornered by fictitious applicants through multiple demat accounts. Who is Roopalben Panchal? Roopalben Panchal of India Bulls Securities is allegedly the mastermind of the scam. Finance Ministry officials are expected to act against her soon. How is this different from Harshad Mehtas scam? The securities scam involved price manipulation in the secondary market, read stocks. Whereas in this case, the manipulation happened in the primary marketeven before the shares (IPOs) entered the stocks market. This time, fraudsters targeted the primary market to make a quick buck at the expense of the gullible small investors. Direct Participants (DPs) used retail applicants shares for reaping benefits in the stock market.

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How big is the scam? Apart from the YES Bank fraud, SEBI reportedly has definite data about two IPOs where retail allotments were rigged, but market observers believe the scam is far bigger. The Yes Bank and IDFC cases are only a tip of an iceberg, say analysts. The SEBI probe has identified more operators and some market intermediaries involved in the misuse of the initial allotment process in public offerings dating back to 04-05. The Income-Tax Department in Ahmedabad has found that two major accused, Panchal and Sugandh Investments, have together made Rs 60.62 crore in 18 months. Role of Depository Participants Suzlon Energy IPO: Rs 1,496.34 cr (September 23-29, 2005) Key operators used 21,692 fictitious accounts to corner 3,23,023 shares which is equal to 3.74 per cent of the total number of shares allotted to retail individual investors. Jet Airways IPO: Rs 1899.3 crore (Feb 18-24, 2005) Key operators used 1,186 fake accounts for cornering 20,901 shares which is equal to 0.52 per cent of the total number of shares allotted to retail investors. National Thermal Power Corporation IPO Rs 5,368.14 crore (Oct 7-14, 2004). 12,853 afferent accounts were used for cornering 27,50,730 shares representing 1.3 per cent of the total number of shares allotted to retail investors. Tata Consultancy Services IPO: Rs 4,713.47 crore 14,619 'benami' accounts were used to corner 2, 61,294 shares representing 2.09 per cent of the total shares allotted to retail individual investors.

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SOME SUCCESSFUL IPOS BETWEEN 2005-2010


Bharti Infratel IPO Success To Guide Other Tower Cos
Competitors are keenly eyeing the upcoming public offer of Bharti Infratel , the tower arm of the India's largest mobile phone operator, as this may be the first positive signals for the cash-strapped sector. Viom Networks and Reliance Communications' arm Reliance Infratel are next in line to follow suit should this issue become successful, said seven analysts interviewed by ET. However, valuations of the remaining companies may come at a significant discount to Bharti Infratel, they said. Bharti Infratel's proposed listing will be the first big-ticket IPO in the country since October 2010 when state-owned Coal India raised about Rs 15,200 crore. The IPO, which launches on December 11, "will test market appetite for telecom," said Hemant Joshi, Partner, Deloitte Haskins & Sells. "This IPO holds the key to near term sentiment reversal for the sector," said another senior analyst from a multinational. Money has dried up in the Indian telecom sector amid uncertainty of a new telecom policy and after the Supreme Court quashed all mobile permits issued by former telecom minister A Raja in 2008. The subsequent 2G auctions that concluded last month evoked tepid response from the industry, and were a failure as close to 57% of the airwaves remained unsold, with the government getting less than a fourth of its revenue targets. "Right now, the telecom vertical is a very negative sector. So, we'll have to see who's going to put money in," said Joshi. A banker who did not wish to be named said the Bharti Infratel IPO received an astounding response in Indian cities, particularly in Ahmedabad. Bharti is currently making sales pitches for its IPO to foreign investors in London, New York, Boston, Singapore and Hong Kong. The company declined to comment on the initial response to the offering. The issue opens on December 11 for retail investors in a price band of Rs 210-240 a share and could raise up to Rs 4,533 crore for Bharti.

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The analyst with an independent multinational company quoted earlier said based on the Bharti Infratel valuation, the value for Indus Towers India's largest private tower company comes to $12-13 billion (. 65,633-71 ,100 crore). Viom Networks said it would be valued at $2.5-3 billion because it has fewer towers and the tenants on the towers have uncertain future. Viom president Umang Das said: "A successful IPO will show that investors have faith in growth of the sector . It augurs well for the industry as a whole. We need some positive sentiment in the telecom sector and a good IPO should provide that." He did not comment on Viom's plans to revive public offering plans. Viom hosts sites mainly for Tata Teleservices that over the last six months has been reducing its tower footprint. Telenor-owned Uninor was also a key Viom client contributing to over 20% of its revenue, but the company is winding down several of its operations. Analysts refrained from estimating the value of Reliance Infratel. "They don't have any publicly known clients on the towers and it is hard to say exactly how many are still operational ," said a senior consultant.

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THE MOST SUCCESSFUL IPO


With its shares skyrocketing 26 percent on debut trade, Indias largest commodity bourse MCX remains the most successful initial public offering so far amid turbulent market conditions. Out of the five companies that entered the stock market in 2012, just two MCX and education services firm MT Educare managed to close with gains on the first day of trading. The rest realty company NBCC, jewellery retailer Tribhovandas Bhimji Zaveri and greeting cards maker Olympics Card ended the debut trade at a discount compared to their issue prices. Meanwhile, Speciality Restaurants got listed on the BSE today at Rs 153, a premium of over two per cent over its issue price of Rs 150. Within minutes of listing, its scrip gathered momentum and touched an early high of Rs 160.65, up 7.1 per cent from its issue price. Reflecting the overall sluggishness market conditions, initial share sales have not been so successful this year and many entities shelved their IPO plans owning to poor investor response. Apart from market situation, the performance of an IPO on debut is also much dependent on credit ratings as well as the fundamentals of a particular company, according to market experts. Listed on March 9, shares of Multi-Commodity Exchange (MCX) opened at Rs 1,387 on the BSE a premium of 34 percent compared to the issue price of Rs 1,032. Even though, the scrip lost its initial momentum, it managed to close with about 26 per cent gain at Rs 1,297.05. On the first day, it even touched the high of Rs 1,420. Interestingly, MCX shares are trading way below their issue price levels and closed at Rs 893 yesterday on the BSE. The commodity bourse clocked a gain of 26 percent on debut day, mainly due to higher ranking given by credit rating agencies and the companys sound fundamentals, Wellindia Vice President Vivek Negi said.

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MT Educare clocked a gain of 13 percent, with the shares ending the debut day at Rs 90.35 on the BSE. The issue price of the scrip, which got listed in April, was Rs 80. The three other stock market debuts this year NBCC, Tribhovandas Bhimji Zaveri and Olympic Cards tumbled in the range of 5 to 8 per cent on the first trading day. Notwithstanding high expectations, shares of state-run National Buildings Construction Corporation (NBCC) lost 8.44 percent to close at Rs 97.05. The company, which got listed last month, had the issue price of Rs 106. Making stock market entry earlier this month, shares of Tribhovandas Bhimji Zaveri, dropped 7.33 percent to end the day at Rs 111.20 on the BSE. The scrip made the debut with an issue price of Rs 120.

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INDIAS TOP 10 IPOS


1. Reliance Power -11,700 crores in 2008 : This could easily be Indias disastrous IPO. Anil Ambani has granted bonus shares to repair the damage done to the investors. That did not help as the stock never recovered. It is languishing at 170 rupees which is much below the IPO price including the bonus shares. There was no successful IPO after Reliance Power and markets are looking for Adani Power for a revival. Issue price of this IPO 405-450 per share. Current Market Price : Rs.172

2. ONGC : 9500 crores in March 2004. It was the biggest IPO until Reliance Power came along. Issue price 680-750. Current Market Price : Rs. 1125

3. DLF : 9188 crores in 2007. It was one of the successful IPOs during the boom period. Though it did not give the listing gains as promised the stock has seen a dream run and went till the 1000 rupee level when Sensex was at 21000. The price band was 500-550. Current market price is : Rs. 393

4. Cairn India - 5788 crores in 2006 : Yet another oil and exploration company after ONGC. The price band was Rs. 160-190. Current market price is : Rs. 246

5. Tata Consultancy Services 5420 crores in 2004 : One of the successful IPOs which has seen interest from around India. Current Market Price is 482. 6. NTPC 5368 crores in 2004 : Government has diluted 10.5% stake in this PSU to gather 5368 crores. Current Market Price is Rs. 210

7. Reliance Petroleum 2700 crores in 2006 : This debuted in the golden period or the boom period. This was the last successful IPO from Reliance stable. The initial price band was Rs 57-62. Current Market Price is . This will now be replaced/pushed by Adani Power IPO which is set to gather 3000 crores from

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the markets. In few months Reliance Petroleum will no longer exist as it is gobbled up by Reliance Industries. 8. Idea Cellular 2443 crores in 2007 : Price band is Rs 65-75 per share. Current market price is Rs. 81. Only telecom IPO in the list. Airtel had a modest IPO of less than 1000 crores in 2002.

9. Reliance Petroleum 2172 crores in 1993. This is not a mistake. This was the initial IPO of Reliance Petroleum which was later merged with Reliance Industries which again came up with another IPO in 2006 (listed at #7). And now Reliance Petroleum is merged with Reliance Industries again. Something very common for Reliance. 10. Jet Airways 1899 crores in 2005. The biggest airline IPO until Air India IPO comes along. It was introduced in the price band of Rs. 950-1125. The current market price is Rs. 247.

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ONGC TO BE INDIA'S BIGGEST IPO EVER


ONGC's offer for sale of 10 per cent of its equity is likely to fetch over Rs 10,000 crore, making it the biggest IPO on Indian bourses. The offer opens on March 5 and closes on March 13, ONGC CMD Subir Raha said. ONGC, which has an m-cap of over Rs 1 lakh crore, has chalked out an aggressive growth plan with total capex of around Rs 30,000 crore in three years. It plans to invest Rs 10,000 crore each year in oil exploration and discovery, as well as in retailing. These funds will come largely from internal accruals. ONGC will enter the oil retailing market in the next fiscal, Raha said. Kicking off the roadshows for the public offering, he said the offer for sale, which will be through the book-building route, is for up to 142.5 million shares of Rs 10 each, comprising 10% of total paid-up capital. About 10% of the offer is reserved for permanent employees and wholetime directors of the firm, while another 10% is reserved for shareholders of MRPL.The net offer to the public is 114 million equity shares, of which 50% will be allocated on a discretionary basis to qualified institutional buyers, 25 per cent on a proportionate basis to non-institutional bidders and about 25 per cent to retail bidders. The minimum bid for retail individual bidders is 10 equity shares, and the government reserves the right to transfer equity shares at differential lower price. The price band/floor price will be announced at least a day before the bid opening date. The book-running lead-managers to the issue are JM Morgan Stanley, DSP Merrill Lynch and Kotak Mahindra Capital. ONGC Videsh will invest Rs 4,500 crore annually for exploration. ONGC is the energy security of the country, JM Morgan Stanleys Nimesh Kampani said, adding, given the importance of ONGC, investor-community could not ignore this issue. The issue will also increase ONGCs floating stock from 3% levels to 13.8 per cent, adding liquidity and breadth to the stock, Kampani said. With a net profit of Rs 10,529.32 crore last year, ONGC ranks 6th and 10th in terms of revenue and assets, respectively, among the worlds top oil and gas exploration and production firms.

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SECTORWISE IPO DATA


Sector Banking Energy Power Real Estate IT Infrastructure Others Finance Telecom Media Aviation Textile Engineering Pharma Auto Retail Hospital Metal Sugar Cement Shipping CD Mining FMCG Chemicals Logistics Hotel Construction Total Size of IPO 28722 24216 22106 16190 10185 6380 5714 4815 3767 3130 2262 1641 1609 1381 1225 690 532 517 490 474 461 412 362 341 308 291 187 156 138562 No. of IPOs 15 11 10 14 38 16 58 13 4 22 2 19 6 13 5 7 2 7 3 3 3 2 3 2 5 2 2 2 289

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Sector Others IT Media Textile Infrastructure Banking Real Estate Finance Pharma Energy Power Metal Retail Engineering Auto Chemicals Telecom Cement Mining Shipping Sugar Aviation CD Construction FMCG Hospital Hotel Logistics Total

No. of IPOs 58 38 22 19 16 15 14 13 13 11 10 7 7 6 5 5 4 3 3 3 3 2 2 2 2 2 2 2 289

Size of IPO 5714 10185 3130 1641 6380 28722 16190 4815 1381 24216 22106 517 690 1609 1225 308 3767 474 362 461 490 2262 412 156 341 532 187 291 138562

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YEAR WISE AND SECTOR WISE THE NUMBER OF IPOS


Sector Auto Aviation Banking CD Cement Chemicals Construction Energy Engineering Finance FMCG Hospital Hotel Infrastructure IT Logistics Media Metal Mining Others Pharma Power Real Estate Retail Shipping Sugar Telecom Textile Total 9 2 2 1 1 1 5 21 4 50 2 5 1 2 1 1 6 73 1 6 94 2 33 1 1 1 3 2 2 2 2 3 1 1 2 1 3 1 1 4 1 10 1 4 1 1 7 5 1 8 3 1 13 2 1 4 29 3 2 10 2 3 1 1 2 13 1 3 1 1 5 1 2 3 1 1 2000 2001 2002 2003 1 2004 2005 1 1 6 2006 1 1 5 1 1 1 1 3 3 2 6 1 1 1 5 11 3 3 1 1 1 1 3 1 2 3 1 1 2007 2 2008 Total 5 2 15 2 3 5 2 11 6 13 2 2 2 16 38 2 22 7 3 58 13 10 14 7 3 3 4 19 289

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The Top notch IPOs exceeding Rs. 10 billion since 2000

Year 2004 2008 2007 2007 2005 2004 2006 2004 2004 2005 2007 2006 2007 2005 2007 2008 2006 2004 2005 2007 2005 2005 2004 2006

Company Oil & Natural Gas Corporation Limited RELIANCE POWER LIMITED DLF Limited ICICI Bank Limited ICICI Bank Limited National Thermal Power Corporation Limited Cairn India Limited Tata Consultancy Services Limited ICICI Bank Limited Punjab National Bank Power Grid Corporation of India Ltd. Reliance Petroleum Limited Idea Cellular Limited Jet Airways (India) Limited Mundra Port and Special Economic Zone Limited RURAL ELECTRIFICATION CORPORATION LIMITED Bank of Baroda Gas Authority of India Limited Suzlon Energy Limited Housing Development and Infrastructure Limited Oriental Bank of Commerce Infrastructure Development Finance Company Limited Indian Petrochemicals Corporation Limited Lanco Infratech Limited

Sectors Energy Power Real Estate Banking Banking Power Energy IT Banking Banking Power Energy Telecom Aviation Infrastructure Power Banking Energy Energy Real Estate Banking Finance Energy Infrastructure

Issue Size 10536 10260 9188 8750 5826 5368 5261 4713 3349 3120 2984 2700 2125 1899 1771 1639 1633 1626 1496 1485 1450 1372 1203 1067

*The size of IPOs in Rs. Crore.

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SOME KEY HIGHLIGHTS


It was heartening to see the retail category back in primary markets. Retail subscriptions in IPOs averaged ~7x compared to ~2x in CY09. While Persistent Systems garnered highest total subscriptions (~94x), the lowest was for A2Z Maintenance (~1x). Punjab & Sind Bank shored up maximum retail subscription (~44x).

Out of the 66 IPOs, 45 registered gains on listing day. Simple average listing gain for all IPOs was ~9% in CY10. DQ Entertainment saw the maximum opening gain of ~69% on listing day. On the losing side, Cantabil Retail ~15% below the issue price on listing date. Helped by Coal India, metals & minerals recorded the highest simple average listing gain of ~21%.

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GLOBAL IPO ISSUANCE IN THE YEAR 2010


Overseas, Asia Pacific (PAC) region, North America and Europe collectively raised ~USD 242 bn via IPOs. Asia PAC emerging market raised the maximum(~USD 100 bn) followed by Asia PAC developed market (~USD 76 bn). North America and Europe together contributed ~USD 65 bn.

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INDUSTRY WISE FUND RAISED GLOBALLY IN THE YEAR 2010


Globally, financials have been frontrunners in the fundraising exercise (~USD 92 bn). With credit conditions still tight, the financial sectors voracious appetite for funds is justified. Boosted by hopes of a strong revival in the globalcapex cycle, industrials also raised ~USD 42 bn in year 2010.

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BRIC
BRIC (Brazil, Russia, India and China) together raised ~USD 87 bn via IPOs in CY10. China (~USD 70 bn) saw the maximum issuances, followed by India (~USD 9.5 bn). In terms of quantum of funds raised, industrials (~USD 26 bn) saw the maximum issuances among the BRIC pack. It was followed by financials (~USD 18 bn) and consumer services (~USD 13 bn). Excess global capacities in energy in CY10 ensured that funding requirements of utilities (~USD 2 bn) and oil & gas (~USD 3 bn) remained minimal.

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IPO Market Seen in Bad Shape as Capital Dries Up


Global IPOs are having their worst quarter since the second quarter of 2009, according to data from Renaissance Capital, one of the top providers of research on initial public offerings. Thats because IPO investors, particularly in the U.S., are scared about making an investment that is more volatile than the broader stock market. When expected volatility is extreme, its impossible to do IPOs, said Kathleen Shelton Smith, principal at Renaissance. We are experiencing above-normal levels of volatility. So far this year, 71 percent of the IPOs that have come to market are trading below their issue price, a fact thats scaring away investors. Total new issue volume of $19 billion is off 58 percent from a year ago. Renaissance presented statistics during a meeting to inaugurate Renaissances expansion of its FTSE Renaissance IPO Index Series to cover global markets.

As companies chase capital, they are breaking into new markets. The Asia Pacific region accounted for 46 percent of all IPOs so far in the third quarter. But thats well below the 84 percent it comprised in the third quarter of 2010. Europe has muscled its way back into the picture, accounting for 34 percent of all IPOs so far this quarter from 5 percent a year ago, according to Renaissance. The U.S. still trails these rivals with 17 percent of this quarters IPO volume, but thats still up from 11 percent a year ago. Apparently, companies still want to go public. The global IPO pipeline has 330 companies looking to raise $180 billion, according to Renaissance. Given the mood of investors, however, it will take a while for that to come to market. The big institutional investors quit first, but now even hedge funds are turning tail, according to Smith.

Companies have withdrawn their initial public stock offerings at the fastest pace since the 2008 global financial crisis, as gun-shy investors lose interest in anything seen as even marginally risky. The painful drop in the stock market has sucked the air out of initial public offerings.

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Companies have withdrawn their stock offerings this month at the fastest pace since the dark days of the 2008 global financial crisis, as suddenly gun-shy investors have lost interest in anything seen as even marginally risky.

Beyond the negative effect on investors, the drying up of IPOs is one more obstacle in the path of the U.S. economy as companies have trouble raising cash to boost employment or to invest in new products or facilities, experts say."It reflects a deterioration in business confidence and an unwillingness to expand the operations of companies," said Jane Caron, economist at Dwight Asset Management in Burlington, Vt. "That means less investment spending, less hiring and therefore less income, not only for the companies but for households."

In a measure of the IPO woes, there are no offerings scheduled at the moment, and none are expected until at least the middle of next month.That's an abrupt turnaround from earlier in the year, when the IPO market was expanding solidly and many experts were worried that investors' intense craving for social media and other Internet companies had become excessive.

"The market [for IPOs] can be red-hot and ice-cold," said Scott Sweet, senior managing partner of Tampa, Fla.-based IPO Boutique. "Earlier it was red-hot. Right now, it's icecold." Investors still are interested in several coveted social media companies that are expected to make their debuts later this year primarily Zynga Inc. and Group on Inc. But even those companies would probably be unable to fetch the prices they could have earlier in the year, experts say. "The interest in them has gone down," Sweet said. "They'll come out but they may be delayed. No company in their right mind would attempt the IPO market right now." Analysts believe Face book, which has yet to file, would receive a robust debut no matter the stock market conditions.

Even with the market's uptick this week, the Dow Jones industrial average is down almost 12% from its April 29 peak. Seventeen companies have withdrawn their planned IPOs this month, the most since 18 companies did so at the height of the global financial crisis in

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December 2008, according to research firm Dealogic. Only four IPOs have been completed this month, and several have run into problems.

Tudou Holdings Ltd., a Chinese video website, slumped on its first day of trading, and its shares are down 13% from their $29 IPO price. The stock market's travails already had forced the company to price its stock at a sharp discount to a bigger rival that went public in December. Shares of Carbonite Inc., a computer services firm that helps clients retrieve lost electronic files, rose 24% in their debut two weeks ago and still are 52% above their IPO value. But that's only after the company slashed its IPO to $10 from its original expectations of $15 to $17.The diminished appetite for IPOs stems partially from the poor returns for the sector. The average IPO is down almost 6.7% this year, compared with a 25% average gain last year and a 16% average rise in 2009, according to Renaissance Capital, an IPO investment-advisory firm. Aside from 2008, this is the only year in the last decade with a negative return.

Investors have been burned by social media and other Internet companies that had scorching IPOs earlier this year. Shares of LinkedIn Corp., the professional networking site, are up 66% from their IPO price, but have skidded 32% from their mid-July peak. Zillow Inc. is down 14% from its high, while Pandora Media Inc. is down 33%.

"It really gets people skittish about being in the IPO space when they're nursing a portfolio of IPOs that are down," said Kathleen Smith, a principal at Renaissance. When the IPO market picks up, investors will have the chance to scoop up strong companies at attractive prices, said David Menlow, president IPOfinancial.com, a research firm in Millburn, N.J. And there is some hope that corporate executives are already betting that the market will eventually rebound. Six new companies filed the paperwork to begin the process of going public, though it could be many months before they do, according to Renaissance. Those companies are Brightcove, Genomatica, Laredo Petroleum, Inergy Midstream, Jive Software and Eloqua."This is clearly a buyer's market," Menlow said. "Investors will have the ability to buy very solid companies at very reasonable prices.

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CONCLUSION : The Indian initial public offer (IPO) market has always had more than its fair share of doom sayers Right from the Maruti issue, which pundits decried as being overpriced, to the ONGC and TCS issues, where the huge sizes of the offerings drew predictions of calamitous effects on the secondary markets, the opinions of the experts have proved to be wide off the mark.

Not only did the mega issues sail through, but the secondary markets proved to be far more resilient than anybody had anticipated. The data show that as much as Rs. 2033.99 Crores has been raised from the primary market in the year 2010, making it obvious that the Indian investor has far more appetite for equities than most people realize.

Most of the money has been raised by big companies with a long term track record. A substantial number of issuesbarring that of TCSalso happened during the early part of the year, before the markets got the shivers. The heavy oversubscriptions in many cases can also be traced to the availability of bank finance for IPO investment.

Nevertheless, there is no denying the enormous interest retail and other investors have shown in the primary market, perhaps even more so than in the secondary one. This interest has been sustained despite the lack of bounce in the secondary market and is not confined to the big issues; even smaller issues have sailed through with large oversubscriptions.

The factors which determine the IPO performance Price Market condition Business Performance Timing of IPO that is whether IPO is done in Bullish market or Bearish market.

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BIBLIOGRAPHY

Websites:www.nscindia.com www.bscindia.com www.moneycontrol.com www.ipohome.com/hie-gerieooie/htm www.investopedia.com/reserchpaper.froee-heofdvl%fkldks/ www.ipoavenue.com/ariownnipo-progress&arojsrei/5%akd2e32/ www.bullishindian.com www.rupya.com www.investorguide.com

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