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1 INTRODUCTION INITIAL PUBLIC OFFERING (IPO) Initial public offering (IPO), also referred to simply as a "public offering", is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privatelyowned companies looking to become publicly traded. In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. Initial Public Offering (IPO) in India means the selling of the shares of a company, for the first time, to the public in the countrys capital markets. This is done by giving to the public, shares that are either owned by the promoters of the company or by issuing new shares. During an Initial Public Offer (IPO) the shares are given to the public at a discount on the intrinsic value of the shares and this is the reason that the investors buy shares during the Initial Public Offering (IPO) in order to make profits for themselves. IPO in India is done through various methods like book building method, fixed price method, or a mixture of both. The method of book building has been introduced in the country in 1999 and it helps the company to find out the demand and price of its shares. A merchant banker is nominated as a book runner by the Issuer of the IPO. The company that is issuing the Initial Public Offering (IPO) decides the number of shares that it will issue and also fixes the price band of the shares. All these information are mentioned in the companys red herring prospectus. During the company's Initial Public Offering (IPO) in India, an electronic book is opened for at least five days. During this period of time, bidding takes place which means that people who are interested in buying the shares of the Company makes an offer within the fixed price band. Once the book building is closed then the issuer as well as the book runner of the Initial Public Offering (IPO) evaluate the offers and then determine a fixed price. The offers for shares that fall below the fixed price are rejected. The successful bidders are then allotted the shares IPOs can

2 be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value

REASONS FOR LISTING: When a company lists its shares on a public exchange, it will almost invariably look to issue additional new shares in order to raise extra capital at the same time. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows accompany to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of dissolution

3 The existing shareholders will see their shareholdings diluted as a proportion of the company's shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms. REASON FOR LISTING IPOs: Increase in the capital: An IPO allows a company to raise funds for development, expanding plant and equipment and marketing. Liquidity: The shares once traded have an assigned market value and can be resold. This is extremely helpful as the company provides the employees with stock incentive packages and the investors are provided with the option of trading their shares for a price. Valuation: The public trading of the shares determines a value for the company and sets a standard. This works in favor of the company as it is helpful in case the company is looking for acquisition or merger. It also provides the share holders of the company with the present value of the shares. Increased wealth: The founders of the companies have an affinity towards IPO as it can increase the wealth of the company, without dividing the authority as in case of partnership. OBJECTS OF THE OFFERING NEW IPO Funds Requirement Funding Plan (Means of Finance) Schedule of Implementation Funds Deployed Sources of Financing of Funds already deployed Interim Use of Funds Basic Terms of Issue Basis for issue price utilizing in various corporate operational purposes like acquisitions, mergers, working capital, research and

4 Tax Benefitsr1.3

ADVANTAGES & DRAWBACKS OF IPO: The Advantages of IPO are numerous. The companies are launching more and more IPOs to raise funds which are utilized for undertakings various projects including expansion plans. The Advantages of IPO is the primary factor for the immense growth of the same in the last few years. The IPO or the initial public offering is a term used to describe the first sale of the shares to the public by any company. All types of companies with the idea of enhancing growth launch IPOs to generate funds to cater the requirements of capital for expansion, acquiring of capital instruments, undertaking new projects. IPO has a number of advantages. IPO helps the company to create a public awareness about the company as these public offerings generate publicity by inducing their products to various investors. 1)The increase in the capital: An IPO allows a company to raise funds for utilizing in various corporate operational purposes like acquisitions, mergers, working capital, research and development, expanding plant and equipment and marketing. 2) Liquidity: The shares once traded have an assigned market value and can be resold. This is extremely helpful as the company provides the employees with stock incentive packages and the investors are provided with the option of trading their shares for a price. 3) Valuation: The public trading of the shares determines a value for the company and sets a standard. This works in favor of the company as it is helpful in case the company is looking for acquisition or merger. It also provides the share holders of the company with the present value of the shares.

5 4) Increased wealth: The founders of the companies have an affinity towards IPO as it can increase the wealth of the company, without dividing the authority as in case of partnership MERITS OF IPO: Low cost financing No commitment of fixed returns. No restrictions attached to financing. No issues such as mortgaging, hypothecation etc. Entire money received in one stroke without linking to any milestones. No issues with returning of finance

DEMERITS: Success of IPO has an element of risk. IPO can only finance part of the project IPO performance post listing has also bearing. For new promoters and new company it is difficult to market their IPO. More often than not, the pricing of any IPO is what influences the decision of any investor. The rating agencies, in this case, will not talk about what price'' and ``what time'' aspects of the offer. Given that the decision to invest or avoid investments in any IPO is most often a function of the pricing, the lack of this aspect in the present IPO grading system could make the whole process an unfinished task. Also, rating agencies (experienced in debt rating) could face trouble with rating the equities, which, unlike debt rating, is more dynamic and cannot be standardized. Further, IPO grading mechanism is a globally-unique initiative; it could increase the cost of raising capital in India and urge companies to seek capital overseas.

6 Markets, in the short term, can be price-driven and not purely motivated by company fundamentals. That is to say that, at times, even good companies at higher price could be a bad investment choice, while the not-as-good ones could be a steal at lower prices. Despite having disclaimers, a higher graded IPO may well tempt small investors into falsely believing that a high premium would come about on listing. Similarly, investors may get deluded by a low-graded IPO, which could become a `missed opportunity' in the future. The purpose of introducing grading, thus, might get defeated if it leads to a false sense of buoyancy or alarm among investors. Factors Deciding IPO Price: Promoters and their background. Current National and Global economic scenario. Sector specific issues in which company will be operating. Tie up with financial institutions. Investors outlook for the company ANALYSING AN IPO INVESTMENT: Initial Public Offering is a cheap way of raising capital, but all the same it is not considered as the best way of investing for the investor. Before investing, the investor must do a proper analysis of the risks to be taken and the returns expected. He must be clear about the benefits he hope to derive from the investment. The investor must be clear about the objective he has for investing, whether it is long-term capital growth or short-term capital gains. The potential investors and their objectives could be categorized as: INCOME INVESTOR: An income investor is the one who is looking for steadily rising profits that will be distributed to shareholders regularly. For this, he needs to examine the companys potential for profits and its dividend policy. GROWTH INVESTOR:

7 A growth investor is the one who is looking for potential steady increase in profits that are reinvested for further expansion. For this he needs to evaluate the company's growth plan, earnings and potential for retained earnings IPO INVESTMENT STRATEGIES: Investing in IPOs is much different than investing in seasoned stocks. This is because there is limited information and research on IPOs, There is some of the strategies that can be considered before investing in the IPO; 1) UNDERSTAND THE WORKING OF IPO: The first and foremost step is to understand the working of an IPO and the basics of an investment process. Other investment options could also be considered depending upon the objective of the investor. 2) GATHER KNOWLEDGE: It would be beneficial to gather as much knowledge as possible about the IPO market, the company offering it, the demand for it and any offer being planned by a competitor. 3) INVESTIGATE BEFORE INVESTING: The prospectus of the company can serve as a good option for finding all the details of the company. It gives out the objectives and principles of the management and will also cover the risks. 4) KNOW YOUR BROKER: This is a crucial step as the broker would be the one who would majorly handle your money. IPO allocations are controlled by underwriters. The first step to getting IPO allocations is getting a broker who underwrites a lot of deals. 5) MEASURE THE RISK INVOLVED: IPO investments have a high degree of risk involved. It is therefore, essential to measure the risks and take the decision accordingly.

8 6) INVEST AT YOUR OWN RISK: After the homework is done, and the big step needs to be taken. All that can be suggested is to invest at your own risk. Do not take a risk greater than your capacity 1.1.1 NEED OF THE STUDY The main purpose of the study is to analyze the IPO market. It also involves in analyzing the risk in investing in the particular firm. This needs to understand the perception of the investors and the due course of market and its prominent conditions. This study will help to understand the market and its behavioral approach towards the needs of the investors. It will capture the systematic investing pattern based on the investors mode. The need of this study is to analyze what investors are expecting from IPO, how they make decision according to the situation, how they react for the changes that takes place in the Market. This study will helps to understand what the investor should watch out for investing in primary market. To analyze the returns of IPOs which were issued in the year 2011 To know the return of those IPOs. To know the market rate of return for the same period. To find out the companies which like to adopt this technique and Spread awareness about this process. To find out the factors which influence the IPO Listing Process. What the companies are looking from Open New IPOs in India? Analysis between Share Holder and IPO Companies post/present/future Prospects


The study was conducted on INDIABULLS SECURITIES LTD Chennai. It is useful to both the investors and others to reduce risk. It is useful to analyze the thinking of people, their ideas and interest level of IPO investment. It also creates awareness among people from different classes. The company can suggest the preference of the investors in IPO, which can favor in fulfilling peoples requirements. Interaction with investors will be useful in finding out the company that has goodwill among public. This may lead us to find out the most reputed investment organization and its position in investors mind. This study gives a vivid picture about the investors perception level towards IPO. It gives a chance to buy the shares of the company directly, the reason and why they prefer IPO investment than others and what purpose they have invested in IPO. Based on this survey was conducted among equity investors to analyze the IPO listing pattern. It also helps to understand the benefits of investing in IPO. The study helps the company to understand the effective ways of distribution channel for IPO.


1.1.3 OBJECTIVES OF THE STUDY PRIMARY OBJECTIVE To analyze the investors perception on Initial Public Offering (IPO)

SECONDARY OBJECTIVES To study the investors exposure to fundamental analysis and its impact to invest in IPO issued by Companies. To analyze the investors preference in deciding the company. To study the preference of different investment categories of IPO. To analyze the benefits of the investors while investing in IPO To find out which source is more effective in creating the IPO awareness. To get the feedback of investors on their preferences towards IPO investment.


1.1.4 RESEARCH METHODOLOGY RESEARCH: Defining and redefining problems, formulating hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions and reaching conclusions; and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis. Research means; Search for knowledge, Systematic and self critical investigation. It is an art of scientific investigation. According to Emory defines research as, any organized inquiry designed and carried out to provide information for solving a problem. RESEARCH DESIGN: Research design is specification of methods and procedures for acquiring the information needed to structure or to solve problem. Research design is defined as, the arrangement of condition for collection and analysis of the data in a manner that aims to combined relevant to the research purpose with economy in procedure. During the research, descriptive and analytical research has been used.

12 The success of formal research project depends on the sound research design. As the main aim of the project is to identify the perception level of investors in an organization, the project is purely descriptive in nature. Descriptive research studies are those studies, which are concerned with describing the characteristic of particular individuals, or of a group.


TYPE OF RESEARCH DESIGN USED: DESCRIPTIVE RESEARCH : Descriptive study is a fact-finding investigation with adequate interpretation. It is the simplest type of research. It more specific than an exploratory study, as it has focus on particular Aspects or dimension of the problem studied. It is designed to gather descriptive information for Formulating more sophisticated studies. Describing the performance of the company and fact finding of different kinds.

13 ANALYTICAL RESEARCH: Analytical Research is primarily concerned with testing hypothesis and specifying and interpreting relationships, by analyzing the facts or information already available. This type of research design focuses on theoretical lines, to solve the problem. An analytical research answers questions why, how, when and by whom the incident happened. It provides suitable reason. It is an in depth study. A mode of inquiry in which events, ideas, concepts, or artifacts are investigated by analyzing documents, records, recordings, and other media SOURCES OF DATA COLLECTION: Data collection method is an important task in every research process. There are two types of data is being used.

PRIMARY DATA: The data are collected directly from the respondents as the information is not already been provided. The researcher collected information from respondents directly through Under the questionnaire the disguised questionnaire and informal talks with employees. multiple choice questions.

following types of questions were asked to collect the data: open ended, close ended and

The data are collected from the investors, company staffs, etc. The secondary data such as history and various profile of the company where collected from company manuals, company website and verbal contact with various executives of the company. The data collection method should be used in this research way of analyzing the questionnaires from the investors.


14 A part of the population selected for study is called as sample. The selection of a group of individuals or items from a population in such a way that this group represents the population is known as sample. Sample size is 120. The sample consists of 120 investors/employees who had invested in IPO. SAMPLE UNIT: The sample unit is based on the investors/employees who had invested in IPOS. SAMPLING DESIGN: A sampling design is a definite plan for obtaining a sample frame. It refers to the technique or the procedure the researcher would adopt in selecting units from which inferences about the population is drawn. Sampling design is determined before any data are collected. SAMPLING TECHNIQUE: Non-probability convenience sampling was used in the study and sampling units are chosen primarily in accordance to the convenience. In this sampling does not afford any basis for estimating the probability that each in the population has being included in the sample. In this type of sampling, items for the sample are selected deliberately by the researcher. In this study convenience sampling type is used. This is Non-probability sampling. It means selecting sample units in a just hit and miss fashion. e.g. interviewing people whom we happen to meet. This sampling also means selecting whatever sampling units are conveniently available. RESEARCH INSTRUMENT USED: QUESTIONNAIRE: Generally, in questionnaire, the respondent can apply his own judgment and answer the question as he thinks right. While constructing a questionnaire the following vital points have to be considered: the type of questions to be asked; wording of questions and sequencing of

15 questions. Every question should be checked to evaluate its necessity in terms of fulfilling the research objectives. The questionnaire use different forms of questions such as: Open-ended questions in which acceptable responses are not provided to employees. Close-ended questions Multiple choice questions Dichotomous questions

Questionnaire is relatively simple, quick and inexpensive method of obtaining data. Researcher is able to gather data from a widely scattered sample as the instrument can be mailed to far off places. Respondent has time to contemplate his/her response to each question. DESCRIPTION OF STATISTICAL TOOLS: In order to come out with the findings of the study, the following statistical tools are used in the study. The various analytical tools used in this study are; Percentage Analysis Chi-square test Students T-test One-way ANOVA Karl Pearsons Co-efficient of Correlation Kruskal-Wallis Test or H-Test


16 The percentage refers to a special kind of ratio. Percentage is used in making comparison between two or more series of data. Percentage is used to describe relationship. Percentage (%) = No. Of Respondents * 100 / Total Respondents



The chi square test is useful for measure of comparing experimentally obtained results with those expected theoretically and based on the hypothesis. It is used as a test statistics in testing hypothesis that provides a set of theoretical frequencies with which observed frequencies are compared. The chi square test was first used in testing statistical hypothesis by Kari Pearson in the year 1990. It is defined as


Oi = Observed frequency of the event Ei = Expected frequency of the event

3) STUDENTS T-TEST The t-statistic was introduced in 1908 by William Sealy Gosset, a chemist working for the Guinness brewery in Dublin, Ireland ("Student" was his pen name). A t-test is any statistical hypothesis test in which the test statistic follows a Student's t distribution, if the null hypothesis is supported. It is most commonly applied when the test statistic would follow a normal distribution if the value of a scaling term in the test statistic were known. When the scaling term is unknown and is replaced by an estimate based on the data, the test statistic (under certain conditions) follows a Student's t distribution. If using Student's original definition of the t-test, the two populations being compared should have the same

17 variance (testable using Levene's test, Bartlett's test, or the BrownForsythe test; or assessable graphically using a normal quantile plot).

4) ANALYSIS OF VARIANCE ( ANOVA) It is a technique used to test equality of means when more than one populations are considered. This technique introduced by R.A. Fisher was originally used in different fields. It is a statistical technique specially designed to test whether the means of more than two quantitative populations are equal. There are two major types of ANOVA One-way and Two-way. ONE-WAY ANOVA: The observations are classified according to one factor. This is exhibited column-wise.

5) KARL PEARSONS CO-EFFICIENT OF CORRELATION In statistics, the Pearson product-Moment Correlation Coefficient (sometimes referred to as the PMCC, and typically denoted by r) is a measure of the correlation (linear dependence) between two variables X and Y, giving a value between +1 and 1 inclusive. It is widely used in the sciences as a measure of the strength of linear dependence between two variables. It was developed by Karl Pearson from a similar but slightly different idea introduced by Francis Galton in the 1880s.The correlation coefficient is sometimes called "Pearson's r." If the two variables deviate in the same direction i.e. if the increase (or decrease) in one results in a

18 corresponding increase (or decrease) in the other, correlation is said to be direct or positive. But if they deviate in opposite direction i.e. if the increase (or decrease) in one results in a corresponding increase (or decrease) in the other, correlation is said to be negative.

6) KRUSKAL-WALLIS TEST or H-TEST It is used to test the null hypothesis H0 that k independent samples are drawn from the identical population. This test is an alternative nonparametric test to the t-test for testing the equality means in the one factor analysis of variance when experimenter wish to avoid the assumption that the samples were selected from the normal populations. The Kruskal-Wallis test (Named after William Kruskal and W. Allen Wallis) is a nonparametric test to compare three or more samples. It tests the null hypothesis that all populations have identical distribution functions against the alternative hypothesis that at least two of the samples differ only with respect to location (median), if at all. It is the analogue to the F-test used in analysis of variance. While analysis of variance tests depend on the assumption that all populations under comparison are normally distributed, the Kruskal-Wallis test places no such restriction on the comparison. The approximate sampling distribution for k is chi-square with K-1 degrees of freedom when H 0 is true and if each sample consists of at least five observations.




The study is limited to Chennai city only. Hence, the analysis and findings are relevant to that area only. The respondents are reluctant to express their views freely and openly. The results are of values for only a specific period of time since the market is always dynamic. Since the analysis has been made from the information given by the respondents, the accuracy of the findings depends on the quality of the respondents. The period of study was only for 3 month, which is very short period for detailed study. The information recorded is based on the opinion and reaction of the respondents as on the date of research.



CHAPTER I It deals with the introduction, need, scope, objectives, research methodology, research design, and collection of data, sampling design, research instruments and description of statistical tools, limitations, literature review, company profile and industry profile. CHAPTER II It deals with Descriptive analysis and inferential analysis like Chi-square -test, T-test, ANOVA, Correlation and Kruskal-Wallis H-test. CHAPTER III It deals with findings, suggestions and conclusions


1.2 REVIEW OF LITERATURE INVESTORS PERCEPTION ON IPO: The literature sets out four key stages during which private equity firm involvement could add value to an investee company excited through an IPO. These are: (1) screening and evaluation processes which identify better prospects, (2) governance and mentoring activities which nature investee companies and prepare them for life as a public company, (3) private equity firms knowledge and networks which add value around the IPO event, and (4) continued involvement which contributes to superior post IPO performance. First, Fried & Hirsch, 1994: Hall & Hofer, 1993; Hisrich & Jankowicz, 1990; MacMillian, Siegel,& Subbanarasimha, 1985; Tybee & Bruno, 1984 it has been argued that private equity firms begin to add value to their investee companies even before the initial investment takes place through considered evaluation and selection procedures. These procedures identify only the best prospects for investment and together with the imposition of governance and monitoring controls in investment contracts (Gompers, 1945; Sahlman, 1990) lead to enhanced prospects of survival and prosperity. Second, (Gompers & Lerner, 1998). Private equity firms have been described as active investors, monitoring the progress of firms, sitting on boards of directors, and meting out financing based on the attainment of milestones. This active investor role is demonstrated by buyout focused firms as well as earlier stage venture capital firms (Cao & Lerner, 2009; Cornelli & peck, 2001). The ways and means through which private equity firms are posited as potentially adding value to investee companies are myriad. Frequently cited ways include: 1)

22 assistance in finding and selecting key management team personnel; 2) solicitation of essential suppliers and customers; 3) strategic planning; 4) assistance in obtaining additional financing; 5) operational planning; and 6) replacement of management personnel when appropriate (MacMillian, Kulow, & Khoylian, 1988, p. 28;. Private equity firm involvement has also been shown to be associated with efficiency and productivity improvements, both in respect of buyout specialists and venture capital firms (Chemmanur, Krishnan, & Nandy, 2009; Cotter & Peck, 2001; Cressy, Munari, & Malipiero, 2007; Munari, Cressy, & Malipiero, 2006). One of the key areas of interaction between private equity firms and investees is through participation on investee company boards. Private equity firms ordinarily require board representation as part of their funding agreement (Beecroft, 1994; Cotter & Peck,2001; Kaplan, 1989; Sahlman, 1990). Private equity firm representation on boards has been found to increase as the investee company moves through its developmental phases and staged investment increases the ownership level of the private equity firm (Smith, 2005). Third, private equity firms are believed to add value around the IPO event. Their familiarity with the process enables them to prepare the investee company beforehand, for example by influencing marketing and R&D expenditure to portray an appropriate balance of investment for the future and current profit. They may also impose appropriate governance and management structures to make the offer attractive to future shareholders (Campbell & Frye, 2006; Krishnan, Masulis, Ivanov, & Singh, 2009) . Through these preparatory actions, a more attractive proposition is presented to the market, thereby achieving a higher price and/or hastening the time to IPO (Barry, Muscarella, Peavy, & Vetsuypens, 1990; Dovin & Pyles, 2006; DuCharme, Malatesta, & Sefcik, 2001; Lin & Smith, 1998; Sandstrom & Westerholm, 2003; Timmons & Bygrave, 1986; Wang, Wang, & Lu,2002). Lerner, 1994, private equity firm experience with the IPO process and markets can deliver a timing benefit. Timing of an IPO to coincide with positive market conditions is a key consideration in going public and is associated with higher returns (Cumming, 2008; Lerner, 1994; Ritter & Welch, 2002). Experienced private equity firms have been shown to be better at timing IPO exits (Lerner, 1994) and less incentivized to take investee companies public for ulterior motives as can be the case with younger venture capital firms who may wish to generate reputational benefits (Gompers, 1996).

23 Finally, private equity firms contacts within the industry can not only lead to the selection of superior service providers of associated functions, e.g. auditors, lawyers and underwriters, but can also reduce the costs of evaluating, selecting and commissioning these service providers (Bygrave & Timmons, 1992; Dolvin, 2005; Dolvin & Pyles, 2006; Stein & Bygrave, 1990). Fourthly private equity firms can continue to add value beyond the IPO. They commonly retain high degrees of ownership (Barry et al, 1990; Bradley, Jordan, Yi, & Roten, 2001; Brav & Gompers, 1997; Cao & Lerner, 2009; DeGeorge & Zeckhauser, 1993; Holthausen & Larcker, 1996; Lin & Smith, 1998; Mian & Rosenfeld, 1993 ). Consequently, their board representation and influence continues after the IPO event (Campball & Frye, 2006; Jain & Kin, 1995; Krishnan et al, 2009), which is not ordinarily the case under other exit routes ( Wright et al, 1990). Collectively, these value adding activities of private equity firms are considered to have lasting benefit for investee companies. An extensive study of post IPO performance by Brave & Gompers (1997) suggests that the knowledge, resource and network benefits private equity firms bring extends beyond the event of going public. In comparing post IPO share price performance, their sample of private equity backed firms significantly outperformed non-private equity backed firms despite being smaller, as measured by market capitalization. Conversely, buy-side analysts need to be concerned that leaner operations together with reduced capital expenditures ( Fox & Marcus, 1992; Kaplan, 1989) will lead to a lack of sustainability following the IPO. Window dressing is therefore and important aspect of private equity firm certification of investee firms, there is by comparison relatively little, directly related work on window dressing. In the case of reverse LBOs, accounting measures of operating performance have been found to peak around the time of the IPO (DeGeorge & Zeckhauser, 1993). Existing evidence is mixed as to whether this extends to manipulating reported performance to window dress public offerings. On one hand, the presence of private equity firms, other than young, inexperienced firms, has been found to mitigate the management of accruals (Jain & Kini, 1995; Morsfield & Tan, 2006). In contrast, Chou, Gombola & Liu (2006) found evidence of significant discretionary accruals around the IPOs of reverse LBOs.

24 Shah (1995) documents an under pricing of 3.8% weekly excess returns from a study of 2056 IPOs that commenced trading between January 1991 and April 1995 and finds that past Sensed returns have an impact on the under pricing. In a comprehensive analysis of 1922 IPOs listed from 1992 to 1995 Madhusoodhanan and Thiripalraju (1997) shows that the annualized excess returns from IPOs at294.8% was higher than the experiences of the other countries. They also suggest book building as an alternative proposition to avoid mispricing. Kakati (1999) examined the performance of a sample of 500 IPOs that tapped the market during January 1993 to March 1996 and documents that the short run under pricing is to the tune of 36.6% and in the long-run the overpricing is 40.8%. Krishnamurti and Kumar (2002) working on the IPOs that listed between July 1992 to December 1994 conclude a mean excess return of 72.34% and indicate that the time delay between offer approval and the issue opening as an important factor behind the under pricing. Majumdar (2003) also documents short run under pricing in India and observes after market total returns of 22.6% six months after listing. All the above mentioned studies examined IPO performance during the fixed price regime as book building was not in vogue at those times. Ranjan and Madhusoodanan (2004) from a study of 92IPOs offered during 1999-2003 document that fixed price offers were underpriced to a larger extent than the book built issues though the book built issues were only figuring 24 in the sample this was the first study comparing the fixed price issues performance vis--vis book built issues. REVIEW OF SOME OF THE MOST CLOSELY-RELATED LITERATURE: This paper builds on previous models of the book building process by Benveniste and pint (1989), Benveniste and Wilhelm (1990 ) and Maksimovic and Pichler (2001), which argue that under pricing is needed to induce investors to report information once they have it, and Sherman (2000) and Sherman and Titman (2002), which argue that under pricing is needed to compensate investors for the cost of acquiring information. I extend past book building

25 models by allowing the informations accuracy to be a continuous decision variable. In a similar environment, Sherman and Titman explore the effects of the one price rule and of various participation restrictions, characterizing when such restrictions lead to informed investors receiving economic rents.Yung (2004) models both investor evaluation and banker screening of IPOs, explaining why the size of an IPO investor pool may be restricted. In the auction literature, relatively little work has been done on endogenous entry and information production in a common value setting. Notable exceptions include Hausch and Li (1993) and Harstad (1990), both of which consider only the single unit case. Levin and Smith (1994) and Bajari and Hortacsu (2003) model endogenous entry in a single-unit, endowed information setting. Matthews (1987) considers information production in single-unit auctions with risk averse buyers.Habib and Ziegler (2003) show that posted-price selling of corporate debt may be superior to an auction, if there is a cost to evaluation. Chemmanur and Liu (2003) analyze information acquisition in uniform price auctions and fixed price public offers. Public offers allow issuers to control price but not allocations, book building allows issuers to control both, and standard auctions do not allow issuers to control either.Chemmanur and Liu demonstrate how fixed price offers allow the issuer to induce a higher level of information acquisition but do not allow the offering price to reflect the information acquired. Ausubel (2002) suggests that IPOs should be sold through an ascending clock auction, which he shows to be efficient in an independent private values model with an exogenous number of bidders. Klemperer (2002) points out that a multi-unit uniform price auction is analogous to an ascending auction (in which every winner pays the runner-ups willingness-to-pay), since the lowest winning bid is typically not importantly different from the highest losing bid. With IPO auctions, there tend to be hundreds of bids at the market-clearing price.Ausubel recommend ascending auctions to reduce the winners curse, although reducing the winners curse increases the free rider problem if information must be produced.

26 Biais and Faugeron-Crouzet (2002) model IPO auctions, showing that a dirty Dutch auction can prevent tacit collusion among bidders and can truthfully elicit pre-existing information from investors in much the same way as book building. Parlour and Rajan (2002)also identify similarities between dirty auctions and book building, showing that leaving something on the table can reduce the winners curse, thus eliciting more aggressive bids, under a variety of allocation rules, including some that allow the underwriter to discriminate between bidders. Loughran, Ritter and Rydqvist (1994) were the first to examine global patterns for IPOs, showing that under pricing of IPOs exists to some extent in virtually all countries and for all issue methods. They were also among the first to point out the importance of considering the offering method when evaluating IPOs. For survey of U.S. IPO papers, see Ritter and Welch (2002).For a more extensive list of empirical papers on non-U.S. IPOs, seeJagannathan and Sherman (2004). Cornelli and Goldreich (CG, 2001) and Jenkins on and Jones (JJ, 2003 ) use unique data sets to examine the orders and allocations6 for investors in book building IPOs. Both find that large orders are favored over small orders. JJ find that early bids receive favorable allocations. This is consistent with underwriters trying to discourage free riders, since those that place firm, early bids are clearly acting on their own opinions about the issuer. However,CG do not find that early orders are favored in terms of allocation size.CG find that rationing varies between bidders, and that about 30% of bidders dont get shares at all, showing that underwriters are actively managing allocations (for better or for worse), rather than passively rationing everyone when demand is high. Both papers also find a core of frequent investors that tend to be favored in terms of allocations. Ljungqvist, Jenkinson and Wilhelm (2003) compare book building and public offer IPOs for many countries. They find that book building leads to lower under pricing when conducted by U.S. banks and/or targeted at U.S. investors. Pichler and Stomper (2003) explore the roles of book building and when issued forgery market trading, showing that acquiring private information (through book building) maybe necessary to reduce the Glosten and Milgrom (1985) problem. Glosten and Milgrom showed that a market may fail to open if there are

27 extreme information asymmetries. Pichlerand Stomper demonstrates that book building may reduce the information asymmetry regarding the value of an IPO, thus allowing the when issued market to open. Berrien (2004) models IPO under pricing as being driven by suboptimal regulation requiring aftermarket price support for all IPOs, in an environment in which price support would not occur voluntarily. The paper does not give information on which countries, if any, mandate aftermarket price support. Several researchers have focused on the particular role of market sentiment in IPO performance. The evidence shows that initial returns are higher when investors overreact to initial IPOs news. For example, Gervais and Odean (2001) find that if investors have more overconfidence after market gains then this is followed by increased trading volumes and market depth. Brown and Cliff (2004) use a large group of sentiment indicators to investigate the relationship between sentiment and near-term market returns, and find that sentiment is caused by equity returns. These findings are consistent with Solt and Statman (1988) that greater initial returns cause excessive optimism in investors and following overreaction in post-IPO market. The issuer can also choose when to go public] Odean (1998) provides evidence that the pattern of serially auto-correlated returns around IPOs is particularly strong during hot market periods. Lowry (2003) posits that market cycles and optimism are the reasons for the fluctuations in IPO numbers. Similar research is presented by Cornelli, Goldreich and Ljungqvist (2006), who use the trading behavior of retail investors on the IPO grey market and argue that the sentiments on this market can predict the first-day aftermarket returns. Purnanandam and Swaminathan (2004) compare IPO stocks with those of matching firms and find that stock with high growth potential increase in value on the first day. Therefore, we extend

28 these findings by examine the daily buying and selling information of institution investors, and we highlight how the IPO under pricing associated with each IPO method influences investment Sentiment, the subsequent trading behavior of investors, and long-run performance. Rock(1986), Beatty and Ritter (1986) document that IPO offer prices should be undervalued relative to fair value to avoid winners curse. However, the valuation processes of these three IPO methods are different; first, the value of a fixed-price offering is determined by underwriters, and they gauge the offerings prices by their own pricing formulas. Second, auction offerings are open to all bidders and therefore the value of offering is determined by market demand. In contrast with the fixed-price method, an auction allows potential investors to raise their bid prices which may lead to overpricing, and thus dramatic reverse trading would likely follow post-IPO. Finally, book building underwriters solicit private information from regular traders by road show to and then set the IPO price. Ritter (1998) investigates IPO mechanisms in several countries and finds that the Magnitude of under pricing is greater for countries with fixed-price offering than those using book building procedures. However, Ljungqvist and Wilhelm (2002) use worldwide IPO markets and document that initial returns are positively related with information production. Controlling for the country factor, Derrien and Womack (2003) use IPO data in French stock market, which have experienced these three IPO methods, and find that book building had greater under pricing and pricing variance than other two methods. These findings of a direct correlation between initial returns and information compensation are consistent with the theoretical models of Benveniste and Spindt (1989), Benveniste and Wilhelm (1990). Daniel, Hirshleifer and Subrahmanyam (1998) study the effect of biased self-attribution on news announcements and find that short-term momentum and long-term reversal are apparent in equity markets. Moreover, the trading activities of institutional investors play important roles in IPO markets, and the risk preference and investment sentiment toward an initial great allocation of shares would dominate the post-IPO performance.

29 Aggarwal (2003) documents the flipping of institutional investors is more frequently in hot IPOs. Investors endowed with offering shares are more likely enjoy higher initial abnormal returns and thus realize their gain. Ellis (2006) finds a significant relationship between initial IPO returns and trading volume and document that cold IPOs have early sell trades by insiders. However, the extent of ownership Changes among the IPO methods remain unknown. In this research, we aim to study whether the trading behavior associated with different IPO methods affects the short- and long-run returns of the post-IPO market. We evaluate the buying and selling trading activities of institutional investors to examine how investors react to the abnormal returns of the initial offering. Since higher sentiment causes subsequent trading bias, we further test whether the trading bias of institutional investors affects long-run IPO performance. From the above studies it is evident that an Initial Public Offering (IPO), referred to simply as an "offering" or "flotation", is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue (common or preferred), best offering price and time to bring it to market. When a company lists its securities on a public exchange, the money paid by investors for the newly-issued shares goes directly to the company. An IPO, therefore, allows a company to tap a wide pool of investors to provide it with capital for future growth, repayment of debt or working capital. A company selling common shares is never required to repay the capital to investors. Once a company is listed, it is able to issue additional common shares via a secondary offering, thereby again providing itself with capital for expansion without incurring any debt. This ability to quickly raise large amounts of capital from the market is a key reason many companies seek to go public. IPOs generally involve one or more investment banks known as

30 "underwriters". The company offering its shares, called the "issuer", enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares.


INDUSTRY OVERVIEW: Overview of the Indian Economy: India is a large and growing economy with rapidly expanding financial services sector. With a GDP of $550 billion and $2.66Trillion at Purchasing Power Parity (PPP), India is the worlds 12th largest economy in dollar terms and the 4th largest in PPP terms. The projected growth rate of real GDP is greater than 7% per annum with higher growth in many sectors such as financial services. India has a large and rapidly growing middle class of 300 million people with increasing levels of discretionary income available for consumption and investment purposes. Foreign portfolio and direct investment inflows have risen significantly since economic liberalization reforms began in FY1991 and have contributed to healthy foreign currency reserves ($103 billion in December 2003) and a moderate current account deficit of about 1% in FY 2003. INDIAN FINANCIAL SECTOR HISTORY AND DEVELOPMENT: Post economic liberalization in 1991 the Indian financial services industry has experienced significant growth. During the last decade, there has been a considerable broadening and deepening of the Indian financial markets. The Indian markets have witnessed introduction of newer financial instruments and products over the years. Existing sectors have

31 been opened to new private players. This has given a strong impetus to the development and modernization of the financial services sector. The entry of new players has resulted in a more sophisticated range of financial services being offered to corporate and retail customers which has compelled the existing players to upgrade their product offerings and distribution channels. This is particularly evident in the non-banking financial services sector, such as brokerage industry, where innovative products combined with new delivery methods have helped the sector achieve high growth rates. The combined average daily turnover at BSE and NSE for different market segments has increased from approximately Rs. 4800 million in 1995-96 to approximately Rs. 232,094 million in April 2004. Over this period, there has also been a substantial growth in the market for other financial products like insurance, mutual funds etc. The financial services marketplace is experiencing a profound change as thirty million people in the middle class are entering their prime saving and investing years. These people are willing to use advanced communication tools, such as computers and telephones, and want to take charge of their personal investment decisions. INDIAN CAPITAL MARKET: The Indian capital markets have witnessed a transformation over the last decade. India now finds its place amongst some of the most sophisticated and largest markets of the world. With over 20 million shareholders, India has the third largest investor base in the world after the USA and Japan. Over 9,000 companies are listed on Indian stock exchanges. The Indian capital market is significant in terms of the degree of development, volume of trading and its tremendous growth potential. Over the past few years, the capital markets have also witnessed substantial reforms in regulation and supervision. Reforms, particularly the establishment and empowerment of SEBI, market-determined prices and allocation of resources, screen-based nation-wide trading, dematerialization and electronic transfer of securities, rolling settlement and derivatives trading have greatly improved both the regulatory framework and efficiency of trading and settlement. There are 23 recognized stock exchanges in India, including the OTCEI for small and new companies and the NSE, which was set up as a model exchange to provide nation-wide services to investors.


During 2002-03 the NSE and the BSE were ranked third and sixth respectively amongst all exchanges in the world with respect to the number of transactions. The year 2003, also witnessed setting up of the NCDEX, an online multi-commodity exchange for trading of various commodities. Key initiatives in recent years include: Depository and share de-materialization process have enhanced the efficiency of the transaction cycle. Replacing the flexible, but Often exploited, long settlement cycles with rolling settlement, to bring about transparency. IT driven stock exchanges (NSE and BSE) with a national presence (for the benefit of investors across locations) and other initiatives to enhance the quality of financial disclosures by the listed companies. Empowering SEBI with powers to impose higher penalties and establish itself as an independent regulator with adequate statutory powers. NSE, which in the recent past has accounted for the largest trading volumes, has a fully automated screen based system that operates in the wholesale debt market segment as well as the capital market segment Many new instruments have been introduced in the markets, including index futures, index options, derivatives and options and futures in select stocks. Insurance Sector:

33 With the opening up of the market for private players, various foreign and Indian private players have targeted the untapped market potential by providing tailor-made products. Some key features of the Indian insurance sector are stated below: The presence of a host of new players in the sector has resulted in a shift in approach and the launch of innovative products, services and value-added benefits. Foreign majors have entered the country and announced joint ventures in both life and non-life areas. Major foreign players include New York Life, Aviva, Tokyo Marine, Allianz, Standard Life, Lombard General, AIG, AMP and Sun Life among others. As a result of competition, the erstwhile state sector companies have become aggressive in terms of product offerings, marketing and distribution. The Insurance Regulatory and Development Authority (IRDA) have played a proactive role as a regulator and a facilitator in the sectors development. The state sector Life Insurance Corporation (LIC), the largest life insurer in 2000, sold close to 20 million new policies with a turnover of approximately US$ 5 billion. There are four public sector and nine private sector insurance

2.58 billion.

companies operating in general/ non-life insurance business with a premium income of over US$

The markets potential has been estimated to have a premium

income of US$ 80 billion with a potential size of over 300 million people. The General Insurance Corporation (GIC) (which covers the non-life sector) had a total premium income of US$ 2 billion in 2001-02. This has the potential to reach US$ 9 billion in the next five years. Industry Outlook:

34 Indian financial sector presents a huge retail finance opportunity. Existing low penetration levels, increasing affordability of credit and rising income levels have led to a growing demand for retail financial products. India has a large pool of retail investor base spread throughout the country with a huge pool of untapped surplus funds. The confidence of small investors has increased with the growing levels of education and financial awareness, and the tightening of regulatory systems. Exposure to global practices has made the Indian customer more discerning and demanding. As a result of falling interest rates, bank deposits, other traditional investment opportunities are losing their attraction. Thus, Indian investors are getting attracted towards alternate investments such as the equity markets and are looking for newer financial products. Huge opportunities offered in the retail financial services sector are coupled with several challenges. The sector requires extremely effective distribution systems that are capable of offering flexibility and convenience to the customer, while maintaining costefficiency. There has been a clear shift towards those entities that are able to offer products and services in the most innovative and cost efficient manner. The financial sector will need to adopt a customer-centric business focus. It will also have to create value for its shareholders as well as its customers, competing for the capital necessary to fund growth as well as for customer market share. The financial services industry is undergoing a consolidation with the large number of small players turning into few large players. In future, it is expected that the players who can offer a complete bouquet of financial products and services will capture the market share. Consolidation in the Indian Equity Trading Markets: As the Indian capital markets are evolving, they are undergoing rapid consolidation spurred primarily due to continuous increase in capital requirements, increased regulatory oversight, customer sophistication, availability of technology to provide high quality service to a large customer base and increased back-office requirements. The margin requirements for exposure and mark to market have increased as the regulator and major exchanges enhance the risk management processes and systems in order to be in line with global practices. Moreover the shorter settlement cycle has required stronger back office capabilities thus necessitating heavy capital investments. From T+5 settlement regime till 2000, markets are

35 now in T+2 regimes for the last year, and it will soon be changed to T+1 regime. These changes in regulatory framework have enhanced the capabilities required to stay in the business in terms of capital and infrastructure and have resulted in the smaller players getting driven out of the system. These companies strengths lie in their strong balance sheets, countrywide presence; strong brand awareness and highly trained sales force delivering world-class service levels to the retail investor. The retail presence in the stock markets has been growing steadily with the advent of dematerialization and the recent acceleration in opening of demats accounts. The current retail business has a 65% share of total exchange volumes, with FI/FII business having 15% share, and proprietary trading by brokers & related parties accounting for the remaining 20% share. The Retail participation is stated to grow more than 25% per annum for the next 10 years. The market shares of the top 5 brokers on NSE has increased from less than 5.9 % in 1996-97 to about 13% in the previous quarter ended December 31, 2003. The market share of the top 10 players on NSE has grown from 10% in 1996-97 to 16.4% in 2002-03, and the share of the top 25 players on NSE has grown from 19.7% in 1996-97 to 29.1% in 2002-03. This consolidation has markedly accelerated in the last 2 years, where the market share for the top 5 brokers has gone up from 7% to about 13%, due to the impact of regulatory changes, introduction of new technologies and increased customer sophistication. This development parallels, on an accelerated timeline, the development of the US markets from 1970s to 1990s, where the top 5 brokers, like Charles Schwab, Etrade, Merrill Lynch, Dean Witter, and Smith Barney rapidly expanded their market share and gained control of close to 50% of retail trading volumes. 50% Volumes done by top brokers Trading Volumes (Rs. Crores) Top Brokers 5 10 25 50 100 NSE Total Avg. India top 5 bulls brokers market.


1.2.2 COMPANY PROFILE Indiabulls is Indias leading Financial Services and Real Estate Company having over 640 branches all over India. Indiabulls serves the financial needs of more than 4,50,000 customers with its wide range of financial services and products from securities, derivatives trading, depositary services, research & advisory services, consumer secured & unsecured credit, loan against shares and mortgage & housing finance. With around 4000 Relationship Managers, Indiabulls helps its clients to satisfy their customized financial goals. Indiabulls through its group companies has entered Indian Real Estate business in 2005. It is currently evaluating several large-scale projects worth several hundred million dollars. Indiabulls Financial Services Ltd is listed on the National Stock Exchange, Bombay Stock Exchange and Luxembourg Stock Exchange. The market capitalization of Indiabulls is around USD 3,330 million (30th September 2007). Consolidated net worth of the group is around USD 950 million (30th September 2007). Indiabulls and its group companies have attracted more than USD 800 million of equity capital in Foreign Direct Investment (FDI) since March 2000. Some of the large shareholders of Indiabulls are the largest financial institutions of the world such as Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley and Farallon Capital. GROWTH STORY: PROPERTIES IN MUMBAI AND DELHI:


India bulls have emerged as one of the leading and fastest growing financial company in less than two year, since its initial public offering in September 2004. It has a market capitalization of around 3,330 million (30th September 2007) and consolidated net worth of the group is around USD 950 million.

Indiabulls Financial Services Ltd. established Indias one of the first trading 2000-01 platforms with the development of an in house team Indiabulls expands its service offerings to include Equity, F&O, and Wholesale 2001-03 Debt, Mutual fund, IPO distribution and Equity Research. Indiabulls ventured into Insurance distribution and commodities trading. 2003-04 Company focused on brand building and franchise model. Indiabulls came out with its initial public offer (IPO) in September 2004. 2004-05 Indiabulls started its consumer finance business. Indiabulls entered the Indian Real Estate market and became the first company to bring FDI in Indian Real Estate. Indiabulls won bids for landmark properties in Mumbai.

38 Indiabulls came out with its initial public offer (IPO) in September 2004. 2005-06 Indiabulls started its consumer finance business. Indiabulls entered the Indian Real Estate market and became the first company to bring FDI in Indian Real Estate. Indiabulls won bids for landmark properties in Mumbai.

Indiabulls entered in a 50/50 joint venture with DLF, Kenneth Builders & 2006-07 Developers (KBD). KBD has acquired 35.8 acres of land from Delhi Development Authority through a competitive bidding process for Rs 450 crore to develop residential apartments. Indiabulls Financial Services Ltd. is included in the prestigious Morgan Stanley Capital International Index (MSCI). Farallon Capital has agreed to invest Rs. 6,440 million in Indiabulls Financial Services Ltd. Indiabulls ventured into commodity brokerage business. Indiabulls has received an in principle approval from Government of India for development of multi product SEZ in the state of Maharashtra. Dev Property Development plc. Has subscribed to new shares and has also acquired a minority shareholding from the Company. Indiabulls Financial Services Ltd. Board resolves to Amalgamate Indiabulls Credit Services Limited and demerges Indiabulls Securities Limited



THE BOOM in the market and the rush for that hidden pot of gold has led to a mushrooming of financial dotcoms. Everyone wants a share of the pie, and what better way to get it than through the medium that is all the rage. The Internet has the advantage of real time and gives you an opportunity to follow the market at every turn. There are a number of financial web sites to choose from, all aiming to give information on every aspect of finance, from securities to credit cards. What differentiates them is the quality and quantity of information provided, depth of analysis and accuracy of facts. Indiabulls.com wants to be a gateway to the world of finance. LAYOUT AND REVIEW: The home page of indiabulls.com is similar to most other financial web sites, as it gives an updated view of the main market indices, both Indian and selects foreign ones. It also offers news reports and newsbreaks. A real-time ticker (also available on most other sites) lists live quotes of stock exchange scrips. On this real-time ticker, clicking on the company links to the Reuters data fact-sheet on the company's price history, background and charts. The home page features six main modules, each on a specific investment area -- mutual funds, equity market, research, Portfolio, personal finance and trading. The mutual fund module provides useful information on individual funds. The module home-page has an overall fund ranking system, where one can find the top funds, according to one's specifications. For instance, a test-search for the top five open-ended and balanced funds resulted in a fact-sheet on the top five funds in that category. It also has an extensive search facility that works on a keyword model. The page provides a fact-sheet on the fund background, prospectuses and brief analysis. In a test search, however, the prospectus and analysis were unavailable for certain funds. Analysis of the funds is in itself not extensive, and an investor might be inclined to use a web-site dedicated to mutual funds rather than just a module that gives an overview. The second module relates to equity market investing and contains market reports, market statistics, information on board meetings and an IPO corner. The IPO corner, in an

40 innovative service, mails out forms for individual IPOs, free of cost, in response to requests via e-mail. Market commentary provides reports on key stocks, and the long- and short-term outlooks for the market. The third module, the research module, is well organized and comprises a considerable volume of information on individual companies, with a database of over 2,000 listed companies. The site details company results, including the profit and loss accounts and balance sheets, information on the company's background, ratios and investor issues, such as bonus issues and price history. It also gives the company's history and a comparative fact-sheet on firms in its peer group. The research might not, however, be enough for a seasoned investor, as there is no detailed analysis on the companies or the industries they operate in. There are more specialized sites for such information, which would be more useful. The portfolio module helps one keep track of personal securities portfolio. The clients portfolio is updated on a real-time basis and the module has a number of tools that can help him to manage and track the shares the owners. It is yet to include mutual fund investments, as there is still no facility for updating them on a real-time basis. It is, however, immensely useful for the investor who is a keen trader but does not want the hassle of an investment manager or costly portfolio-management software. Finally, the personal finance module, which is packed with information on taxation issues, credit cards and fixed deposits. An interesting tool, the tax calculator, helps calculate personal tax liabilities. Perhaps the most attractive feature of the site is the Stock Game, which allows the client to trade phantom shares and try his hand at the stock market without making any investment except your time. It is also a good way for an amateur to practice analytical skills without running the risk of losing money. Other features include a chat room, message board and an area related to technical analysis. SITE IDEA:

41 On the whole, the website is well organized. Links are well coordinated and lay out, and the search facilities are good. The site's main problem is that it lacks depth in analysis. While indiabulls.com covers a wide range of areas, aiming to give as much financial information as possible, it is missing out on the fine details of analysis. At present, this site is useful only for the amateur investor who is surfing the market but does not plan to make any firm decisions. The site could be far more useful if it builds on the current volume of information, and provides more analysis on the different areas, especially mutual funds and individual companies. This is the only way it can compete with the numerous other financial web sites. The concept of trading shares on-line is still catching on in India. The site has taken the first few steps by developing a phantom trading site. Therefore, it already has the advantage of a framework within which shares can be traded on-line. This could be further developed to cater to real trading. MAIN OBJECTS OF THE COMPANY: The main objects to be pursued by the Company on its incorporation are: 1. To hold investments in various step-down subsidiaries for investing, acquiring, holding, purchasing or procuring equity shares, debentures, bonds, mortgages, obligations, securities of any kind issued or guaranteed by the Company. 2. To provide financial consultancy services; to provide investment advisory services on the internet or otherwise; provide financial consultancy in the area of personal and corporate finance; publish books and CD ROMs and information related to the above. 3. To conduct the business of sale, purchase, distribution and transfer of shares, debts, instruments and hybrid financial instruments and to perform all related, incidental, ancillary and allied services. 4. To conduct depository participant services; to conduct dematerialization and re-materialization of shares; set up depository participant centers at various regions in India and to perform all related, incidental, ancillary and allied services. 5. To operate mutual funds; receive funds from investors; equity or debt instrument research activity instrument in debt and/or equity instruments.


Indiabulls offers services across a broad array of products, including Stocks, Options and Futures Depository Services Commodities Insurance Products Mutual Funds Bonds and Debt Product The Company and the subsidiaries provide brokerage, services and third party financial products and other services through a variety of channels to retail and institutional clients and operate nationally in India. It is headquartered in New Delhi with a network of 70 offices spread across 55 cities. The Company and its subsidiaries target the retail and the institutional segment of the market through direct and indirect channels. The direct channel for business is through the sales employees who operate out of the 70 offices in 55 cities.


The indirect channel for business is through the network of marketing associates, people who are not on the rolls of the companys has invested heavily in building a strong sales team and as on April 30, 2004 it had over 476 relationship managers in its 70 offices spread all over the country. With the sales and marketing team, the Company and the subsidiaries are able to cross sell many financial products such as insurance and mutual funds. It has experienced substantial growth at a CAGR of 132.97% over FY 2002 to FY 2004 in revenues and achieved a substantial market share in the Equity, F&O and Debt market leading to a combined average daily turnover of Rs. 4451.5 million for the FY 2004. The consolidated revenues and net profits have grown at a CAGR of 132.97% and 118.31% respectively over last two years. The revenues have grown from Rs. 132.55 million in FY 2002 to Rs. 266.69 million in FY 2003 and to Rs.719.48 million in FY 2004. The net profits have increased from Rs. 40.61 million in FY 2002 to Rs. 51.05 million in FY 2003 and to Rs. 193.54 million in FY 2004. The total number of employees grew from 110 as in FY 2002 to 178 as in FY 2003 and to 606 as on April 30, 2004

44 BUSINESS MODEL: The Company and the subsidiaries have a vast client base of 32,359 clients as on April 30, 2004 spread all over India and it has been augmenting its client base across the country, which makes the business model a low risk model as compared to a business model which may be dependent on very few clients. The revenues are largely based on fee/commission income generated through providing securities brokerage & related financial services to individual investors and independent advisors. The Company and the subsidiaries focus on a core client base of individual investors and the marketing associates who serve them. It offers the following products and services in the financial markets: Stocks Options and Futures25 Depository Services Commodities ,Insurance Products and Mutual Funds


45 Table No: 2.1.1

SL. NO 1 2 3 4 5

FACTORS BELOW 25 25-35 36-45 46-55 ABOVE 55 TOTAL

RESPONDENTS 46 50 12 10 2 120

PERCENTAGE 38.3 41.7 10.0 8.3 1.7 100

Chart No: 2.2.1

INFERENCE: From the above table it is inferred that out of 120 respondents 38% of the respondents age group is below 25, 41% of them are 25-35, 10% of them have 36-45, 8% of them were 46-55 and balance peoples are above 55.



Table No: 2.1.2


Chart No: 2.2.2

INFERENCE: From the above table, it is inferred that out of 120 respondents 57.5% of the respondents are male and 42.5 of them are female. OCCUPATION Table No: 2.1.3


SL.NO 1 2 3 4


RESPONDENTS 19 64 18 19 120

PERCENTAGE 15.8 53.3 15.1 15.8 100

Chart No: 2.2.3

INFERENCE: From the above table, it is evident that out of 120 respondents 15.8% of the respondents are professionals, 53.3% of them are private employees, and 15.1% of them are govt. employees, and remaining 15.8% of them are self employed peoples. ANNUAL INCOME Table No: 2.1.4 SL.NO FACTORS RESPONDENTS PERCENTAGE

48 1 2 3 4 5 BELOW 2 LAC 2-5 LAC 5-8 LAC 8-10 LAC ABOVE 10 LAC TOTAL

45 46 11 6 12 120

37.5 38.3 9.2 5.0 10.0 100

Chart No: 2.2.4

INFERENCE: From the above table , it is inferred that out of 120 respondents 37.5% of the investors are having below 2 lack annual income,38.3% of them are 2-5 lack income,9.2% of them are 5-8 lack income earned, 5% of them are 8-10 lack income earned, and balance 10% of them are only earned above 10 lacks.


49 O 1 2 3 4 5 BELOW 2 YRS 2-5 YRS 5-8 YRS 8-10 YRS ABOVE 10 YRS TOTAL 65 29 15 6 5 120 54.2 24.2 12.5 5.0 4.2 100

Chart No: 2.2.5

INFERENCE: From the above table, it is inferred that out of 120 respondents 54.2% of the investors having below 2 years experience about investment in IPO, 24.2% of them have 2-5 years experience, 12.5% of them having 5-8 years experience, 5% of them having 8-10 years experience and balance 4.2% of them having only above 10 years experience about IPO. SATISFACTION WITH IPO INVESTMENT Table No: 2.1.6 SL.NO 1 2 FACTORS HIGHLY SATISFIED SATISFIED RESPONDENTS 11 52 PERCENTAGE 9.2 43.3

50 3 4 AVERAGE NOT SATISFIED TOTAL 49 8 120 40.8 6.7 100

Chart No: 2.2.6

INFERENCE: From the above table, it is evident that 9.2% of the investors highly satisfied with IPO investment, 43.3% of them are satisfied, 40.8% of them are giving average and balance 6.7% of them are not satisfied with the IPO investment.


51 TOTAL 120 100

Chart No: 2.2.7

INFERENCE: From the above table, it is inferred that out of 120 respondents 19.2% of the investors say that their rate of return in IPO is excellent, 45.8% are stated that it is good, 30% of the respondents stated that it is average, and remaining 5% of them are stated that it is poor.

LEVEL OF KNOWLEDGE ABOUT IPOS Table No: 2.1.8 SL NO 1 2 3 4 5 FACTORS 0-20% 20-40% 40-60% 60-80% 80-100% TOTAL RESPONDENTS 17 55 26 13 9 120 PERCENTAGE 14.2 45.8 21.7 10.8 7.5 100

Chart No: 2.2.8


INFERENCE: From the above table, it is evident that 14.2% of the investors have 0 to 20% knowledge about IPOs, 45.8% of them have 40% knowledge, 21.7% of them have 60% knowledge, 10.8% of them have 80% knowledge, and remaining 7.5% of them having only 100% Knowledge.


Chart No: 2.2.9


INFERENCE: From the above table, it is evident that out of 120 respondents 18.3% of the investors stated that their risk taking level is conservative, 63.3% of them are giving moderate, and the remaining 18.3% of them are stated that it is aggressive.



INFERENCE: From the above details we can concluded that 28.3% of the investors agree that IPO is a risky investment, 33.3% of them are strongly agree, 26.7% of them have undecided (neither agree or disagree),9.2% of them disagree and 2.5% of them have strongly disagree with this statement.


55 Chart No: 2.2.11

INFERENCE: From the above table it is inferred that out of 120 respondents 60.8% of them are stated that the mode of investment is through online, remaining 39.2% of them only comes through offline.


Chart No: 2.2.12


INFERENCE: From the above table, it is inferred that out of 120 respondents 20.8% of the respondents stated that the source of collecting information regarding IPO is by the brokers, 49.2% of them are collected by the brokers, 17.5% of them are from word of mouth and the remaining 12.5% of them are collected through others. MODE OF CHOSING PARTICULAR IPO Table No: 2.1.13 SL.NO 1 2 3 4 FACTORS SELF ANALYSIS WORD OF MOUTH ANALYSTS OTHERS TOTAL RESPONDENTS 48 50 15 7 120 PERCENTAGE 40.0 41.7 12.5 5.8 100

Chart No: 2.2.13


INFERENCE: From the above table, it is evident that out of 120 respondents 40% of the respondents stated that the mode of choosing particular IPO is by self analysis, 41.7% of them are choosing by word of mouth, 12.5% of them are from analysts and the remaining 5.8% of them are choosing through others. PERCENTAGE OF INCOME INVESTED IN IPO Table No: 2.1.14 SL.NO 1 2 3 4 FACTORS 100% 75% 50% 25% TOTAL Chart No: 2.2.14 RESPONDENTS 11 14 50 45 120 PERCENTAGE 9.2 11.7 41.7 37.5 100


INFERENCE: From the above table, it is evident that out of 120 respondents 9.2% of them are stated that the percentage of income invest in IPO is 100%, 11.7% of them are giving 75%, 41.7% of them are stated that 50%, and the remaining 37.5% of them are stated that it is 25%. PROFITABILITY OF IPO COMPARING WITH OTHER INVESTMENT OPTIONS Table No: 2.1.15 SL.NO 1 2 3 4 FACTORS AVG. RETURN HIGH RETURN LESS RETURN NO RETURN TOTAL RESPONDENTS 42 49 24 5 120 PERCENTAGE 35.0 40.8 20.0 4.2 100

Chart No: 2.2.15


INFERENCE: From the above table, it is evident that out of 120 respondents 35% of the investors stated that profitability of IPO comparing with others is only average return, 40.8% of them are stated that high return, 20% of them are stated that it is less return, and the remaining 4.2% of them are stated that it is no return.


Chart No: 2.2.16


INFERENCE: From the above table, it is evident that, out of 120 respondents 18.3% of the investors are stated that the risk factor prevailing in IPO comparing with others is high risk, 58.3% of them are stated that it is medium risk, 14.2% of them are stated that it is less risk, and the remaining 9.2% of them are stated that it is average risk.



INFERENCE: From the above table, it is inferred that 31.7% of the investors agree that investing in IPO is safe for small investors, 24.2% of them are strongly agree, 35.8% of them have undecided (neither agree or disagree),3.3% of them disagree and 5% of them have strongly disagree with this statement. PREFERENCE OF INVESTING IN A PARTICULAR COMPANY Table No: 2.1.18 SL.NO 1 2 3 4 5 FACTORS BRAND/IMAGE PEROFITABILITY DIVIDEND POLICY PERFORMANCE OTHERS TOTAL RESPONDENTS 24 50 9 34 3 120 PERCENTAGE 20.0 41.7 7.5 28.3 2.5 100

Chart No: 2.2.18

62 INFERENCE: From the above table, it is evident that out of 120 respondents 20% of the respondents stated that the preference of investing in a particular company is for brand/image, 41.7% of them are stated that profitability of the company, 7.5% of them are says dividend policy, 28.3% of them are stated that it is performance, and the remaining 2.5% of them are giving others.


Chart No: 2.2.19


63 From the above table, it is inferred that out of 120 respondents 70.8% of them are stated that knowledge about the importance of fundamental analysis of a IPOs is YES, and the remaining 29.2% of them are giving NO for the same.


Chart No: 2.2.20

INFERENCE: From the above table, it is inferred that out of 120 respondents 55% of them are giving YES for the awareness of the procedures before applying the IPO, and the remaining 45% of them stated that it is NO.



Chart No: 2.2.21

INFERENCE: From the above table, it is inferred that out of 120 respondents 32.5% of the investors are expecting some more companies coming out with their IPOs in FY2011, 22.5% of them are says that NO, and the remaining 45% of them says cant say.



SL.NO 1 2 3 4


RESPONDENTS 21 46 16 37 120

PERCENTAGE 17.6 38.3 13.3 30.8 100

Chart No: 2.2.22


above table, it is inferred that out of 120 respondents 17.6% of the investors are stated that their advice for new investors in IPOs is go by only promoters, 38.3% of them stated that only premium, 13.3% of them are says that the sectors performance, and the remaining 30.8% of them are stated that all the above. RECOMMENDATION TO INVEST IN IPOS Table No: 2.1.23


SL.NO 1 2



PERCENTAGE 70.8. 29.2 100

Chart No: 2.2.23

INFERENCE: From the above table, it is evident that out of 120 respondents 70.8% of the investors have some reasons. 2.2 INFERENTIAL ANALYSIS suggested their friends, colleagues or relatives to invest in IPO due to some good results and 29.2% of them have not suggested to their friends, relatives or colleagues due to

67 2.2.1 HYPOTHESIS : CHI-SQUARE TEST Paired comparison between the importance of fundamental analysis of an IPO and the awareness of the procedures before applying for IPO. PARTICULARS FUNDEMENTAL ANALYSIS OF IPO IPO AWARENESS YES 85 66 NO 35 54 TOTAL 120 120

Null Hypothesis (H0): There is no association between the importance of fundamental analysis of an IPO and the awareness of the procedures before applying IPO. Alternative Hypothesis (H1): There is an association between the importance of fundamental analysis of an IPO and the awareness of the procedures before applying IPO. TABLE CHI-SQUARE TEST FOR FUNDAMENTAL ANALYSIS OF AN IPO AND AWARENESS OF IPO BEFORE APPLY FUNDEMENTAL ANALYSIS YES NO TOTAL 54 (46.8) 12 (19.3) 66 23 (15.8) 54 IPO AWARENESS YES 31 (38.3) 35 120 NO 85 TOTAL

The value within bracket refer expected frequency (Ei)


] with (r-1) (c-1) degrees of freedom


r refers number of rows, c refers number of columns here, Ei = CALCULATION OF CHI-SQUARE VALUES Oi 54 31 12 23 Ei 46.8 38.3 19.3 15.8 (Oi-Ei) 7.2 -7.3 -7.3 7.2 (Oi-Ei)2 51.84 53.29 53.29 51.84



1.11 1.40 2.76 3.28

8.566 With (2-1) (2-1) degrees of freedom Calculated value = 8.566 Table value of chi-square = Table value = 3.841

] =8.566

RESULT: At 5% level of significance the tabulated value 1, degrees of freedom is 3.841 since the calculated value of chi-square is greater than the table value of chi-square, reject Null Hypothesis. Hence it concluded that there is a relationship between fundamental analysis and awareness of IPOs.

2.2.2 HYPOTHESIS- T-test


SL.NO 1 2 3 4 5 FACTORS RESPONDENTS 34 40 32 11 3 120



Null Hypothesis (H0): There is no significant difference between male and female with respect to the opinion about the statement IPO is a risky investment Alternative Hypothesis (H1): There is a significant difference between male and female with respect to the opinion about the statement IPO is a risky investment GENDER

N n1 n2 69 51 _ X _ Y

MEAN 3.64 4.04 S1 S2

S.D 1.124 0.979

T-test for difference of two mean is,



Sp= 1.056 Calculated value of T-test = 2.067 Table value of t= t n1+n2-2, 5% T 118, 5% = 1.96

RESULT: The results shows that the calculated value of T-test is greater than the table value of Ttest, so reject Null Hypothesis at 5% level of significance. Hence concluded that there is a significant difference between male and female with respect to the opinion about IPO is a risky investment

2.2.3 HYPOTHESIS- ONE-WAY ANOVA Comparison between more than two groups.



1 2 3 4 5



34 40 32 11 3 120

Null Hypothesis (H0): There is no significant difference between occupations with respect to the statement IPO is a risky investment Alternative Hypothesis (H1): There is a significant difference between occupations with respect to the statement IPO is a risky investment






VALUE (x1)2

Professional Pvt. Employee Govt.Employee Self Employed TOTAL

19 64 18 19 120

66 262 56 73 457

256 1124 196 303 1879

1) Correction Factor (CF) = = = 1740.408 2) Total Sum of Square (TSS) = Xi2 - CF = 1879 1740.408 =138.59

3) Between Sum of Square (BSS) =

- CF


- 1740.408

= 16.113 4) Error Sum of Square (ESS) = TSS-BSS = 122.48

ANOVA TABLE Source of variation BSS ESS TSS Calculated value 5.087 Degrees of freedom 3 116 119 Table value Sum of square 16.113 122.48 138.59 Mean sum of square 5.371 1.056 F-ratio F-table



RESULT: From the result shows that the calculated value of F is greater than the table value of F, rejecting null hypothesis at 5% level of significance. Hence there is a significant difference between occupations with respect to the statement IPO is a risky investment 2.2.4 HYPOTHESIS- V Karl Pearsons Co-efficient of correlation: To find the relationship between two variables, one is Satisfaction level of IPO investment and the other one is Rate of return in IPO investment.


LEVEL OF SATISFACTION IN IPO FACTORS Highly satisfied Satisfied Average satisfied Not satisfied FACTORS Excellent Good Average poor RESPONDENTS 11 52 49 8 RESPONDENTS 23 55 36 6


From the above table level of satisfaction is taken as X variable and rate of return is taken as Y variables. Correlation co-efficient

Here; N = 120, X = 306, Y = 335, X2 = 848, Y2 = 1013, XY = 898 Correlation (r) = 0.603

RESULT: From the result shows that there is a positive correlation, it means 60% of correlation between level of satisfaction and rate of return in IPO investment. 2.2.5 HYPOTHESIS-V Kruskal-Wallis Test or H- Test:

74 Paired comparison between age group with respect to the statement investing in IPO is safe for small investors. IPO IS SAFE FOR SMALL INVESTORS FACTORS Agree Strongly agree Neither agree or disagree Disagree Strongly disagree TOTAL NO.OF RESPONDENTS 38 29 43 4 6 120

Null Hypothesis (H0): There is no significant difference between Mean Rank of Age Group with respect to the statement investing in IPO is safe for small investors. Alternative Hypothesis (H1): There is a significant difference between Mean Rank of Age Group with respect to the statement investing in IPO is safe for small investors. AGE GROUP BELOW 25 25-35 36-45 46-55 ABOVE 55 TOTAL N (2) 46 50 12 10 2 120 MEANRANK(3) 71.75 55.58 47.50 60.35 3.50 SUM OF RANK (R) 3300.5 2779 570 603.5 7
R2 N R2 N

236810.87 154456.82 27075 36421.225 24.5 454788.425



= 12.858

75 Calculated value of H = 12.858 Degrees of freedom = k-1 = 5-1 =4 Level of significance: Here = 5% =4, 5% The value of 2 for 4 degrees of freedom for = 5% = 9.488 (from 2 table)

RESULT: Since the calculated value of H is greater than the tabled value of 2 at = 5% for 4 degrees of freedom as 12.858 safe for small investors. 9.488. So reject Null hypothesisH0, there is a significant difference between Mean Rank of Age Group with respect to the statement investing in IPO is

CHAPTER- III 3.1 FINDINGS From the analysis, it was possible to determine the investors perception towards IPO.

76 The maximum investments are invested by male (58%) who belongs to the age group of 25-35. Out of 120 respondents 54% of the investors have below 2 years experience in IPO investment, based on companys past performance. The statistics shows that out of 120 respondents 43% of them are highly satisfied with the IPO investment. From this study it is found that 46% of the investors have knowledge of about IPOs. Because new investors who are trying to learn about stock markets will make them familiar with the stock market terminology along with the safe investing techniques. From this study it is found that 34% of the investors strongly agree that IPO is a risky investment, For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data with which to analyze the company. From this study the statistics shows that 60% of the investors prefer online mode of investment, the most important benefit of investing in IPO Online is paper less work and any time anywhere investment. From this study the statistics shows 49% 0f the investors prefer media as a primary source for collecting information regarding IPO, Therefore these Medias invite experts who give tips to the investors about IPO offers and stock trading lively. From this study it is found that 42% of the investors stated that the mode of choosing a particular IPO by word of mouth, because it will help them to get more ideas regarding IPOs. The study infers that 42% of investors prefer to spend half of their income for investment in IPO; a good IPO investor is the one who knows about the future developments in IPO markets before they are actually in news. The next point is to read the prospectus of the company in detail. From this study the statistics shows that 41% of the investors gained high return of profit by investing in IPO while compared to other investment. From this study the statistics shows that 58% of the investors inferred that the risk factor for prevailing in IPOs is medium while compared to other investment.

77 From this study it is found that 36% of the investors neither agree nor disagree in investing in IPO. Initial public offerings (IPOs) and public issues are the flavor of the season in the market, and scores of small investors have made phenomenal overnight gains by subscribing to them. From this study it is found that 41% of the respondents prefer the profitability of the particular company for investment, is not easy but you can learn the steps for successful investing if you learn the basics of stock market investing by reading up on the ideas and guidance given by stock market investing experts. Out of 120 respondents 71% of the investors have the knowledge about the fundamentals of an IPO; Indian investors do not really bother about grades for initial public offerings (IPOs) before investing when the market is hot. And then they invariably regret. From this study it is found that 55% of the respondents have given YES to have awareness of the procedures before applying for the IPO, An informed and intelligent IPO investment decision can help you to make huge profits. From this study it is found that 33% of the investors expect more companies coming out with their IPOs in FY2011, based on recently listed IPOs. From this study it is found that 38% of the investors advice, new investors in IPO to go by only premium. While compared to others it is best for them. From this study the statistics shows that70% of the respondents suggested their friends, colleagues and relatives to invest in IPO, for the investor, IPOs are attractive mainly because they may be undervalued. Initially, to make IPOs more attractive, many companies will offer their initial public offering at a low rate. From Chi-square test it was found that there is a relationship between fundamental analysis of an IPO and the awareness of the procedures before applying for IPO. From T-test of comparing two groups, it is found that there is a significant difference between male and female with respect to their opinion about IPO is a risky investment. From ANOVA it is inferred that there is a significant difference between occupations with respect to the statement IPO is a risky investment.

78 From the inferential analysis, it was found that there is a 60% positive correlation between level of satisfaction and rate of return in IPO investment. From the H-Test, it is evident that there is a significant difference between Age group with respect to the statement investing in IPO is safe for small investors.

3.2 SUGGESTIONS Identify the company to in which the IPO investment has to be made. Investors should have the awareness of the procedures before applying for IPO. Identify the risk factor prevailing in IPO before investment.

79 Identify the source for collecting information regarding IPO. The policies of the company should be clear such that even ordinary people should be able to know about IPOs. Organize program for investors and educate them the opportunities and new option available in the IPO market. Investors must understand clearly the objectives, schemes and services by the IPO. Read the section about underwriters, and note which brokerage firms are participating in the IPO. Be prepared for rejection. Most brokers let only their top clients buy into an IPO. Find out whether online discount brokers are playing a distributor role in the IPO. If so, they may be willing to let you buy shares if you will establish an account. Tell the broker how much you plan to invest in the IPO. Keep an eye on Web sites as the expected offering date nears. You will learn the price range in which the company plans to sell shares and the date the offering is expected to take place. Company should take in account the world market scenario before making any offering to public. The customer should also be rational while investing in IPOs. Proper allocation of fund should be done by the investor to ascertain what quantum of fund is sufficient for investment.


80 Tomorrow is another day , this applies to the corporate as well as the individual almost equally. As the need of the people is changing so is changing the investment habits of the people and this has brought in a spate of new products and schemes where people can invest. IPO is a first sale of shares to the public by any company. The objective of IPO is to ensure that raising the capital of the company and create awareness of the company. If investor invests only in IPO then his purpose is to cut the profits on the listing of the shares. Investors not interested in company should sell their shares on the day of the listing. So Brand image of the company specially the image of the company wants to increases, Indian investors have faith in the name of the company because the situation of world market were hostile and due. IPO is basically would be made by a company primarily in case it requires funds. So for companies in growth stage it is looking at expansion and diversification. In my study I verified that IPO is suit for institutional investors and business peoples to begin making contact with investment banks, attorneys, and accountants in advance of planning an IPO. He or she must be well informed on the risk and return attributes of these options. Initially to make IPOs more attractive, companies must offer their IPOs at low rate; this will helps to encourage the investors. To be a successful investor they need two main things the knowledge and right trading platform, however in view of the fact that the risks are the part of any investment, this project also gave me a good Exposure on IPO market and clear details about the recently listed IPOs and how they attract their customers in the market.