Ipo 2

A STUDY ON THE INVESTOR PERCEPTION AND FACTORS AFFECTING PRICING OF IPO
THESIS
ON
“A STUDY ON THE INVESTOR PERCEPTION
AND FACTORS AFFECTING PRICING OF IPO”
Submitted in the partial fulfilment of the requirements for the degree of
POST GRADUATE DIPLOMA IN MANAGEMENT
Under the Guidance of

DR. JAGJIT SINGH
EXECUTIVE PRESIDENT & SR. PROFESSOR
Submitted To:
INSTITUTE OF MARKETING AND MANAGEMENT
Submitted By:
RAMA SHOKEEN
PGDM
08-I-839
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INSTITUTE OF MARKETING AND MANAGEMENT 3
ACKNOWLEDGEMENT
Acknowledgement is not only a ritual, but also an expression of indebtedness to all those who have
helped in the completion process of the project. One of the most pleasant aspects in collecting the
necessary and vital information and compiling it is the opportunity to thank all those who have
actively contributed to it. I express my deepest and sincerest gratitude and heart-felt thanks to my
guide Prof. Bindu Nair for the invaluable guidance and constant encouragement which she extended
to me throughout my research project.
I would also like to express my sincere thanks to the authors whose works I have had the privilege to
consult and quote in my research project and to the faculty and staff of IMM for their constant
support.
I extend my gratitude to my respected parents, and my brothers who have been a constant source of
encouragement. I must not forget the generosity accorded by them.
RAMA SHOKEEN
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CERTIFICATE
This is to certify that Ms Rama Shokeen, a student of Post Graduate Diploma in Management 4 th
semester at Institute of Marketing and Management, New Delhi, has undertaken a project on “A study
on investor’s perception and factors affecting pricing of Initial Public Offerings” in partial fulfilment
of the requirement of Post Graduate Diploma in Management (2008-2010).
The project has been successfully completed under my supervision and guidance. This research
project is the original work of the student
Prof. Bindu Nair
Institute of Marketing and Management
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EXECUTIVE SUMMARY
Empirical evidence suggests the existence of ‘hot-issue’ markets for initial public offerings: in certain
periods and in certain industries, new issues are underpriced and rationing occurs. In certain
circumstances, firms with the most favourable prospects find it optimal to signal their type by under
pricing their initial issue of shares, and investors know that only the best can recoup the cost of this
signal from subsequent issues. Issues with high risk and/or smaller offer prices are more underpriced;
and that returns are strongly correlated with subscription levels. The present study was undertaken to
analyze the investor’s perception of Initial Public Offerings and the factors affecting the pricing of
these offerings that come out in the primary market. This main objective was achieved by splitting it
into two parts, the first dealing with the perception of investors about the IPO and the other with the
factors affecting the pricing. For the first objective, a questionnaire was administered to investors who
invested in IPOs. 70 respondents gave their perception about the IPO issue. The data collected from
the survey was subsequently analyzed using SPSS 17 statistical analysis software. Based on the study
and the analysis, five major parameters were selected which have the maximum impact on investor’s
decision to invest in an IPO. For the second part of the study, a sample size of 15 companies was
selected, belonging to different sectors. The data thus collected was analyzed by applying various
statistical tools to it. On the basis of these tests it was concluded that only one variable contribute
significantly to issue price: Return on Net Worth. This indicates that the investors should conduct a
thorough research into the fundamentals of the company before investing into its IPO’s. The first two
chapters of the study deals with the introduction and research design and the next three chapters
consist of the analysis of the objectives. The last chapter of the study deals with the findings. On the
basis of these findings, adequate managerial recommendations were provided.
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TABLE OF CONTENTS
Chapter 1: Introduction 08-23
Chapter 2: Research Design 24- 42

2.1 Literature Review 25
2.2 Need for the Study 34
2.3 Objectives of the Study 35
2.4 Research Methodology 36
2.5 Limitations of the Study 42
Chapter 3: Analysis and Interpretation: Level I 43-63

3.1 Demographic Profile of the Respondents 44
3.2 Data Analysis 46
Chapter 4: Analysis and Interpretation: Level II 64-66

4.1 Correlation Analysis 65
Chapter 5: Analysis and Interpretation Level III 67-85

5.1 Post-Listing performance of individual 68
IPO stocks
5.2 First week Performance of IPOs 77
Chapter 6: Findings and Suggestions 81-83

6.1 Findings 82
6.2 Managerial Recommendations 83
6.3 Scope for Further Research 84
Bibliography 85
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Appendix-I Questionnaire 87
Appendix-II Descriptive Statistics of first week Performance 89

of recently listed IPOs
LIST OF TABLES
S. No. TOPIC PAGE NO.
Table 1.1 Difference between book building and fixed issues 11
Table 1.2 Recent IPO data with break-up 17
Table 1.3 Recent IPOs’ Performance Tracker 18
Table 3.1 Demographics: Gender Table 44
Table 3.2 Demographics: Age Table 44
Table 3.3 Demographics: Profession 45
Table 3.4 Demographics: Education 45
Table 3.5 Average Annual Investment with Corporate Image 59
Table 3.6 Average Annual Investment with Present Market 60

conditions
Table 3.7 Average Annual Investment with Size Table 61
Table 3.8 Average Annual Investment with Performance of 62

previous IPO
Table 4.1 Correlations 66
Table 5.1-5.15 Short-term Performance of Individual IPO stocks 69-76
Table 5.16 First-day Performance of IPO Stocks 77
Table 5.17 Second-day Performance of IPO Stocks 78
Table 5.18 Third-day Performance of IPO Stocks 78
Table 5.19 Fourth-day Performance of IPO Stocks 79
Table 5.20 Fifth-day Performance of IPO Stocks 80
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LIST OF CHARTS
S. No. TOPIC PAGE NO.
Chart 1.1 Distribution of Equity Allocation 13
Chart 3.1 Corporate Image 47
Chart 3.2 Members of the Company 48
Chart 3.3 Present Market Conditions Figure 49
Chart 3.4 Performance of previous IPO 50
Chart 3.5 Size of the IPO 51
Chart 3.6 IPO versus Secondary Market 52
Chart 3.7 Objective of the issue 53
Chart 3.8 Offer Price of the IPO 54
Chart 3.9 Average Annual Investments with Age 55
Chart 3.10 Average Annual Investment with Profession 56
Chart 3.11 Average Annual Investment with Education 57
Chart 3.12 Average Annual Investment with Gender 58
Chart 3.13 Average Annual Investment with Corporate Image 59
Chart 3.14 Average Annual Investment with Present Market 60

Conditions
Chart 3.15 Average Annual Investment with Size of IPO 61
Chart 3.16 Average Annual Investments with Performance of 62

Previous IPOs
Chart 3.17 Average Annual Investment with Performance Criteria 63
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CHAPTER – I
INTRODUCTION
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The Indian capital market is an “emerging stock market. This implies that market is in the process of
transformation, growing in size and sophistication. Several liberalization measures announced by the
Indian government and securities market watchdog, SEBI, over the last few years have created freer
environment. The capital market today is sophisticated and swift to discount the micro and macro
economic changes. In the last two decades, the pace of growth in capital market has almost been
unparalleled in the history of any nation. These two decades have truly been the age of shares and
bonds for the middle class investors in India, where millions of them have their first experienced of
investing in securities.
The capital market is further of two types:-
(A) PRIMARY MARKET
It is also referred to as the new issue market since it deals with new securities i.e. which have not been
previously traded and are offered to the public for the first time. The market therefore derives its
name from the fact that it makes available new block of securities for the public subscription. The
stock of the company that is issued to the public for the first time is called initial public offerings in
the capital market parlance. The securities issued in new issue market (NIM) are then traded in
secondary market. There are three ways by which securities can be issued in a primary market: -
initial public offer, rights issue (for existing companies) and preferential issue.
(B) SECONDARY MARKET
It is also referred to as the stock market. Indian stock market stands among the top three stock markets
of the world with respect to number of listed companies, market capitalization and magnitude of
participating investors. The level of activities in stock market is measured through stock indices,
major ones being BSE SENSEX and NIFTY in India.
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1.1.1 INITIAL PUBLIC OFFERING
An initial public offering is a specific case of public issue; it is the first equity offering by a company
to the public at large. The shares are then listed on the stock exchange to facilitate trading in them.
Thus IPO is basically company’s first sale of stock to the public. Typically an IPO involves stocks
from young and often times, little known companies. But occasionally well established and well
known firms do go public. The various reasons for a firm to go public are:
• Increasing company’s financial base
• Enhancing liquidity
• Setting right the capital structure of the company
• Regulatory compulsions
1.1.2 VALUATION OF PUBLIC ISSUES
Investment analysts say that IPO valuation process is as much art as science. Values are based on
several factors: issuers’ historical and projected financial results: valuation of comparable companies
and investment banker’s assessment of market conditions and investor’s demand for new issues.
There are various concepts regarding pricing of public issues:
• Issue Price – it is the price at which equity shares are offered to the public. It can be priced at
par, premium or discount.
• List Price – it is the market price on the first day of trading after listing on stock exchange.
• Fair value – it is the price which reflects the intrinsic value or true worth of a share.
1.1.3 IPO PRICING MECHANISM
There are two methods for making initial public issue:-
• Fixed Pricing Method - where the company fixes a price at which the shares will be offered
to the public.
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• Book Building method - where the company stipulates a floor price or a price band and
leaves it to market forces to determine the final price.
TABLE 1.1
Features Fixed Price process Book Building process

Pricing Price at which the securities are Price at which securities will be offered/
offered/ allotted is known in advance allotted is not known in advance to the
to the investor. investor. Only an indicative price range is
known.
Demand Demand for the securities offered is Demand for the securities offered can be
known only after the closure of the known everyday as the book is built.
issue.
Payment Payment if made at the time of Payment only after allocation.

subscription wherein refund is given
after allocation.
1.1.4 THE PROCESS OF BOOK BUILDING:
• The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.
• The Issuer specifies the number of securities to be issued and the price band for orders.
• The Issuer also appoints syndicate members with whom orders can be placed by the investors.
• Investors place their order with a syndicate member who inputs the orders into the 'electronic
book'. This process is called 'bidding' and is similar to open auction.
• A Book should remain open for a minimum of 5 days.
• Bids cannot be entered less than the floor price.
• Bids can be revised by the bidder before the issue closes.
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• On the close of the book building period the 'book runner evaluates the bids on the basis of the
evaluation criteria which may include -
 Price Aggression
 Investor quality
 Earliness of bids, etc.
• The book runner and the company conclude the final price at which it is willing to issue the
stock and allocation of securities.
• Generally, the number of shares is fixed; the issue size gets frozen based on the price
• per share discovered through the book building process.
• Allocation of securities is made to the successful bidders.
• Book Building is a good concept and represents a capital market which is in the process of
maturing.
In case the issuer chooses to issue securities through the book building route then as per SEBI
guidelines, an issuer company can issue securities in the following manner:
a. 100% of the net offer to the public through the book building route.
b. 75% of the net offer to the public through the book building process and 25% through the
fixed price portion.
c. Under the 90% scheme, this percentage would be 90 and 10 respectively
1.1.5 TYPES OF INVESTORS
There are three kinds of investors in a book-building issue: the retail individual investor (RII), the
non-institutional investor (NII) and the Qualified Institutional Buyers (QIBs).
RII is an investor who applies for stocks for a value of not more than Rs 100,000. Any bid exceeding
this amount is considered in the NII category. NIIs are commonly referred to as high net-worth
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individuals. On the other hand QIBs are institutional investors who possess the expertise and the
financial muscle to invest in the securities market.
CHART 1.1
1.1.6. SEBI GUIDELINES
The primary authority for regulating IPO's is the SEBI (Securities and Exchange Board of India). It
issues guidelines for regulating the procedures and activities of new public .issues.
These guidelines are known as Disclosure and Investor Protection (DIP) Guidelines. Under this, SEBI
has laid down following eligibility norms for entities accessing the primary market through public
issues:-
A company can make an IPO if it meets the following requirements-
• It has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full years, of which
not more than 50% should be in monetary assets.
• It has distributable profits in at least three years as per the terms of the Companies Act.
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• It has a net worth of at least Rs.1 crore in three years. The net worth is the aggregate value of
paid-up equity capital and free reserves excluding the aggregate value of accumulated losses
and deferred expenditure not written off.
• In case of change of its name within the last one year, at least 50% of the revenue for
preceding 1 year is earned by the company from the activity suggested by the new name.
• The issue size does not exceed 5 times the pre-issue net worth.
1.1.7 IPO GRADING
IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial
public offering (IPO) of equity shares or any other security which may be converted into or
exchanged with equity shares at a later date. The grade represents a relative assessment of the
fundamentals of that issue in relation to the other listed equity securities in India. Such grading is
generally assigned on a five-point point scale with a higher score indicating stronger fundamentals
and vice versa as below:
IPO grade 1: Poor fundamentals
IPO grade 2: Below-average fundamentals
IPO grade 3: Average fundamentals
IPO grade 4: Above-average fundamentals
IPO grade 5: Strong fundamentals
1.1.8. BENEFITS OF IPO
Taking a company public through an Initial Public Offer (IPO) is a major task for any entrepreneur.
The benefits of going public through IPO are:-
• It allows companies to have greater access to the most substantial source of corporate funding.
The companies can also return to the market for additional equity through secondary equity
offerings.
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• It helps the company to institute stock options for its employees and to attract more talent to
their organization.
• It attracts media attention and helps in marketing the products of the company.
• It helps to expand business relationships of the companies with their partners, suppliers,
debtors as well as customers.
• It facilitates the mergers and acquisitions activities of the companies and provide them with
the greater flexibility in raising finances.
For many entrepreneurs and top managers of companies, the process and event of going public mark
the culmination of years of hard work, public recognition of success and long delayed financial
rewards. Going public gives an opportunity for their business growth, brand equity as well as brings
some legal responsibilities for them. It involves sharing of ownership of the company, business
opportunities as well as the control over the company's future.
1.1.9 IPO PRICING:

The study of IPO mispricing is salient because it raises important questions concerning market
efficiency and the existence of systematic stock patterns that can be employed by investors to
generate excess market returns. Under traditional definitions of market efficiency, asset prices,
including IPO prices should fully reflect all available and relevant information (Fama 1970). An
increasing body of empirical evidence, however, suggests that IPO prices are not efficient as
evidenced both in the short run and the long run. The speed of incorporation of new information into
stock prices is critical to many central issues in financial research, such as market efficiency,
arbitrage, and market structure. The setting of the immediate aftermarket presents an opportunity to
investigate the issue when little or no trading history exists. In such a setting, investors are more
exposed to new information because they cannot observe the stock price behaviour or the reactions to
previous information signals.
Initial public offerings (IPOs) of common stock, on average, earn abnormally high initial returns in
general.
The initial abnormal return is defined as abnormal gains/losses of a new issue relative to the offer
price during the first day of trading.
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The under-pricing/overpricing is the difference between the offer price and the last traded price on
the first trading day.
One method of testing whether the offer price or the first closing market price is a better measure of
“true” value is to examine long-run returns. If the first closing market price is an unbiased measure of
a firm’s fundamental value, then there should be no abnormal returns in the future. Several recent
studies have looked at the relationship between investor demand for IPOs and aftermarket
performance of these firms. Hanley (1993) Specifically, stocks that are priced above the initial filing
range perform very well on the first day in spite of being offered at the higher price, while stocks that
are priced below the initial filing range do poorly on the first day. Thus, the final offer price
represents a partial adjustment to additional market information about investor demand received
during the pre-issuing period. Her study clearly indicates a positive relationship between investor
demand and the first trading day performance of IPOs.
Overall, the IPOs with high investor demand have large positive initial returns but negative longer-run
excess returns, while the IPOs with low investor demand have negative initial returns but positive
longer-run excess returns. These results are not explained by information asymmetry hypothesis or
under-pricing (or mispricing) hypothesis. Although the two hypotheses do not indicate a positive
relationship between investor demand and the initial returns, information asymmetry hypothesis nor
under-pricing hypothesis can successfully explain differences in long-run performance between high
demand IPOs and low demand IPOs. Investor demand for an IPO is largely driven by the over-
optimistic and over-pessimistic reaction by investors to the information about the firm’s prospects
prior to offerings. Consequently, both high- and low-demand IPOs are not priced at intrinsic values in
early aftermarket trading. But, eventually their true values are reflected in the evolution of the pricing
process.
Specifically, a high-demand IPO, which is due to investors’ over optimism, is more likely to create a
speculative bubble. The speculative bubble may temporarily push the stock price above its intrinsic
value, followed by long-run price correction. As a result, a relatively high positive initial return will
be followed by a negative long-run return. On the other hand, since investors are more likely to
underestimate the prospects of the low demand, these IPOs will experience relative low returns on the
first trading day.
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TABLE 1.2
RECENT IPO DATA WITH BREAK-UP
FRESH CAPITAL OFFERS FOR SALE TOTAL
YEAR NO.O AMOUNT NO. AMOUNT NO. OF AMOUNT

F (Rs.crore) OF (Rs.crore) IPOs (Rs.crore)
IPOs IPOs
2003- 16 1813.42 5 1377.68 19 3191.10
04
2004- 21 8099.59 9 6562.73 23 14662.32
05
2005- 76 9130.21 11 1667.67 76 10797.88
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2006- 74 22745.44 12 960.72 76 23706.16
07
2007- 82 38634.65 9 2688.81 84 41323.45
08
2008- 21 1985.08 3 48.92 21 2033.99
09
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IPO PERFORMANCE TRACKER:
IPOs WITH TOP VOLUMES
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IPO BEST PERFORMERS:
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IPO TOP GAINERS:
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IPO TOP LOSERS
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IPO AVERAGE PRICE
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IPOs’ 52 WEEK HIGH-52 WEEK LOW
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CHAPTER-II
RESEARCH DESIGN
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The Indian capital market has made significant progress in spreading equity culture and broad basing
the financial markets. Yet the capital market in India has not been the subject of investment research
to the extent of its counterpart in advanced nations. In order to have a proper insight into different
aspects of the problem under study, it is desirable to review the studies conducted in the past.
2.1 LITREATURE REVIEW
1.2.1 IPO Market
Initial Public Offering (IPO) is the first sale of stock by a private company to the public (Shantaraman
2007). Initial Public Offering (IPO) in India means the selling of the shares of a company, for the first
time, to the public in the country's 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. There are mainly two
reasons why a company comes out with an IPO: either it can do so in the market because it is in a
good position or it is doing so because it needs to raise funds from the market. The IPO provides a
fresh source of capital that is critical to the growth of the firm and provides the founder and other
shareholders such as venture capitalists a liquid market for their shares. From an institutional
investor's perspective, the IPO provides an opportunity to share in the rewards of the growth of the
firm (Janakiramanan, 2005). Thus it is important to understand the objectives of the firms’ decision so
that an investor is able to make the right choice. (Rohinesh, 2006).
Ritter (1998), in his article “Initial Public Offerings” surveys the market for Initial Public Offerings. It
discusses the process of going public, valuation of IPOs, book building, price stabilization and costs
and benefits of going public. It concludes that companies going public, especially young companies
face a market which is subject to sharp swings in valuations. Pricing deals can be difficult, even in
stable market conditions, because insiders presumably have more information than the potential
outside investors.
Brealey(1972) in his book titled “Security Prices in Competitive Market” evaluated the effect of
dividend, P/E multiple, retained earnings , debt, splits and stock dividends, mergers and acquisitions
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and listings on stock price movements. It concluded that though dividend, P/E and retained earnings
all have positive effect on share prices. Studies revealed that dividends are valued four times as highly
as retained earnings. Regarding debt, it says reasonable amount of corporate borrowings have been
shown to increase the value of common stock at least to the extent of reduction in corporate tax
payments. It further says that events like splits and stock dividends, mergers and acquisitions and
listing cannot bring about a permanent and worthwhile improvement in share price.
Chandra (1975) in his book named “Valuation of Equity Shares in India” conducted a study to assess
the effect of certain economic factors on share prices. In examining the determinants of share prices,
he assumed five independent variables i.e. Return, Growth, Risk, Leverage and Size. Share price was
measured as arithmetic average of the high and low prices over the financial year of the company.
Chandra found significant relationship between share price and independent variables like dividend
and size. Growth has positive but weak influence whereas risk and leverage have negligible influence
on share prices.
Welbourne and Wright (2002) in their paper titled “What Resources Matter in IPO Firms” examine
that which resources, the executives in initial public offering firms, think are important to their
success, two years after the IPO. Results indicate that managers recognized five resources such as
human resource practices, management, technology, culture and production/marketing, considering
themselves (i.e. the management) as most important resource. The effect of all five resources on both
short and long term performance was studied. The results show that, management and technology,
both effecting short run performance, are considered important by investment community. However,
long term performance analysis point to the importance of the way a firm treat its relationship with
management, employees and customers as a source of sustainable competitive advantage.
Pagano et al (1998) in their survey “Why Do companies Go Public” analyzed the determinants of
Initial Public Offering viz. Size, capital expenditure, growth, return on assets, leverage, market to
book ratio and relative cost of credit, by using large data base of private firms in Italy. The study
made a comparison of the ex-ante and ex-post characteristics of IPOs with those of private firms. The
likelihood of IPO is increasing with company’s size and the industry and market to book ratio.
Companies appear to go public not to finance future investments and growth, but to rebalance their
accounts after high investments and growth.
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The study explains the various costs and benefits of going public. It also analyzed after effects of
decision to go public. It says that IPOs are followed by lower cost of credit and increased turnover in
control.
Arguments against IPO auctions come most stridently from investment banks. Their argument is that
since it is impossible to price issues accurately, underwriters end up taking unquantifiable risk.
Additionally, to ensure sufficient investor interest it is appropriate to have a conservative bias towards
under pricing. Another argument used is that if the IPO issuer is not worried about leaving money on
the table, why regulators should worry since retail investor’s benefit from under pricing. Thus book
building results in under pricing IPO’s. Such a pricing bias leads to a scramble for allotment. Under
these circumstances, no matter how vigilant or efficient the regulating agencies, it is difficult if not
impossible to stamp out wrongdoing. This is particularly true in India as we do not have national
identity numbers, and our justice system finds it difficult to secure convictions (Bhagwati, 2006).
Teoh et al (1998) in their research papers “Earnings Management and Long Run Market Performance
of IPOs” find evidence suggesting that naïve investors may be systematically fooled by earnings
management operations of ‘window dressing’ aimed at reporting earnings in excess of cash flows by
taking opportunistic positive accruals. There is high information asymmetry between investors and
the issuers at the time of IPO. If the buyers rely on earnings reported in the prospectus but are
unaware that they are inflated by accruals, they will pay too high a price. They find a significant
ability of discretionary accruals to predict IPO stock price under performance, suggesting that as
information about the firms is revealed overtime, investors may recognize that earnings are not
maintaining their momentum and adjust prices
1.2.2 IPO Pricing
Discovery of price in an IPO is both a science and an art (Shailaja, Singh 2008).There are two
methods for making initial public issue: Fixed Pricing Method - where the company fixes a price at
which the shares will be offered to the public and the Book Building method - It is a mechanism
where, during the period for which the book for the IPO is open, bids are collected from investors at
various prices, which are above or equal to the floor price (Bala, 2003). In recent times companies are
going in for Book Building method for valuation of their IPO’s. Rules governing book building is
covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor
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Protection) Guidelines 2 Book building is a comparatively new concept for the Indian investors as
compared to their peers in the US or the UK, where it is a very common practice 2000. Once the issue
period is over and the book has been built, the BRLM along with the issuer arrives at a cut-off price.
The cut-off price is the price discovered by the market. It is the price at which the shares are issued to
the investors. The most apparent reason for using book building process could be the price discovery
mechanism, which is inherent in this process. Since institutional and retail investors have the option to
bid for the equity, at or above a particular floor price, decided by the company in consultation with
the merchant bankers, it helps the company realize the true value for its equity. It also gives the
company an insight into its credibility factor amongst the investors. In its recent amendments, SEBI
has reduced the allocation of equity to Qualified Institutional Buyers (QIBs), which includes financial
Institutions, banks and the newly added insurance companies, and increased the share of retail
investors. Another positive step taken by SEBI is the setting up of a price band, which will assist the
retail participants in placing their bids. Also change made by SEBI in the rules governing primary
market issues is that institutional bidders cannot withdraw their bids.
Murthy (1998) in his article named “Valuation of Shares: A Dividend Factor” articulates the
viewpoint that dividend is very important component in valuation of shares. He says that Indian stock
market has been going through a bearish phase since 1994. The investors, by and large are the losers
due to fall in value of shares. The only return that investors can expect in these circumstances is the
dividend. So, the dividend is a very important factor in the valuation of a share. Indian companies are
suffering because they have ignored the dividend factor. Kim and Ritter (1999) in their article
“Valuing IPOs” have studied the pricing of IPOs using comparable firm multiples. The use of
accounting information in conjunction with comparable firm multiples is widely recommended for
valuing IPOs. They found that P/E, Market to Book Value and Price to Sales multiples of comparable
firms have only modest predictive ability without further adjustment. This is largely due to wide
variation of these ratios for young firms within an industry. P/E multiples using forecasted earnings,
result in much more accurate valuations than multiple using trailing earnings.
Mccarthy (1999) in his article “Pricing of IPOs: Science or Science Fiction” is of the view that IPO
valuation is as much as an art as a science. Values are based on several factors: an issuer’s historical
and projected financial result; valuations of comparable companies; investment banker’s assessment
of market conditions and investors demand for the new issue. The investment banker develop an
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offering price that is further influenced by factors such as most marketable price range , the
percentage of company being sold and the stock market’s float. This article also discusses various
other issues relating to IPO pricing.
Ritter(1998), in his article “Initial Public Offerings” surveys the market for Initial Public Offerings. It
discusses the process of going public, valuation of IPOs, book building, price stabilization and costs
and benefits of going public. It concludes that companies going public, especially young companies
face a market which is subject to sharp swings in valuations. Pricing deals can be difficult, even in
stable market conditions, because insiders presumably have more information than the potential
outside investors.
Lowry and Schwert (2002) through their paper “ IS the IPO Pricing Process Efficient” seek to throw
light on the inefficient pricing of IPOs by examining underwriters’ treatment of public information
through out the entire IPO pricing process. The article focuses on two issues; first, is public
information fully incorporated into the initial price range and secondly into the final offer price. Their
results indicate that the investment banks systematicslly disregard certain information in their setting
of final range. Second, they find that no significant relationship exists between initial returns and
market returns prior to the offering, indicating that public information is fully incorporated into the
final offer price.
Even though the book building methodology is an improvement over fixed price, IPO’s issues
continue to be significantly under priced. (Bhagwati, 2006). Apparently, companies and their
investment bankers do not incorporate all available information when setting the price range.(Lowry,
Schwert 2001). In addition to this, a new concept of IPO rating has also been introduced in the Indian
Capital Market. Unlike debt instruments equity does not lend itself to transparent rating hence the
need is required. Reduction of issue expenses right from prospectus stage to the allotment stage along
with simplification of the offer document and incorporating it in a ready to read format are some of
the steps that have taken forward in this direction (Narsimhan, 2007). Opposition to the above idea
has come from the merchant bankers’ quarters as they feel threatened with this very idea. In this
exercise the company selling the instruments is not the rated but its debentures, fixed deposit schemes
and other debt instruments are rated.
Varma (1998) in his papers “Bank of India: Pricing of IPOs and IndusInd Bank: Valuation of IPO”
analysed various quantitative as well as qualitative factors that go into pricing of an IPO, with the
6
help of two case studies; Bank of India and IndusInd Bank and suggested a method to arrive at
reasonable price band for the issue. He regarded profitability ratio, yield ratio, expense and cost ratio,
and other efficiency parameters like business per employee and business per branch as quantitative
factors. He grouped following factors into qualitative category; branch network, high profitability,
global presence, interest spread, NPA level, high adaptability.
Valuation of initial public offerings, IPOs, occupies an important place in finance perhaps because it
provides public capital market participants their first opportunity to value a set of corporate assets.
Valuation of IPOs is also quite relevant from an economic efficiency perspective: this is the first
opportunity that managers of such (usually young) companies get to observe the price signals from
the public capital markets. Such signals can either affirm or repudiate management’s beliefs regarding
its future growth opportunities – with obvious implications for the real economy via employment and
corporate investment.(Bhagat, Rangan)
Berguland (1994) in his paper “Pricing of IPO’s: A Simple Model” presented a simple model for
pricing of IPOs in which pivotal agent in pricing decision is underwriter. In this paper, underwriter’s
decision problem is expressed in the form of simple loss function. The optimal offer price is
determined by the penalty that underwriter is facing as a consequence of pricing mistake. It says that
the pricing error i.e. under pricing or over pricing, will always be costly for underwriters in terms of
loss of reputation and cost will depend on the size of pricing error. Finally the results on corporate
static analysis show that under pricing is expected to increase with an increasing size in offering,
increase in uncertainty concerning demand, decrease in price elasticity of demand, and increase in
expected cost due to overpricing or decrease in expected cost due to under pricing.
Aggarwal et al (2002) in their paper titled “Strategic IPO under-pricing, information momentum and
lockup expiration selling” developed a model that highlights the potential benefits of substantial
under-pricing to owners/ managers is typically discouraged from selling shares at the time of the
IPOs, their first opportunity to diversify their wealth is by selling the shares after the lock in period.
They examined following implications:
1. Managers who retain greater number of shares in the IPOs will under-price more
2. Greater first day under-pricing, increase the level of interest coverage
3. Greater research coverage leads to increased stock prices at the end of lockup period.
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Their results coincide with implications. Paper concludes that managers strategically under price their
IPOs in order to maximize their personal wealth from selling shares at the lock – under pricing
expiration.
Bachmann (2002) in his research “Pricing of IPO’s when IPO size and Investment choice are
Endogenous” said that cash constrained entrepreneur is faced with a dilemma of cutting back on IPO
size to retain a greater portion of the valuable equity or forego the profitable investment opportunities.
They had developed a model of IPO pricing which indigenizes the size of IPO and analyze the firm’s
investment decision jointly with IPO pricing decision. The model predicts that under pricing of IPO
will be used as signal by the firms that go public to finance highly profitable investment. The model
also proves that IPO firms that underpriced Equity over debt invest in the activities for which ROI is
highly dependent on firm’s quality and under invest in activities for which ROI is homogeneous
across the firms. Lastly, the model suggests that entrepreneur who issues the undervalued equity,
commit proceeds from equity offering to particular investment strategy prior to the IPO.
Narasimhan and Ramana (1995) in their paper “Pricing of IPOs: Indian Experience” conducted an
empirical study to examine the IPO pricing scenario in post CCI regime. The focus of study is on the
determination of short term returns of IPOs to test whether stock has been priced at its intrinsic worth.
The sample includes the IPOs listed on BSE during two periods April- May 1994 (when market was
bearish) and November 93 – January (when market was bullish). They concluded that in India IPOs
are underpriced irrespective of movement of market index movement. They further added that
premium issues are for greater underpriced than par issues.
A perusal of review of literature brings home the fact that a good number of studies have been done
on the behavior of share prices in secondary market. But the same is not true for about the pricing of
IPOs. In the light of the findings of the studies reviewed, nothing can be said about pricing of shares
in IPOs and the perception of investors about IPO’s. Thus there is a need to make an effort to identify
the various important factors that affect pricing of IPOs and how the investors perceive them. The
present study is a step forward in this direction.
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Under-pricing of IPOs is explained by various researchers in different ways and the same may be
classified as under:
Information Asymmetry Hypothesis: According to Rock (1986) investment community is

characterized with two kinds of investors informed and uninformed investors. When a new issue
comes to the market by virtue of their knowledge informed investors keep away from poor quality
issues or will be investing only if the after-market returns are positive. While uninformed investors
subscribe to all issues both good as well as poor quality issues and in all likelihood they will get
higher allocation in the later type of issues. This may lead the uninformed investors to keep away
from the new issues market. Therefore by under-pricing these investors will be lured to participate in
the new offerings. Koh and Walter(1989) working on the Singapore market directly tested this
hypothesis and their results corroborate this hypothesis.
Signaling Hypothesis :Allen and Faulhaber (1989)propose that a good quality issuer by under-pricing
the IPO will subsequently return to the market with a seasoned offering and raise money at better
terms. Welch (1992) finds evidence that almost a third of the new issuers returned to the market with
a seasoned offering.
Other explanations include Tinic (1989) who suggested that under-pricing discourages investors to
file lawsuits against the issuer and Benveniste and Spindt (1989)propose that investors with more
information ill been ticed to reveal more information by under-pricing the IPOs.
In the Indian context Shah (1995) documents a phenomenal 105.6% excess return over the offer
pricein a study of 2056 new listings over the period January1991 to May 1995. However, this study
provides evidence on the short run performance only while Madhusoodanan and Thiripalraju (1997)
from a studyon IPOs offered on BSE during the period 1992 to 1995shows that under-pricing was
higher than the international experiences in the short run and in the long run too they yield higher
returns compared to the negative returns recorded from the international markets. Krishnamurti and
Kumar (2002) working on a sample of IPOs that hit the market between 1992 and1994 demonstrate
that the under-pricing is to the extent of 72.34% (market adjusted returns).Kakati (1999)analyzed the
performance of a sample of 500 IPOs that came to the market during January 1993 to March 1996and
documents that the short run under-pricing is to the tune of 36.6% and in the long-run the overpricing
is 40.8%.
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From the literature review the following inferences can be made:
•Short-run under-pricing of IPOs is an international phenomenon and in the long-run the evidence is
mixed.
•Under-pricing in the Indian market is quite high compared to the international experiences
•So far all the studies done in India were based on data pertaining to the post CCI regime and prior to
the introduction of book building process. The IPOs in that period are priced by the issuers and were
offered to the investors on take it or leave it basis, in other words the issue prices were purely
determined by the sellers (issuing companies) but not by both buyers and sellers dealing with each
other at arm’s length. Therefore it is possible that the IPO market was characterized by adverse
selection and moral hazard problems. From 1999onwards most of the IPOs were issued through the
book building process hence it will be of interest to examine the price performance of book built
IPOs.
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2.2 NEED FOR THE STUDY
The following factors have led to the need for conducting this research:
The investors normally hold financial assets for cash flow that they generate in the future.
The valuation of bonds and preference shares is straightforward as the returns are constant and
certain. But such is not the case in case of equity valuation. Thus fixing of an issue price is an
important task which cannot be accomplished by mere guesswork. The worth of equity has to be
quantified by taking into consideration various intangible factors pertaining to the company.
After the abolition of “Controller of Capital Issues” it has been the era of free pricing. But this has
created some problems of undue overpricing by the companies. Against this background of faulty
valuation of the IPO the present research needs to be undertaken to identify the various factors that go
into IPO pricing.
Primary markets are more risky than secondary markets as there is no previous market, no stock price
benchmark and thus consequently more uncertainty.
In case of an IPO, what normally happens is that a company comes out with an IPO, it is heavily
subscribed and within a month or even few hours of listing, there are astonishing gains. Such a
potential for plutocracy and penury make capital market highly rewarding, highly risky and
thoroughly irresistible for investors. As most of the investors have no clue to the intricacies of
primary market, it is essential to identify and recommend various parameters for the guidance of the
investor.
In the present scenario, with the number of frauds and scams being committed such as falsification of
accounting statements, it is essential for the investors to have some knowledge about the various
aspects of IPO issue.
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2.3 OBJECTIVES OF THE STUDY
The research objective can be broadly divided into the following:
1. To examine the investors perception about IPO’s.
2. To identify various determinants of issue price of new corporate securities.
3. To determine the under-pricing and over-pricing levels of recently listed IPOs.
4. To study the First-Week performance of the IPOs.
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2.4 RESEARCH METHODOLOGY
2.4.1 Measurement of the Variables
In order to determine the relative influence there is always a dependent variable and an independent
variable.
1. DEPENDENT VARIABLES
• Issue price - the price at which the shares are offered to the public.
• Issue price to par value - ratio of issue price and par value.
2. INDEPENDENT VARIABLES
• Weighted Average Earning Per Share – The equity owners are the sole claimants to the net
earnings of the corporation after making payment of dividend to the preference shareholders.
The EPS is one of the best measures of the profitability as it helps in projecting the value of
security which depends upon the expected future benefits and risk associated with it. Higher
the magnitude of expected future benefits, higher will be the value of security.
The weighted average EPS of three years will be regressed with the issue price. The weighted average
of EPS is taken as it gives normal earning capacity of the firm taking into consideration the boom and
the recession periods.
• Return on Net worth (RONW) – Return on net worth defines the relationship between the net
profits and proprietor’s funds. It basically indicates how well the resources provided to the
firm by its shareholders are being used. RONW is expected to affect issue price in a positive
way. It is calculated for three years preceding the year of issue.
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Where shareholders investment = equity share capital + preference share capital+ reserves and
surplus- accumulated losses (if any).
• Size – size of the firm plays an important role in investment criterion. Large companies
generally offer better investment opportunities than smaller ones. These companies by virtue
of larger production occupy stronger and dominant position in the stock markets and thus can
command high premium. The size of the firm can be measured in many ways viz. turnover,
paid up capital, capital employed, net sales, total assets etc. In the present study size is
measured with the help of sales and total assets. This is so because sales and book value of
assets reflects the earning capacity of the firm to the investors.
• Growth – Literature on equity valuation confirms that growth is a pre- requisite for long run
survival of the firm in an uncertain and constantly changing environment. The growing
companies provide excellent opportunities to the investors. Specifically, in the case of young
companies most of their value comes from growth opportunities. In a growing company, an
increase in profits leads to continuous rise in rate of dividend in future and frequent bonus
issue to investors. Thus an investor may prefer to subscribe to an IPO of a growing concern.
Like in most empirical studies, growth is measured with the help of sales and fixed assets.
Where Sy = sales in the year 2008-09
Sx = sales in the year 2007-08
Where Ay = assets in the year 2008-09, Ax = assets in the year 2007-08
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• Leverage (L) – Financial leverage is an important tool of financial planning because it

magnifies the residual profits that accrue to the equity shareholders in the favourable situation.
It refers to the mix of debt and equity funds used to finance the firm’s activities. A mix of debt
equity mix helps a company to charge a higher price. But if debt increases thereby adversely
affecting issue price. Though different measures of leverage have been considered by the
researchers, but in the present study it is measured as:
Where DL = deferred liabilities i.e. long term loans + debt, PC = preference share capital,
Equity = Equity capital + shareholders’ reserves.
3. LIST PRICE
It is the market price of the share on the first day of trading after getting listed.
4. SIMPLE RETURNS are computed as:
R = (P-O)*100
O
Where P is the opening/closing price of stock at time and O is the offer price of the stock. These
returns measure whether an investor gained (or lost) by buying the shares during the IPO at the offer
price and selling at the prevailing price on the opening day. If R is positive one can infer that the issue
is under-priced; if R is negative it may be inferred that the issue is over-priced and if R is zero it
means the issue is aptly priced.
5. IPO UNDER-PRICING
Under-pricing refers to the price run up of the IPO on the first day of trading. It is also known as the
initial return or first-day return of the IPO.
Under-pricing = (First-day closing price – Offer price)/Offer price × 100%
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The first-day closing price represents what the investors are willing to pay for the firm’s shares. If the
offer price is lower than the first-day closing price, the IPO is said to be underpriced and money is left
on the table for new investors. Since existing shareholders settle for a lower offer price/proceeds than
what they could have got, money left on the table represents the wealth transfer from existing
shareholders to new shareholders.
2.4.2 Sample:
Sampling is an effective step in collection of primary data and has a great influence on a quality of
results. The sampling plan includes the population, sample size and sampling design which tell us
about the various data collection methods. For the sake of simplicity and the type of sample which
forms part of the study, convenient sampling method will be used for the collection procedure.
2.4.3 Data Collection
Level I: To gauge the investor’s perception, a questionnaire was administered to the investors who
have invested in IPOs. As mentioned previously the sampling for this study is based on convenience
and judgmental techniques. The total sample size was 70. The sample size calculation was based on
the number of investors who have invested in IPO’s at any time in the past. Due to the limited time
available and the restriction regarding the type of investors, a relatively smaller sample size was
chosen.
Level II: Only secondary sources of data will be used to collect information. It refers to a data that is
already available and does not need to be collected with the help of a questionnaire. It is collected
through published data that is already available in books, magazines, reports, publications. Data
would also be collected from prospectus, offer documents, annual published reports, interim financial
reports, websites of the companies under the study, newspapers, magazines, journals etc. The last 15
IPOs that have been issued till May 2010 will be used to collect their IPO information.
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The various companies are:

Jaypee Infratech Limited
SJVN Limited
Mandhana Industries Limited
Tarapur Transformers Limited
Nitesh Estates Limited
Talwalkars Better Value Fitness
Limited
Goenka Diamond & Jewels Limited
Shree Ganesh Jewellery House
Limited
IL&FS Investment Managers Ltd.
Pradip Overseas Limited

United Bank Of India
Texmo Pipes & Products Ltd
ARSS Infrastructure Projects
Limited
EMMBI Polyarns Limited
Aqua Logistics Ltd
Level III: Here too only secondary data will be employed to collect the information with a purpose to
analyse the short-term performance of the last 15 IPOs issued till May 2010, the time period of the
analysis being the day of listing to first five trading days. The IPOs of the same 15 companies as used
in Level II will be analysed.
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2.4.4 Data Analysis Methods
Level I: The data collected by means of the survey questionnaire was coded and analysed after the
responses of the respondents were tabulated and plotted on charts.
Level II: Correlation Analysis – To analyze the determinants of the issue price and the correlation
analysis has been used. In this study the association between issue price of shares and independent
variables, will be represented through y-x correlation matrix. It will give the degree of linear
association between the variables. SPSS 17 software was used to find out the correlation coefficients
among the various determinants.
Level III: Here, various statistical formulas were put into use to find out the earnings for the
investors, by finding out the open price to offer price percentage earnings, high price to offer price
earnings, low price to offer price earnings, and the average price to offer price earnings, each ratio
calculated on an intra-day basis for the first five trading days for the sample stocks. The measures
employed were: Average, Standard Deviation, Maximum, Minimum and Skewness.
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2.5 LIMITATIONS OF THE STUDY
• While conducting the study certain hurdles/obstacles were encountered. These were due to the
limitations of the study which are as follows:
• Since certain parameters had to be used to select the sample size from the desired population,
it led to a selection of a very small sample which in turn was not totally an accurate
representative of the given population.
• Stock markets are highly volatile in nature and thus they get affected even by the minutest of
happenings. Therefore in the case of further studies it is quite a possibility that outcome might
not be the same as the original study.
• While applying sampling technique, convenience sampling was used to select the sample from
the given population. A major drawback of convenience sampling is that the results in this
case are not generalized hence they cannot be duplicated in case the study is replicated in the
future.
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CHAPTER – III
DATA ANALYSIS
AND
INTERPRETATION
LEVEL I
6
3.1DEMOGRAPHIC PROFILE OF THE RESPONDENTS:
3.1.1 GENDER:
The respondents consisted of both males and females. Out of the total of 70 respondents, 44 were
male that comprised of 62.9 percent of the total population and the rest 26 were females which was
37.1 percent of the total sample.
TABLE 3.1: GENDER
Gender Frequency Percent
Male 44 62.9
Female 26 37.1
Total 70 100
3.1.2 AGE:
The Age was grouped into three categories. The maximum respondents i.e. 46 investors lie in the age
group of 15 to 30 years comprising of 65.7 percent of the total population. Besides that, 14 people lei
in the age group of 31 to 45 years and the rest 10 lie in the age group of 46 to 60 years forming 14.3
percent of the total population.
TABLE 3.2: AGE
Age Frequency Percent
15-30 46 67
31-45 14 20.0
46-60 10 14.3
Total 70 100
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3.1.3 PROFESSION:
In terms of profession, the majority of the sample comprises of professionals who form 37 percent of
the total population. This is followed by Government Employees who form 24.3 percent of the
sample. The rest of the respondents are students and self employed personnel.
TABLE 3.3: PROFESSION
Profession Frequency Percent
Student 13 18.6
Govt. Employee 17 24.3
Professional 26 37.1
Self employed 14 20
Total 70 100
3.1.4 EDUCATION:
Investors are generally deemed to be well educated people. This holds true for the present study as
well. The majority of the sample consists of respondents who hold a Post graduate degree. They form
64.3 percent of the total population. This is followed by Graduates who form 28.6 percent of the
sample.
TABLE 3.4: EDUCATION
Education Frequency Percent
Matriculation 4 5.7
Graduation 20 28.6
Post Graduation 45 64.3
Diploma 1 1.4
Total 70 100
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3.2 DATA ANALYSIS
3.2.1 FACTORS AFFECTING IPO PERCEPTION
The following eight Figures depict the various frequencies for the eight factors that affect the
consumer’s perception of IPO’s. The respondents were asked their perception about these factors with
options ranging from strongly disagree to strongly agree. The following bar charts efficiently
summarize the outcome of the survey. It can be seen that the investors believe that only five out of
these eight variables have a considerable impact on their decision of investing in an IPO. The other
three factors do not have a major impact on the investment decision of the investor.
The five factors that influence the investment decision of the investors are:
• Corporate Image
• Present Market Conditions
• Price
• Performance of Previous IPOs
• Size
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(i) Corporate Image:
The following chart depicts the Investor’s perception about the corporate image of the company. It
can be seen that 49 out of 70 respondents believe that the corporate image of the company is an
important criteria when deciding over investing in a company’s IPO. The investors who disagree are
just 6, thus indicating that corporate image is indeed an important criterion for most.
CHART 3.1
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(ii) Members of the Board:
The chart depicts the influence that the members of the company i.e. the Board of Directors have on
the decision of the investor to invest in that particular company. The chart shows that the members do
not have much influence on the decision of the investor. The majority of the sample either disagrees
or do not have any opinion about this factor.
CHART 3.2
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(iii) Present Market Conditions:
The present market conditions refer to the existing situation of the stock market and the economy as a
whole. The following chart shows that the sample agrees that the present market conditions play an
important role in the decision of the investor. Almost 88 percent of the sample agrees that present
market conditions are important when deciding over the investment in an IPO.
CHART 3.3
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(iv) Performance of Previous IPO’s:
The performance of previous IPO’s seem to have a considerable impact on the investor’s decision.
The following chart shows that a majority of the sample agrees that they keep in mind the
performance of previous IPOs that have come out in the recent past before investing in a new IPO.
Almost 80 percent of the population agreed upon the importance of this factor.
CHART 3.4
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(v) Size of the IPO:
The following chart shows the investor’s view regarding the size of the IPO issue and its impact on
their investment decision. It can be seen that a major portion of the population i.e. around 50 out of
the 70 respondents agree that size does play a major role in IPO investment.
CHART 3.5
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(vi) IPO versus Secondary Market:
In IPO versus the Secondary market we are trying to gauge the preference of the investor between
these two markets. It can be seen that a majority of the respondents either do not have any preference
or they mainly disagree. This means that they prefer to invest in secondary markets rather than in
IPO’s.
CHART 3.6
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(vii) Objective of the Issue:
In measuring the perception of the investor’s on the objective of raising an IPO it can be clearly seen
that the majority of the sample agrees that they do keep this factor in mind. This means that the
investor is interested in knowing the future plans of the company and how is it going to use the
investor’s money and generate returns.
CHART 3.7
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(viii) Offer Price:
The following chart shows that the price of the IPO has a considerable impact on the decision of the
investor. 80 percent of the sample agrees that the price of the public issue helps them determine
whether they want to invest in the public issue or not.
CHART 3.8
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3.2.2 COMPARITIVE RELATIONSHIP ON THE BASIS OF DATA

COLLECTION
Relationship of Average Annual Investment with Age
CHART 3.9:
The above chart shows the relationship of the average annual investment with the age. It can be
clearly seen that the maximum number of investors lie in the category of 15- 30 years. This is because
the youngsters have zeal to earn more and they tend to be more speculative in investing. However,
since their disposable income is less and they generally have financial responsibilities they tend to
invest in lesser investment brackets. We also see that respondents lying in the age group of 40-60
years invest in higher investment brackets because most of them are reinvesting the investments they
had made earlier or have higher disposable income at hand.
6
Relationship of Average Annual Investment with Profession
CHART 3.10:
The above chart shows the relationship of average annual investment with the profession of the
respondents. It can be seen that maximum investment is made by professionals as they are generally
more educated and have a limited salary which motivates them for higher returns. Since they have a
limited disposable income they generally invest in lower amounts. It can also be seen that the people
who invest in higher amounts are businessmen or self employed people. This is because they have
higher earnings and therefore more disposable income. Student investors are generally those who are
new in the market and willing to try out their luck. Since they do not have an income of their own
they generally use their parents’ money and therefore can invest in lower investment brackets only.
Government employees also include retired army personnel who have large ancient properties and
have huge incomes from pension and other sources. Hence, they are willing to invest in larger
amounts as shown by the chart.
6
Relationship of Average Annual Investment with Education
CHART 3.11:
The above chart shows a comparative relationship between education and the average annual
investment made by the respondents. The chart shows that people who invest the most in all levels of
investment bracket are post graduates followed by graduates. This can be attributed to the fact that
since IPO issue is completely new in the market so only well educated people who have knowledge
about the company and its working plus the knowledge about the stock markets can invest in these.
The rest of the investors who invest in stock markets generally do so on the basis of market trends or
their intuition.
6
Relationship of Average Annual Investment with Gender
CHART 3.12:
The comparative relationship of Gender with average annual investment has been summarized in the
above graph. It can be seen that males generally tend to invest in higher amounts as they are more
speculative. Women, on the other hand, invest in moderate amounts. This can also be due to the fact
that women generally are homemakers or even if they earn do not have large amounts to spare. It can
also be seen that a large number of men invest in lower investment brackets; this is because they have
a lot of financial responsibilities and can only spare a small amount for speculative purposes.
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Relationship of Average Annual Investment with Corporate

Image
TABLE 3.5: Average Investment Annually * Corporate Image Cross tabulation
Avg Annual Investment Disagree Neither disagree Agree Strongly Total

nor Agree Agree
(Rs.)
10000-50000 0 8 22 6 39
50000-100000 5 6 11 2 24
100000&above 1 1 7 1 10
Total 6 15 40 9 70
CHART 3.13:
The above relationship of the average annual investment with the corporate image shows that
investors investing in the bracket of 10000 to 50000 are the people who have the maximum impact of
corporate image on their investment decision. 22 out of 70 respondents believe that corporate image
of a company is an important criteria for them. The people in the investment bracket of 50000 to
100000 also agree to this.
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Relationship of Average Annual Investment with Present

Market Conditions
TABLE 3.6: Average Investment Annually * Present Market Condition Cross tabulation
Avg annual Investment Disagree Neither Disagree Agree Strongly Total

nor Agree Agree
10000-50000 1 3 22 10 36
50000-100000 2 2 15 5 24
100000&above 0 0 5 5 10
Total 3 5 42 20 70
CHART 3.14
The relationship of present market conditions with the average investment shows that investors
investing in the bracket of 10000 to 100000 laid emphasis on the present market conditions while
deciding on investing in a new public issue. However, investors investing in large amounts pay pretty
much regard to this aspect while investing as their amount of investment is high and a lot of risk is
involved. Around 62 people agreed that they consider the present market conditions before making an
investment in a new public issue.
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Relationship of Average Annual Investment with Size
TABLE 3.7: Average Investment Annually * IPO Size Cross tabulation

Avg annual Strongly Disagree Neither Agree Strongly Total
Investment Disagree Disagree nor Agree
Agree
10000-50000 3 3 3 26 1 36
50000-100000 1 2 8 11 2 24
100000&above 0 2 0 7 1 10
Total 4 7 11 44 4 70
CHART 3.15
The size of an IPO when compared with the average annual investment made by the investors shows
that all the respondents investing in all income brackets give a considerable importance to this aspect.
44 respondents in total agreed on the importance of size being a criterion of investment while 11
people were indifferent about it. Thus, it can be safely concluded that size does play an important role
in influencing an investor.
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Relationship of Avg. Annual Investment with Performance of

Previous IPO’s
TABLE3.8: Average Investment Annually * Performance of previous IPO’s Cross tabulation

Avg Annual Disagree Neither Disagree Agree Strongly Total
Investment nor Agree Agree
10000-50000 1 3 28 4 36
50000-100000 0 7 11 6 24
100000&above 2 0 4 4 10
Total 3 10 43 14 70
CHART 3.16
The relationship of average annual investment with the performance of previous IPO’s shows that a
large number of people base their decision on the performance of previous public issues in the market
especially the ones that have come out in the recent past. Investors who do not have much knowledge
about the company and the financial ratios generally consider such parameters while investing in the
market. It can be seen that around 57 people agree that they see the performance of previous IPO’s
before investing in a new one.
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Relationship of Average Annual Investment with

Performance Criteria
CHART 3.17
The above chart shows the Perception of the people while measuring the performance of the company
coming out with a public issue. It shows a comparative relationship between the investment made by
the investors and their criteria for judging the performance of the company. It can be observed that the
three categories of investors on the basis of investment amounts, give major emphasis on the growth
of the firm. It needs to be noted that the investors investing the highest amounts of money usually
base their decisions on the growth and profits, while those in the lowest investment bracket base their
decisions on growth and do not give major emphasis on the number of years,, the company has been
in business with, while it being a major parameter for middle investment bracket.
6
CHAPTER IV
ANALYSIS AND
INTERPRETATION
LEVEL II
6
Equity valuation is one of the most important and difficult area of corporate finance. Theoretically,
price of the share depends upon two broad factors, namely, size of return and degree of fluctuation.
But in practical scenario, fixation of issue price cannot be done on the basis of risk and return alone.
There are few other factors, which the issuing company and merchant bankers take in to consideration
while fixing the issue price. These are growth of the firm, size of the firm, level of debt in the
company, various qualitative factors, i.e. business reputation, financial backing and macroeconomic
factors like economic stability and growth in the industry. Given this back ground, this chapter of the
study aims at identifying the various factors that determine the IPO price. Ten variables namely,
weighted average earning per share, price earning multiple, net asset value, weighted average return
on net worth, size measured by assets, size measured by sales, growth measured by assets, leverage
and risk, have been selected for this purpose. Qualitative and macro economic factors have been kept
out of the purview of the study.
4.1CORRELATION ANALYSIS:-
The relationship of each explanatory variable (measured by coefficient of correlation) with IPO issue
price and among the explanatory variables have been discussed in this section. The zero order
correlation matrices of all groupings have been prepared. The main inferences from these Figures
have been discussed below.
Correlation Results: Issue Price* Return On Net Worth: 0.533

Correlation is significant at the 0.05 level (2-tailed).
The above results show that Return on net worth of the company plays the most significant role in the
setting of issue price of an IPO. Only Return on net worth was found to be positively correlated with
issue price. High RONW percentage is always considered as a strong point and adds to the credibility
of the company. So the companies with higher RONW generally bank on this criterion and set a high
price for the IPO.
6
TABLE 4.1
Correlations
Growth Growth
RONW Assets Sales (Assets) (Sales) Leverage Issue Price
RONW Pearson Correlation 1 -.348 -.163 .614* .208 -.296 .533*
Sig. (2-tailed) .203 .561 .015 .457 .284 .041
N 15 15 15 15 15 15 15
Assets Pearson Correlation -.348 1 .911** -.171 -.171 .968** -.173
Sig. (2-tailed) .203 .000 .542 .542 .000 .537
N 15 15 15 15 15 15 15
Sales Pearson Correlation -.163 .911** 1 -.023 -.097 .839** -.052
Sig. (2-tailed) .561 .000 .935 .731 .000 .855
N 15 15 15 15 15 15 15
Growth Pearson Correlation .614* -.171 -.023 1 .522* -.255 .261

(Assets) Sig. (2-tailed) .015 .542 .935 .046 .360 .347
N 15 15 15 15 15 15 15
Growth Pearson Correlation .208 -.171 -.097 .522* 1 -.226 .444

(Sales) Sig. (2-tailed) .457 .542 .731 .046 .418 .098
N 15 15 15 15 15 15 15
Leverage Pearson Correlation -.296 .968** .839** -.255 -.226 1 -.180
Sig. (2-tailed) .284 .000 .000 .360 .418 .521
N 15 15 15 15 15 15 15
Issue Price Pearson Correlation .533* -.173 -.052 .261 .444 -.180 1
Sig. (2-tailed) .041 .537 .855 .347 .098 .521
N 15 15 15 15 15 15 15
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
6
CHAPTER V
ANALYSIS AND
INTERPRETATION
LEVEL III
6
POST –LISTING PERFORMANCE OF IPOs
The purpose is to find out the effectiveness of the pricing of the IPO stocks- inferring whether the
stocks were over-priced or under-priced. And then to investigate the informational efficiency of IPO
market prices with respect to the first five trading days. This part analyzes the speed of price
adjustment to information events for IPOs.
The following part of the study shows the performance as shown by the individual stocks for the last
15 IPOs issued in the Indian Primary Market till May 2010. The detailed data of the pre-issue price-
band of the IPO, its listing price, and the intra-day prices of the same can be referred to in Annexure-
II.
On an individual stock basis, the Open to Offer ratio signifies the percentage change the price of the
stock has undergone with respect to its offer price. For the first day, this ratio signifies the percentage
change in the price at which the stock was listed on the very first day of trading as compared to its
offer price.
High to Offer ratio depicts the maximum returns the stock promised over its offer price during the
trading hours of a particular day.
Similarly, Low to Offer ratio shows the maximum loss that could have been suffered by the investors
over its offer price.
Average to Offer ratio presents the percentage difference between the average returns of the day and
the offer price of the stock.
Negative sign denotes that the price at which the stock is traded is lower than the offer price,
signifying a loss to the investors.
Positive sign denotes the price of trading is higher than the offer price and is favourable to the stock’s
investors.
The ratios, when calculated on a regular basis for the first five trading days, thus, clarify the trend as
shown by the stock’s performance. Due to informational inefficiency of an IPO stock, the market
forces come into play, as per the efficient market hypothesis, and as the information gets incorporated
6
in the stock prices gradually over the first few days, the prices tend to under-go a correction phase.
This price correction brings out the intrinsic value of the stock, thus clarifying the standing of the
stock- is the stock under-priced or over-priced?
Positive returns on all successive five days shows that the price for the stock is on the rise, and the
market has acted favourably towards the stock, suggesting that the stock has been under-priced.
Likewise, continuous negative returns depict that the stock had been over-priced, and the market
forces make corrections in the price to bring it to its true value.
OVERRPRICING=
TABLE 5.1: JAYPEE INFRATECH LTD.
10.34%
Open to High to Low to Average to
Offer Offer Offer Offer Close to offer
day1 -3.92% -3.14% -11.76% -7.81% -10.34%
day2 -8.82% -7.40% -12.50% -10.99% -11.62%
day3 -11.76% -11.76% -20.00% -17.42% -19.22%
day4 -17.65% -15.74% -21.08% -18.61% -19.80%
day5 -18.73% -17.45% -20.83% -18.86% -18.19%
Avg -12.18% -11.10% -17.24% -14.74% -15.83%
For JayPee Infratech Ltd., the prices have been on a decline since its listing day. The offer price
which was Rs 102, was the highest ever price, and the stock was listed at a loss of 3.92% over the
offer price. Even the intra-day high price was lower than the offer price. And ever since its listing, the
price has been decreasing, and even its Last Trading Price as on 23 June 2010, Rs 85.90, was below
its offer price. The price correcting mechanism operational in the market brought out a decline in the
prices, the decrease equalling to around 20% on the fifth day itself. This clearly indicates that the
stock was considered to be over-priced.
6
TABLE 5.2: SJVN LTD.

OVERPRICING=
Open to High to Low to Average to 3.46%
day1 4.23% 4.23% -7.69% -2.15% -3.46%
day2 -5.38% -2.88% -6.92% -4.69% -5.00%
day3 -3.85% -2.31% -5.38% -3.77% -4.62%
day4 -5.77% -5.19% -7.69% -6.65% -7.50%
day5 -6.73% -5.38% -6.92% -6.23% -6.35%
Avg -3.50% -2.31% -6.92% -4.70% -5.38%
SJVN Ltd. though opened at 4% higher than its offer price, but that was the highest price for its stock
on that day. And since the listing day, to next four days, the stock price had been on a decline,
averaging to a loss of 4.70% to its investors in the first five days. The Closing Price for SJVN Ltd.
stock has been below Offer Price for each of the first five traded days, clearly indicating the market
considered the stock to be a bit overpriced.
UNDERPRICING=
TABLE 5.3: MANDHANA INUSTRIES LTD.
3.46%
day1 0.77% 7.31% 0.00% 3.32% 2.73%
day2 4.58% 8.19% 0.77% 3.30% 2.77%
day3 1.62% 5.12% 1.15% 3.35% 4.19%
day4 5.31% 5.88% 3.15% 4.57% 4.65%
day5 5.23% 6.54% 1.54% 4.24% 5.12%

Avg 3.50% 6.61% 1.32% 3.75% 3.89%
Mandhana stock prices have been received favourably by the market. Opening at a price just slightly
higher than the offer price, the highest intra-day brought about a 7.31% increase over its offer price.
And for the next five days too, the prices have been seeing the bright side, even the lowest price on
any of the following five trading days never going below the offer price. The offer price was thus
considered to be underpriced, giving a return of just around 3.89% on an average for the first five
trading days.
6
TABLE 5.4: TARAPUR TRANSFORMERS LTD.

OVERPRICING=
day1 0.00% 29.93% -27.60% 3.64% -23.47%
day2 -30.67% -27.07% -34.93% -31.33% -32.40%
day3 -31.93% -29.60% -34.93% -32.32% -34.13%
day4 -35.33% -35.33% -45.20% -42.05% -44.00%
day5 -42.67% -37.87% -47.00% -41.47% -43.07%
Avg -28.12% -19.99% -37.93% -28.71% -35.41%
Tarapur had witnessed high speculations on its listing day as is indicated by the volatility in the intra-
day prices. Opening at its offer price, the intra-day high went as far as 30% over its offer price.
Meanwhile the intra-day low price too registered a maximum of 27% loss to investors, and as the
market came to a close, the bearish sentiments were high thereby decreasing the closing price by
around 30%. And the prices as recorded on the fifth trading day showed a decrease at the level of over
40% below its offer price, thus making the stock to be over priced at the time of the issue, the first day
closing price being 23% below Offer Price.
OVERPRICING=
TABLE 5.5: NITESH ESTATE LTD.
4.81%
day1 0.00% 7.41% -10.37% -4.69% -4.81%
day2 -6.48% -5.93% -18.52% -10.54% -5.`9%
day3 -16.67% -16.48% -22.78% -20.59% -21.02%
day4 -22.13% -17.87% -22.87% -21.11% -21.94%
day5 -23.89% -21.48% -26.85% -23.98% -25.83%
Avg -13.83% -10.87% -20.28% -16.18% -17.76%
Nitesh Estate, as was the case with SJVN Ltd., opened at its offer price. Its intra-day high was 7.41%
over its offer price and the intra-day low registering a 10% decline, averaging a loss of 4.69% to its
investors. For the first five trading days, the average loss for the investors had been to the tune of
16%. The open day decrease in its prices has been 13.83% per day, below its offer-price. Thus, the
stock was over-priced in this case as well.
6
UNDERPRICING=
TABLE 5.6: TALWALKARS BETTER VALUE FITNESS LTD.
27.46%
day1 15.59% 31.95% 3.13% 22.19% 27.46%
day2 29.69% 52.97% 28.91% 42.13% 50.12%
day3 54.69% 58.75% 40.12% 47.76% 43.09%
day4 45.70% 46.48% 37.73% 41.27% 41.48%
day5 40.63% 42.50% 33.28% 39.27% 35.90%
Avg 37.26% 46.53% 28.63% 38.52% 39.61%
The data for the first five trading days for Talwalkars stock shows that the stock was considered to be
highly underpriced, the stock registering an increase of 40% on the fifth trading day over its offer
price the stock opened at a profit of 15% over the offer price, the intra-day highest went as far as 32%
on the first day itself, and the lowest intra-day price too was above the offer price. The average
earnings for its investors for the first five days were around 38%.
OVERPRICING=
TABLE 5.7: GOENKA DIAMOND & JEWELS LTD.
5.48%
day1 -8.15% 4.44% -31.70% -9.49% -5.48%
day2 -10.11% -9.41% -16.63% -13.77% -15.41%
day3 -15.07% -11.11% -17.04% -14.02% -13.00%
day4 -12.52% -12.11% -20.15% -17.23% -18.81%
day5 -17.93% -17.63% -23.22% -20.90% -22.04%
Avg -12.76% -9.16% -21.75% -15.08% -14.95%
Goenka stocks have also declined in their Prices when compared to what the stock was offered at to
the investors. The first day loss to the investors was around 10%, which over the next four days
doubled up. The closing price at end of the fifth trading day was at 22% lower than the Offer Price.
Thus, the Goenka stocks can also be said to have been overprices at the time of their issue.
6
TABLE 5.8: SGJHL

OVERPRICING=
day1 -3.85% -3.85% -37.79% -32.91% -36.71%
day2 -35.12% -34.46% -38.29% -36.20% -36.60%
day3 -36.58% -35.08% -37.04% -36.17% -36.52%
day4 -35.77% -35.38% -38.29% -36.92% -38.06%
Avg -27.83% -27.19% -37.85% -35.55% -36.97%
Shree Ganesh Jewellery House Ltd. listed on the opening day at a discount of 3.85% over the Offer
Price, the decline in prices increased as the trading day passed on. The highest price that the stocks
could reach on the first day was the opening (listing price in this case). The second day returns were
far lower than the first day, registering a loss of 35% over the offer price. Almost every day, the
stocks closed to the low price of the respective day, and the next day open was still a few points
lower, clarifying the overpriced position of SGJHL IPO.
UNDERPRICING=
TABLE 5.9: IVC
0.75%
day1 2.50% 3.50% -0.50% 1.50% 0.75%
day2 2.00% 2.00% 0.12% 0.70% 0.25%
day3 1.25% 4.13% 0.50% 2.33% 1.75%
day4 3.50% 6.00% 2.00% 4.05% 5.00%
day5 7.25% 7.25% 4.00% 5.35% 5.25%
Avg 3.30% 4.58% 1.23% 2.79% 2.60%
IVC stocks opened at 2.50% increase in return over the offer price, the marginal positive returns
being maintained by the stock over the next four days. The close to offer ratio has increased over the
five days, 0.75% on the first day to 5.25% on the fifth day. But comparing the first day closing price
to the offer price, it can be deduced that the stock was aptly priced.
6
TABLE 5.10: PRADIP OVERSEAS LTD.

OVERPRICING=
2.68%
day1 4.55% 11.55% -7.14% 0.35% -2.68%
day2 -1.82% -1.18% -7.95% -5.52% -7.32%
day3 -7.27% -4.55% -7.82% -6.66% -7.00%
day4 -7.18% -4.09% -8.59% -6.03% -7.82%
day5 -7.05% -6.64% -15.09% -11.84% -14.27%
Avg -3.75% -0.98% -9.32% -5.94% -7.82%
The Pradip stock though listed and opened at a premium of 4.55%, and the intra-day high was
11.55%, but as the day progressed, the stock prices went down, and closed at 2.68% below the offer
price. And every day since then, for the next four days, the closing price has been lower than the
opening price for that day. This indicates that the stock was considered to be marginally overpriced by
the market. It is one of the very IPO stocks issued this year that despite being listed at premium,
closed below the offer price.
UNDERPRICING=
TABLE 5.11: UNITED BANK OF INDIA
4.02%
day1 13.48% 16.67% 3.03% 8.06% 4.02%
day2 4.24% 7.05% 3.56% 5.32% 4.62%
day3 2.27% 3.33% 0.15% 2.11% 1.06%
day4 2.27% 5.15% 1.21% 2.55% 3.86%
day5 3.03% 4.55% 2.42% 3.48% 3.56%
Avg 5.06% 7.35% 2.08% 4.30% 3.42%
The United Bank stock was considered to be under-priced, the first day closing price at 4% premium
over the offer price. The first day speculation were high as is evident from the different between the
high to offer and low to offer ratios, but the stock has brought only positive returns to its investors for
the first five days.
6
UNDERPRICING=
TABLE 5.12: TEXMO PIPES & PRODUCTS LTD.
52.39%

day1 3.11% 55.44% 3.11% 46.20% 52.39%
day2 54.44% 77.11% 52.22% 65.71% 63.56%
day3 65.33% 65.33% 51.50% 58.03% 56.17%
day4 55.56% 71.67% 55.56% 65.68% 69.61%
day5 72.22% 78.67% 66.39% 73.30% 77.50%
Avg 50.13% 69.64% 45.76% 61.78% 63.84%
Texmo Pipes stocks are one of the few stocks of this year that have shown very high positive returns.
Opening at just 3.11% over the offer price, the closing price was 50% over the offer price, close to the
high price of the day. And for the next four days, the prices have only risen, the closing price earnings
for the fifth day being as high as 75%. This stock was considered to be highly underpriced.
UNDERPRICING=
TABLE 5.13: ARSS INFRASTRUCTURE PROJECTS LTD.
63.88%
day1 40.00% 67.07% 40.00% 56.63% 63.88%
day2 66.67% 83.78% 59.50% 71.33% 81.14%
day3 81.87% 86.31% 70.80% 79.27% 76.01%
day4 76.00% 81.11% 72.97% 77.50% 78.77%
day5 76.44% 81.11% 75.73% 78.48% 77.37%
Avg 68.20% 79.88% 63.80% 72.64% 75.43%
ARSS Infra, like Texmo pipes, is one of the few IPO stocks of this year that have given high positive
returns to their investors. The stocks opened at a 40% premium over the offer price, this being the
lowest intra-day price for ARSS stocks. The first day closed at a price of 63.88% higher than the offer
price. The second day opened at higher than the first day closing price. For this stock, the third day
recorded the highest returns for the first five trading days, but the same day the closing price
marginally lowered down below the opening price of the day. And in the following days, there was
lesser volatility in the stock prices. The stock was highly underpriced at Rs. 630, first day closing
price being Rs 737.45.
6
OVERPRICING=
TABLE 5.14: EMMBI POLYARNS LTD.
36.11%

day1 2.22% 7.33% -40.78% -15.24% -36.11%
day2 -35.67% -29.44% -38.67% -33.20% -34.78%
day3 -34.44% -32.67% -38.67% -36.02% -38.11%
day4 -37.78% -36.22% -42.00% -40.47% -41.67%
day5 -41.56% -38.78% -43.56% -40.98% -42.22%
Avg -29.44% -25.96% -40.73% -33.18% -38.58%
EMMBI stocks though opened at a marginal premium of 2% over the offer price, the stock
plummeted to 36% below the price at which the stock was offered. And throughout the first five
trading days, the stocks prices have only declined, thus making it absolute that EMMBI stock was
highly overpriced even at Rs. 46.
UNDERPRICING=
TABLE 5.15: AQUA LOGISTICS LTD.
11.18%

day1 2.27% 11.82% 1.70% 7.97% 11.18%
day2 10.18% 16.43% 5.55% 10.84% 7.02%
day3 5.45% 10.11% 4.23% 7.06% 6.16%
day4 6.57% 8.09% 4.59% 6.40% 5.82%
day5 7.23% 10.82% 6.39% 9.11% 8.86%
Avg 6.34% 11.45% 4.49% 8.28% 7.81%
Aqua Logistics stocks too opened at premium of 2% above the offer price, but unlike the EMMBI
stock, it continued to give positive returns for the first five days, thus showing by this short term
performance that its stocks were a bit under-priced at Rs 220, the first day closed at the price of Rs
242.5. The stock has given positive returns to its IPO investors.
6
FIRST WEEK PERFORMANCE OF IPOs

This study examined the price performance of the IPOs in the short-run, where short-run means the
behaviour of initial returns upon listing. As in other studies on this theme, the return realized over the
period from the offering of the shares to the first trading day on NSE, called as open-to-offer return
was computed. The short-run analysis was extended by examining offer-to-open returns which will
give a fair idea of how much the IPOs gained or lost upon opening trades and an intra-day return on
the listing day defined as the open-to-offer and low-to-offer returns on the listing day was also
computed. The next 5 days’ returns in a similar manner with reference to the first day's closing price
were also examined.
TABLE .516 FIRST DAY

PERFORMANCE
Open to High to Low to Average to Close to

Offer Offer Offer Offer Offer
AVERAGE 5.45% 17.33% -6.47% 6.11% 3.52%
STD DEV 0.12 0.21 0.2 0.22 0.27
MAX 40.00% 67.07% 40.00% 56.63% 63.88%
MIN -8.15% -3.85% -40.78% -32.91% -36.71%
SKEWNESS 1.87 1.21 0.21 0.81 0.75
N 15 15 15 15 15
N(Price>Of 12 13 6 9 7
fer)
The above analysis shows the first day performance of the IPOs. The study
reveals the average earnings of the offer open IPO is 5.45% and it ranges to the
maximum of 17.33% and the minimum of -6.47% and at an average of 6.11%
return on the first day of listing. Standard deviation is also calculated and
presented in the above table. The maximum average return on the first day
56.63% and minimum average return on the first day is -32.91%. Out of 15 IPOs
studied only 3 are listed below the issue price and 9 issues went below the issue
6
price during the trading day. It is interesting to note that except 2(JP Infratech
and SGJHL), all the issues went above the issue price during the trading day
(listing day). But as the first trading day ended, out of those that opened at a
premium, only 7 stocks closed above the offer price.
TABLE SECOND DAY PERFORMANCE

5.17 Open to High to Low to Average to Close to
AVERAGE 3.08% 8.80% -0.94% 3.88% 4.07%
STD DEV 0.28 0.35 0.29 0.32 0.34
MAX 66.67% 83.78% 59.50% 71.33% 81.14%
MIN -35.67% -34.46% -38.67% -36.20% -36.60%
SKEWNES 0.82 1.09 0.80 0.99 1.10
S
N 15 15 15 15 15
N(Price>O 7 7 7 7 7
ffer)
The second day's performance of the IPOs return analysis shows that most of the IPO investors gain
on the listing day's performance and also on the second day. The investors who waited for the second
day also gained considerably. The average return on the second day ranges from 8.80% to -0.94%.
The maximum return on the second day ranged from 83.78% to 59.50% and the minimum return on
the second day ranged from -34.46% to -38.67%.On the second day trading out of 15 IPOs 7 stocks
opened higher than the issue price and all those 7 shares are opened below the issue price, thus
showing that there was high price correction going on in the market.
TABLE THIRD DAY PERFORMANCE

5.18
AVERAGE 4.09% 6.20% -0.39% 2.60% 1.53%
STD DEV 0.35 0.35 0.31 0.33 0.33
6
MAX 81.87% 86.31% 70.80% 79.27% 76.01%

MIN -36.58% -35.08% -38.67% -36.17% -38.11%
SKEWNES 1.13 1.13 0.98 1.07 1.02
S
N 15 15 15 15 15
N(Price>O 7 7 7 7 7
ffer)
The above analysis shows the third day performance of the IPOs. The average
earnings of the offer open IPO is 4.09% and it ranges to the maximum of 6.20%
and the minimum of -0.39% and at an average of 2.60% return on the third day
of listing. Thus, though the intra-day highest average price for the 15 stocks has
gone down, but these is less speculation as the information is getting
incorporated in the stock prices, and the price correction has come into play. The
average maximum return on the third day 81.87% and minimum average return
on the first day is -36.58%. Out of 15 IPOs studied 8 opened below the issue
price and only these issues went below the issue price during the trading day. It
is interesting to note that all those stocks that opened above the issue price,
remained so during the day as well not going below their issue price even for a
single time, and vice-versa.
TABLE FOURTH DAY PERFORMANCE

5.19
AVERAGE 1.81% 4.43% -1.36% 1.33% 1.27%
STD DEV 0.33 0.35 0.33 0.35 0.36
MAX 76.00% 81.11% 72.97% 77.50% 78.77%
MIN -37.78% -36.22% -45.20% -42.05% -44.00%
SKEWNES 0.98 1.05 0.89 0.97 0.96
S
N 15 15 15 15 15
N(Price>O 7 7 7 7 7
ffer)
6
The forth day performance of freshly issued IPOs shows that on an average, the stocks opened at just
1.81% higher than the respective offer prices, the intra-day high being 4.43% and the intra-day low
being -1.36%, thus suggesting that even the intra-day low prices were higher than the offer prices. But
there has been high difference in the stock prices, the average maximum being 77.50% higher, and at
the same time, the average intra-day minimum being at -42.05%. There is a high degree of skewness
in the averaging of the data. Out of the 15 IPOs listed, the 7 stocks which showed positive results on
the third trading day continued to do so, and the 8 stocks that were giving negative results remained
on that side.
TABLE FIFTH DAY PERFORMANCE

5.20
AVERAGE 3.94% 6.05% 0.74% 3.59% 3.22%
STD DEV 0.35 0.36 0.35 0.36 0.37
MAX 76.44% 81.11% 75.73% 78.48% 77.50%
MIN -42.67% -38.78% -47.00% -41.47% -43.07%
SKEWNES 0.92 1.05 0.92 1.00 1.02
S
N 15 15 15 15 15
N(Price>O 7 7 7 7 7
ffer)
IPOs in the short-run: It is clear from the five day analysis, that much of the speculation that went
into the stock prices of newly listed issues was on the first trading day as is evident from the
difference between the high and the low prices, which led as many as 13 stocks to go beyond the offer
price, but as the day came to a close, only 7 stocks remained on the positive side. It may also noted
that not all IPOs that opened with gains also closed the day with positive returns, in fact some of them
closed at a discount to the offer price by the end of the day. Hence it is observed that the number of
IPOs that ended the day at a premium is lower than the IPOs that opened at a premium, as 12 stocks
opened to at a premium, but only 7 stocks managed to stay above the issue price throughout the day,
not going below the issue price even a single time. And from the second day onwards, the 7 stocks
continuously closed at a premium over the offer price.
6
Thus it is seen from the above analysis that 8 out of the 15 IPOs listed were over-priced, and the
fluctuations in the stock prices in the stock over the next four days were an attempt to discover the
true prices. And these 8 stocks traded with their negative returns during the first week. Out of rest the
7 stocks, one was almost aptly priced, with the first day closing price being higher than the offer
price, by just 0.75% (in case of IVC).
The intra-day returns were also examined, i.e., if an investor buys the shares at the opening price and
sells by the end of the day at the closing price, here it was observed that there were negative returns
statistically not distinguishable from zero, therefore it may also be inferred that IPOs listing do not
provide economically significant trading opportunities for day traders.
6
CHAPTER VI
FINDINGS
AND
SUGGESTIONS
6
5.1 FINDINGS:-
After the findings were obtained, they were used to reach the conclusions of the study. The various
conclusions are as follows:
• In the correlation analysis only size measured by sales was found to be the dominant variable
both in the case of issue price and the ratio of issue price to par value
• When investing in IPOs, investors generally consider five main factors i.e. the corporate
image, size, performance of previous IPOs, price and present market conditions.
• Males generally have a tendency to invest in smaller amounts whereas females are likely to be
more speculative.
• People in the age group of below 30 invest in small and medium amounts (below 100000) and
people above the age of 45 tend to invest in higher amounts.
• It can be observed that the three categories of investors on the basis of investment amounts,
give major emphasis on the growth of the firm. It needs to be noted that the investors investing
the highest amounts of money usually base their decisions on the growth and profits, while
those in the lowest investment bracket base their decisions on growth and do not give major
emphasis on the number of years the company has been in business, while it being a major
parameter for middle investment bracket.
• It can also be concluded that most of the investments is done by investors having either
graduate or post graduate qualifications.
• Out of the last 15 IPOs that were listed this year till May 2010, 6 were
underpriced, 1 was aptly priced and 8 were overpriced.
• Out of 15 IPO studied, only 3 were listed below the issue price but 8 closed
below the offer price, thus confirming high speculation prevalent on the
listing day.
• Since the second day to the fifth day, the 7 stocks which were underpriced
did not go below the offer price even for once, thus indicating the direction
6
of price movements. Likewise, the 8 overpriced stocks could not manage

to go beyond the offer price.
5.2 RECCOMENDATIONS:
History of Indian capital market is replete with incidents of frauds committed by unscrupulous issuers
and fly by night operators. These issuers play with the sentiments of investors and raise substantial
sums of money without justifiable investment proposals. These issuers, when unable to fulfill
promises made to investors elope in oblivion, leaving investors high and dry. Investors in this world
must take care of their own interests. For the guidance of the investors some of the suggestions which
emerge from the study are:
• The investors should look into the variables which make a company fundamentally strong
before taking any concrete decisions.
• It was also observed during the course of the study that merchant bankers and accountants
possess an art and tendency of manipulating accounting figures and present inflated results.
Investors should be cautious and should see that these ratios are calculated on the basis of
correct data.
• The investors are advised not to take figures at full value. Often the companies paint a rosy
picture of their future earnings at the time of making public issues. The investors should not be
swayed away by these forecasts. A degree of reservation and conservatism is always good at
the time of investment in IPO’s especially of new companies.
• An investor should not have herd mentality and should invest into IPO only when he is
satisfied with working and financial strength of the company. He should also look into
qualitative factors like promoters’ strength, future prospects of the company, risk factors and
industry outlook before subscribing to an IPO.
• The companies coming out with a public issue should strive to achieve a good corporate image
for their company as it is one of the important criteria for an investor while deciding on
investing in an IPO.
6
• The present market conditions also have considerable impact on investors so the timing of
coming out with a public issue should also be evaluated carefully.
• The growth of the company is one of the most important judging criteria for a company’s
performance; therefore the company should make sure it projects a good growth rate before
coming out with a public issue.
5.3 SCOPE FOR FURTHER RESEARCH:-
• The present study concentrated on internal factors affecting valuation of equity issues in India.
• Factors external to the company were kept out of the purview of the study. Further research
can be conducted on external and qualitative factors affecting the issue price.
• Detailed study is also required which should look into reasons of under pricing of IPO’s in
India.
• Present study was focused on short term performance i.e. listing performance. Another study
is needed to gauge long term performance of IPO’s in India.
6
BIBILOGRAPHY
Websites:
www.nseindia.com
www.economictimes.com
www.smcindiaonline.com
www.moneycontrol.com
www.chittorgarh.com
www.ipo.org
www.indianipoblog.com
www.allipo.com
Published Reports:
• Short and Long-run Performance of Book-built IPOs in India by Dr. S.S.S.Kumar, Associate
Professor, Indian Institute of Management, Kozhikode
• Investor’s preference on IPOs in India by K.C.John Sasi Kumar, PhD Research Scholar Anna
University, Coimbatore & Dr.P.Vikkraman, Assistant Professor School of Management
Studies, Anna University, Coimbatore
• Determinants of ipo under pricing in the National Stock Exchange of India by Alok Pande,
IIM Bangalore, R.Vaidyanathan, IIM Bangalore
6
ANNEXURES
6
APPENDIX - I
QUESTIONNAIRE
Dear Respondent, For Office Use

Only
As a part of a Research Project being carried at Institute of Marketing and
Management, New Delhi concerned with “The Investor Perception on IPO’s”, I Respondent No.
would like to request you to contribute by taking a few minutes to answer the
______
following questions in the manner described. Your valuable inputs would be
Please answer the following questions by ticking on the appropriate option.
appreciated. I thank you for cooperating.
1. You are
Male Female
2. Your Age
15-30 yrs 31-45 yrs 46-60 yrs Above 60 yrs
3. Job/ Profession
Student Govt. Professional Business/
Employee Self Employed
4. Education
Matriculation Graduation Post- Professional
Graduation Diploma
5. How much on an average do you invest in shares annually?
Rs 10000- Rs 50000- Above Rs
Rs50000 Rs100000 100000
6. How do you check the performance of the company?

Years in Size Growth rate Market share
Business
Profits
7. What kind of industry/sector would you like to invest in?

Oil/Energy FMCG Telecom IT
Sector
Others
6
8. The corporate image of the company has an impact on your investment decision
Strongly disagree Strongly disagree Disagree Neither agree
Agree Strongly agree
nor disagree
9. The size of the issue has an impact on your investment decision

Strongly disagree Disagree Neither agree Agree Strongly agree
nor disagree
10. The members of the Management have an impact on your investment decision
nor disagree
11. The price of the IPO has an impact on your investment decision
nor disagree
12. The objective of raising the IPO has an impact on your investment decision
nor disagree
13. You prefer to invest in IPO’s over secondary market

nor disagree
14. The present market conditions have an impact on your investment decision
nor disagree
15. The performance of previous IPOs has an impact on your investment decision
nor disagree
THANK YOU
6
APPENDIX - II
DESCRIPTIVE STATISTICS of first week Performance of
Recently Listed IPOs:
JAYPEE INFRATECH LIMITED

Date Prev Ope High Low Last Close Avera Total Turno
Close n Price Price Price Price ge Traded ver
Price Price Quantity in
Lacs
21-May- 102 98 98.8 90 92.2 91.45 94.03 3626348 34097.

10 0 43
24-May- 91.45 93 94.45 89.25 89.7 90.15 90.79 7027985 6380.7
10 3
25-May- 90.15 90 90 81.6 83 82.4 84.23 2689887 2265.6
10 6
26-May- 82.4 84 85.95 80.5 83 81.8 83.02 1935465 1606.7
10 5
27-May- 81.8 82.9 84.2 80.75 83.8 83.45 82.76 1440326 1192
10
SJVN LIMITED
Date Prev Ope High Low Last Clos Avera Total Turno
Clos n Price Price Price e ge Traded ver
e Pric Price Price Quantit in
e y Lacs
20-May- 26 27.1 27.1 24 25 25.1 25.44 1.35E+0 34433.

10 8 2
21-May- 25.1 24.6 25.25 24.2 24.7 24.7 24.78 110854 2746.6
10 54 9
24-May- 24.7 25 25.4 24.6 24.7 24.8 25.02 584155 1461.5
10 2 9
25-May- 24.8 24.5 24.65 24 24 24.05 24.27 369779 897.41
10 5
26-May- 24.05 24.2 24.6 24.2 24.35 24.35 24.38 324845 792.13
10 5 2
MANDHANA INUSTRIES LIMITED
6
Date Prev Open High Low Last Clo Avera Total Turno
Close Price Pric Price Price se ge Traded ver
e Pric Price Quantity in
e Lacs
19-May- 130 131 139.5 130 133 133.5 134.3 169194 22724.
10 5 1 52 65
20-May- 133.5 135.9 140.65 131 134.7 133.6 134.2 254522 3417.9
10 5 5 9 0 6
21-May- 133.6 132.1 136. 131. 135.85 135.4 134.3 736253 989.16
10 65 5 5 5
24-May- 135.4 136.9 137.6 134. 137 136.0 135.9 395442 537.57
10 5 5 1 5 4
25-May- 136.0 136.8 138.5 132 137.15 136.6 135.5 264950 359.03
10 5 5 1
TARAPUR TRANSFORMERS LIMITED

Date Pre Open High Low Last Close Avera Total Turno
v Price Price Price Price Price ge Traded ver
Clos Price Quanti in
e ty Lacs
18-May- 75 75 97.45 54.3 55.2 57.4 77.73 813218 63212.

10 69 07
19-May- 57.4 52 54.7 48.8 50.9 50.7 51.5 149076 7677.5
10 66 4
20-May- 50.7 51.05 52.8 48.8 48.85 49.4 50.76 262029 1330.1
10 3 1
21-May- 49.4 48.5 48.5 41.1 41.9 42 43.46 286026 1242.9
10 1 8
24-May- 42 43 46.6 39.75 42.5 42.7 43.9 712987 3129.6
10 1 8
NITESH ESTATE LIMITED

Date Prev Open High Low Last Close Avera Total Turno
Clos Price Price Price Price Price ge Traded ver
e Price Quanti in
ty Lacs
13-May- 54 54 58 48.4 51.2 51.4 51.47 226254 11644.

10 58 49
6
14-May- 51.4 50.5 50.8 44 44.75 45.8 48.31 278287 1344.4

10 4 7
17-May- 45.8 45 45.1 41.7 42.85 42.65 42.88 182371 781.96
10 2
18-May- 42.6 42.05 44.35 41.65 42 42.15 42.6 923431 393.43
10 5
19-May- 42.1 41.1 42.4 39.5 39.75 40.05 41.05 541976 222.47
10 5
TALWALKARS BETTER VALUE FITNESS LIMITED

Date Prev Open High Low Last Clos Averag Total Turnov
Close Price Price Price Pric e e Traded er
e Price Price Quantit in Lacs
y
10-May- 128 147.9 168.9 132 168. 163.1 156.4 2602977 40710.0
10 5 3 5 9 1
11-May- 163.1 166 195.8 165 195. 192.1 181.93 2170472 39487.1
10 5 8 5 5 2
12-May- 192.1 198 203.2 179.3 185. 183.1 189.13 1941874 36726.3
10 5 5 8 5 4
13-May- 183.1 186.5 187.5 176.3 183 181.1 180.82 6358084 11496.4
10 5 4
14-May- 181.1 180 182.4 170.6 171. 173.9 178.26 4026696 7178.14
10 1 5
6
GOENKA DIAMOND AND JEWELS LIMITED

Date Prev Open High Low Last Close Averag Total Turno
Close Price Price Price Price Price e Traded ver
Price Quanti in
ty Lacs
16-Apr- 135 124 141 92.2 123.1 127.6 122.19 368306 45003.
10 19 37
19-Apr- 127.6 121.3 122.3 112.5 114.1 114.2 116.41 710332 8269.0
10 5 5 1 4
20-Apr- 114.2 114.6 120 112 117.7 117.4 116.07 332818 3862.9
10 5 5 1 3
21-Apr- 117.4 118.1 118.65 107.8 109.4 109.6 111.74 336124 3755.9
10 5 5 4
22-Apr- 109.6 110.8 111.2 103.6 104.7 105.2 106.79 405898 4334.4
10 5 5 5 5 1
SHREE GANESH JEWELLERY HOUSE LIMITED (SGJHL)

Pric Price Quanti in
e ty Lacs
09-Apr- 260 250 250 161.7 163.5 164.5 174.4 303341 52912.
10 5 5 3 25 06
12-Apr- 164.55 168. 170.4 160.4 164.3 164.8 165.8 425760 7062.5
10 7 5 5 8 6 3
13-Apr- 164.85 164. 168.8 163.7 164.2 165.0 165.9 214135 3553.7
10 9 5 6 9 9
15-Apr- 165.05 167 168 160.4 160.6 161.0 164.0 101490 1664.6
10 5 5 2 9 4
IL&FS INVESTMENT MANAGERS LTD.

Clos Price Price Price Price Price ge Trade ver
e Price d in
Quant Lacs
ity
6
30-Mar- 40 41 41.4 39.8 40.6 40.3 40.6 12883 52.31

10 1
31-Mar- 40.3 40.8 40.8 40.05 40.25 40.1 40.28 36105 14.54
10
01-Apr- 40.1 40.5 41.65 40.2 40.7 40.7 40.93 21511 88.05
10 5
05-Apr- 40.7 41.4 42.4 40.8 42.4 42 41.62 79518 33.09
10
06-Apr- 42 42.9 42.9 41.6 42.25 42.1 42.14 49242 20.75
10
6
PRADIP OVERSEAS LIMITED

e ty Lacs
05-Apr- 110 115 122.7 102.1 106.8 107.0 110.3 250226 27622.
10 5 5 9 85 77
06-Apr- 107.05 108 108.7 101.2 101.7 101.9 103.9 348786 3624.9
10 5 5 5 3 2 1
07-Apr- 101.95 102 105 101.4 102.0 102.3 102.6 155176 1593.1
10 5 7 7 5
08-Apr- 102.3 102. 105.5 100.5 100.7 101.4 103.3 152575 1577.1
10 1 5 7 0 6
09-Apr- 101.4 102. 102.7 93.4 93.9 94.3 96.98 113285 1098.6
10 25 0 3
UNITED BANK OF INDIA

Clos Price Price Price Price Price ge Traded ver
e Price Quanti in
ty Lacs
18-Mar- 66 74.9 77 68 68.75 68.65 71.32 551144 39308.

10 10 59
19-Mar- 68.6 68.8 70.65 68.35 69.05 69.05 69.51 835760 5809.2
10 5 0
22-Mar- 69.0 67.5 68.2 66.1 66.25 66.7 67.39 252832 1703.7
10 5 4 9
23-Mar- 66.7 67.5 69.4 66.8 68.6 68.55 67.68 354869 2401.8
10 7 7
25-Mar- 68.5 68 69 67.6 67.85 68.35 68.3 153168 1046.1
10 5 0 8
TEXMO PIPES & PRODUCTS LIMITED

e
6
ty Lacs
10-Mar- 90 92.8 139.9 92.8 139 137.1 131.5 405237 53321.

10 5 8 03 18
11-Mar- 137.15 139 159.4 137 146.8 147.2 149.1 285622 42598.
10 4 29 91
12-Mar- 147.2 148. 148.8 136.3 143 140.5 142.2 709750 10094.
10 8 5 5 3 7 67
15-Mar- 140.55 140 154.5 140 154 152.6 149.1 102075 15220.
10 5 1 98 43
16-Mar- 152.65 155 160.8 149.7 159.9 159.7 155.9 121854 19005.
10 5 5 7 38 75
6
ARSS INFRASTRUCUTRE PROJECTS LIMITED

Close Price Price Price Price Price ge Traded ver
Price Quanti in
ty Lacs
03-Mar- 450 630 751.8 630 750 737.4 704.8 157594 111079
10 5 4 50
04-Mar- 737.4 750 827 717.7 809.1 815.1 770.9 115743 89234.
10 5 5 5 5 7 51 61
05-Mar- 815.1 818.4 838.4 768.6 785.3 792.0 806.7 900810 72668.
10 5 5 5 47
08-Mar- 792.0 792 815 778.3 804 804.4 798.7 412356 32937.
10 5 5 5 6 5 44
09-Mar- 804.4 794 815 790.8 796 798.1 803.1 193630 15551.
10 5 5 5 4 37
EMMBI POLYARNS LIMITED

Price Quanti in
ty Lacs
24-Feb- 45 46 48.3 26.65 28.2 28.75 38.14 614826 23451.

10 82 26
25-Feb- 28.75 28.95 31.75 27.6 29.25 29.35 30.06 127450 3830.5
10 26 3
26-Feb- 29.35 29.5 30.3 27.6 27.75 27.85 28.79 302494 870.77
10 4
02-Mar- 27.85 28 28.7 26.1 26.2 26.25 26.79 197582 529.4
10 7
03-Mar- 26.25 26.3 27.55 25.4 25.95 26 26.56 307124 815.62
10 7
AQUA LOGISTICS LIMITED

Price Quanti in
6
ty Lacs
23-Feb- 220 225 246 223.7 243.2 244.6 237.5 270080 64154.
10 5 4 71 51
24-Feb- 244.6 242.4 256.1 232.2 234 235.4 243.8 925327 22562.
10 5 5 4 9 82
25-Feb- 235.4 232 242.2 229.3 233 233.5 235.5 200425 4720.8
10 5 5 5 4 7 2
26-Feb- 233.5 234.4 237.8 230.1 234.6 232.8 234.0 656046 1535.6
10 5 5 5 8 9
02-Mar- 232.8 235.9 243.8 234.0 240 239.5 240.0 911967 2189.1
10 5 4 3
6
6

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A STUDY ON THE INVESTOR PERCEPTION AND FACTORS AFFECTING PRICING OF IPO

“A STUDY ON THE INVESTOR PERCEPTION

AND FACTORS AFFECTING PRICING OF IPO”

Submitted in the partial fulfilment of the requirements for the degree of

POST GRADUATE DIPLOMA IN MANAGEMENT

Under the Guidance of

EXECUTIVE PRESIDENT & SR. PROFESSOR

INSTITUTE OF MARKETING AND MANAGEMENT

Prof. Bindu Nair

Institute of Marketing and Management

Chapter 2: Research Design 24- 42

Chapter 3: Analysis and Interpretation: Level I 43-63

Chapter 4: Analysis and Interpretation: Level II 64-66

Chapter 5: Analysis and Interpretation Level III 67-85

Chapter 6: Findings and Suggestions 81-83

Appendix-II Descriptive Statistics of first week Performance 89

S. No. TOPIC PAGE NO.

Table 1.1 Difference between book building and fixed issues 11

Table 1.2 Recent IPO data with break-up 17

Table 1.3 Recent IPOs’ Performance Tracker 18

Table 3.1 Demographics: Gender Table 44

Table 3.2 Demographics: Age Table 44

Table 3.3 Demographics: Profession 45

Table 3.4 Demographics: Education 45

Table 3.5 Average Annual Investment with Corporate Image 59

Table 3.6 Average Annual Investment with Present Market 60

Table 3.7 Average Annual Investment with Size Table 61

Table 3.8 Average Annual Investment with Performance of 62

Table 4.1 Correlations 66

Table 5.1-5.15 Short-term Performance of Individual IPO stocks 69-76

Table 5.16 First-day Performance of IPO Stocks 77

Table 5.17 Second-day Performance of IPO Stocks 78

Table 5.18 Third-day Performance of IPO Stocks 78

Table 5.19 Fourth-day Performance of IPO Stocks 79

Table 5.20 Fifth-day Performance of IPO Stocks 80

S. No. TOPIC PAGE NO.

Chart 1.1 Distribution of Equity Allocation 13

Chart 3.1 Corporate Image 47

Chart 3.2 Members of the Company 48

Chart 3.3 Present Market Conditions Figure 49

Chart 3.4 Performance of previous IPO 50

Chart 3.5 Size of the IPO 51

Chart 3.6 IPO versus Secondary Market 52

Chart 3.7 Objective of the issue 53

Chart 3.8 Offer Price of the IPO 54

Chart 3.9 Average Annual Investments with Age 55

Chart 3.10 Average Annual Investment with Profession 56

Chart 3.11 Average Annual Investment with Education 57

Chart 3.12 Average Annual Investment with Gender 58

Chart 3.13 Average Annual Investment with Corporate Image 59

Chart 3.14 Average Annual Investment with Present Market 60

Chart 3.15 Average Annual Investment with Size of IPO 61

Chart 3.16 Average Annual Investments with Performance of 62

Chart 3.17 Average Annual Investment with Performance Criteria 63

The capital market is further of two types:-

(A) PRIMARY MARKET

(B) SECONDARY MARKET

1.1.1 INITIAL PUBLIC OFFERING

• Increasing company’s financial base

• Setting right the capital structure of the company

1.1.2 VALUATION OF PUBLIC ISSUES

There are various concepts regarding pricing of public issues:

1.1.3 IPO PRICING MECHANISM