INITIAL PUBLIC OFFERING (IPO)

Initial public offering (IPO), also referred to simply as a "public offering", is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies

seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. Initial Public Offering (IPO) in India means the selling of the shares of a company, for the first time, to the public in the 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. During an Initial Public Offer (IPO) the shares are given to the public at a discount on the intrinsic value of the shares and this is the reason that the investors buy shares during the Initial Public Offering (IPO) in order to make profits for themselves. IPO in India is done through various methods like book building method, fixed price method, or a mixture of both. The method of book building has been introduced in the country in 1999 and it helps the company to find out the

demand and price of its shares. A merchant banker is nominated as a book runner by the Issuer of the IPO. The company that is issuing the Initial Public Offering (IPO) decides the number of shares that it will issue and also fixes the price band of the shares. All these information are mentioned in the company's red herring prospectus. During the company's Initial Public Offering (IPO) in India, an electronic book is opened for at least five days. During this period of time, bidding takes place which means that people who are interested in buying the shares of the

Company makes an offer within the fixed price band. Once the book building is closed then the issuer as well as the book runner of the Initial Public Offering (IPO) evaluate the offers and then determine a fixed price. The offers for shares that fall below the fixed price are rejected. The successful bidders are then allotted the shares

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

REASONS FOR LISTING

When a company lists its shares on a public exchange, it will almost

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

The existing shareholders will see their shareholdings diluted as a proportion of the company's shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms. In addition, once a company is listed, it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt. This regular ability to raise large amounts of capital from the general market, rather than having to seek and negotiate with individual investors, is a key incentive for many companies seeking to list.

Major Reason for Listing IPO

The increase in the capital: An IPO allows a company to raise funds for

utilizing in various corporate operational purposes like acquisitions, mergers, working capital, research and development, expanding plant and equipment and marketing.

Liquidity: The shares once traded have an assigned market value and can be

resold. This is extremely helpful as the company provides the employees with stock incentive packages and the investors are provided with the option of trading their shares for a price.

Valuation: The public trading of the shares determines a value for the

company and sets a standard. This works in favor of the company as it is helpful in case the company is looking for acquisition or merger. It also provides the share holders of the company with the present value of the shares.

Increased wealth: The founders of the companies have an affinity towards

IPO as it can increase the wealth of the company, without dividing the authority as in case of partnership.

IPO MARKET IN INDIA

The IPO Market in India has been developing since the liberalization of the

Indian economy. It has become one of the foremost methods of raising funds for various developmental projects of different companies. The IPO Market in India is on the boom as more and more companies are issuing equity shares in the capital market. With the introduction of the open market economy, in the 1990s, the IPO Market went through its share of policy changes, reforms and restructurings. One of the most important developments was the disassembling of the Controller of Capital Issues (CCI) and the introduction of the free pricing mechanism. This step helped in developing the IPO Market in India, as the companies were permitted to price the issues. The Free pricing mechanism permitted the companies to raise funds from the primary market at competitive price. The Central Government felt the need for a governed environment pertaining to the Capital market, as few corporate houses were using the abolition of the Controller of Capital Issues (CCI) in a negative manner. The Securities Exchange Board of India (SEBI) was established in the year 1992 to regulate the capital market. SEBI was given the authority of monitoring and regulating the activities of the bankers to

an issue, portfolio managers, stockbrokers, and other intermediaries related to the stock markets. The effects of the changes are evident from the trend of the resources of the primary capital market which includes rights issues, public issues, private placements and overseas issues. The IPO Market in India experienced a boom in its activities in the year 1994. In the year 1995 the growth of the Indian IPO market was 32 %. The growth was halted with the South East Asian crisis. The markets picked up speed again with the introduction of the software stocks.

IPO ALLOTMENT STATUS

Initial public offering is also popularly known as IPO, is the first time sale of

stocks, of a private company. A new company can launch IPO to raise capital to initiate its business. Moreover, Initial Public Offering can also be launched to raise money for expansion or other important operations of an existing company. The sale of stock through such Initial Public Offering (IPO) is meant for the individual and corporate investors. The aim of such issuance of Initial Public Offering is to invest the accumulated corpus for, either opening -up of a company or expansion of an existing company. Thus, effectively, an Initial Public Offering pools investments and utilizes it in building or expansion of the said company. The shares held by such investors give them the rights of the company and to its future profits. The process which involves determination of the issue size and type, offer price and best time of introduction into the market is called "underwriting". The underwriting is generally done by the investment bankers. These underwriting firms or investment bankers are allotted some specified numbers of shares to sell, which

is called as IPO Allotment Status.

In other words, IPO Allotment Status can also be defined as the number of

stocks which an investment banker is permitted to sell to the general investor before the share is being traded on an exchange. The excess shares are then allotted to other investment bankers which are eligible to sell such shares. In India, the main governing body that determines such eligibility criteria and the IPO Allotment Status is the Securities and Exchange Board of India (SEBI).

IPO - PROCEDURE
IPOs generally involve one or more investment banks as "underwriters." The

company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares. The sale (that is, the allocation and pricing) of shares in an IPO may take several forms. Common methods include: Best efforts contract Firm commitment contract All-or-none contract Bought deal Dutch auction Self distribution of stock A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks (lead underwriter). Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the IPO, take the highest commissionsup to 8% in some cases.

Multinational IPOs may have as many as three syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the main selling syndicate in its domestic market, Europe, in addition to separate syndicates or selling groups for US/Canada and for Asia. Usually, the lead underwriter in the main selling group is also the lead bank in the other selling groups. Because of the wide array of legal requirements, IPOs typically involve one or more law firms with major practices in securities law, such as the Magic Circle firms of London and the white shoe firms of New York City. Usually, the offering will include the issuance of new shares, intended to raise new capital, as well the secondary sale of existing shares. However, certain regulatory restrictions and restrictions imposed by the lead underwriter are often placed on the sale of existing shares. Public offerings are primarily sold to institutional investors, but some shares are also allocated to the underwriters' retail investors. A broker selling shares of a public offering to his clients is paid through a sales credit instead of a commission. The client pays no commission to purchase the shares of a public offering; the purchase price simply includes the built-in sales credit. The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under certain circumstance known as the green shoe or over

allotment option. The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering

MAJOR PROCESS OF AN IPO

Eligibility Criteria:
years. The Company has a Networth of Rs. 1.00 Crore in preceding 3 years. The proposed issue should not exceed 5 times of its Pre-issue Net Tangible assets of Rs. 3.00 Crore in each of the preceding 3 years. Track record of Distributable profits at least 3 out of 5 preceding

The process of an IPO - Eligibility criteria: (Alternate route)

Book building process and 50% of the offer to QIBs or

15% participation in project by F/Is or Schedule Banks; 10% of the Project cost from appraiser;

 10% of the Issue to QIBs. Minimum post issue face capital of Rs.10 Crores or Market making for 2 years and Minimum number of allottees atleast 1000

Official Process of IPO

Appointment of Brokers, Advertisers and Bankers Conducting Road shows and Press Conference Opening and closing of Subscription list Preparation of Basis of Allotment Allotment of shares Listing of shares price and the time to bring it to market

OBJECTIVES AND ROLE OF IPO

To get the knowledge of IPO. To analyze the returns of IPOs which were issued in the 1st quarter

of 2007.

To know the return of those IPOs for 1 month, 3 months, 6 months,

and 1 year. To know the market rate of return for the same period. To know the procedure for calculating the Standard Deviation,

calculating Sharpes Ratio & the abnormal return. India? Analysis between Share Holder and IPO Companies Analysis of IPOs post/present/future Prospects Analysis of Auction, Pricing, Issued Price and Reverse IPOs. Spread awareness about this process. Find out the companies which like to adopt this technique. Find out the factors which influence the IPO Listing Process. What the companies are looking from Open New IPOs in

OBJECTS OF THE OFFERING NEW IPO

Funds Requirement Funding Plan (Means of Finance) Appraisal Schedule of Implementation Funds Deployed Sources of Financing of Funds already deployed Details of Balance Fund Requirement Interim Use of Funds Basic Terms of Issue Basis for issue price Tax Benefits

ADVANTAGES & DRAWBACKS OF IPO

The Advantages of IPO are numerous. The companies are launching more and more IPOs to raise funds which are utilized for undertakings various projects including expansion plans. The Advantages of IPO is the primary factor for the immense growth of the same in the last few years. The IPO or the initial public offering is a term used to describe the first sale of the shares to the public by any company. All types of companies with the idea of enhancing growth launch IPOs to generate funds to cater the requirements of capital for expansion, acquiring of capital instruments, undertaking new projects.

Major Advantages of IPO

IPO has a number of advantages. IPO helps the company to create a publi c awareness about the company as these public offerings generate publicity by inducing their products to various investors.

The increase in the capital: An IPO allows a company to raise funds for

utilizing in various corporate operational purposes like acquisitions, mergers, working capital, research and development, expanding plant and equipment and marketing.

Liquidity: The shares once traded have an assigned market value and can be

resold. This is extremely helpful as the company provides the employees with

stock incentive packages and the investors are provided with the option of trading their shares for a price.

Valuation: The public trading of the shares determines a value for the

company and sets a standard. This works in favor of the company as it is helpful in case the company is looking for acquisition or merger. It also provides the share holders of the company with the present value of the shares.

Increased wealth: The founders of the companies have an affinity towards

IPO as it can increase the wealth of the company, without dividing the authority as in case of partnership.

Drawbacks of IPOs
It is true that IPO raises huge capital for the issuing company. But, in order to launch an Initial Public Offering (IPO), it is also necessary to make certain investments. Setting up an IPO does not always lead to an improvement in the economic performance of the company. A continuing expenditure has to be incurred after the setting up of an IPO by the parent company. A lot of expenses have to be incurred in the form of legal fees, printing costs and accounting fees, which are connected to the registering of an IPO. Such expenses might cost hundreds of US dollars. Apart from such enormous costs, there are other factors as well that should be taken into consideration by the company while introducing an IPO. Such factors include the rules and regulations involved to set up public offerings and this entire process on the other hand involve a number of complexities which sometime require the services of experts in relevant fields. Some companies hire experts to do the needful to ensure a hassle-free execution of the task. After the IPO is introduced, the expenses become a routine in every activity involved. Besides, the CEO of the company would have to spend a lot of time in handling the SEC regulations or sometimes he hires experts to do the same. All these aspects, if not handled with efficiency, prove to be some major drawbacks related to the launch of IPOs.

The launch of IPO also brings about shareholders of the company. Shareholders have ownership in the company. The primary owners of the company or the people holding maximum authority in the company cannot take decisions all by themselves once an IPO has been launched and shareholders have been formed. The shareholders have an active participation in every decision that is being taken even if they do not hold 50 percent share of the company. They have their individual demands to be met as they own a certain percentage of stakes in the company. The SEC regulations require notifications from the shareholders of the company, meetings, and also approvals from them while making important business decisions. A major risk with shareholders is that, they can sell off their stocks any time they want, in case they see the price band of the stakes of that company is going down. This will lead to a further drop of the value of shares in the market which in turn will decrease the overall value of the company.