INTRODUCTION

IPO stands for Initial Public Offering and means the new offer of shares from a company which was previously unlisted. This is done by offering those shares to the public, which were held by the promoters or the private investors prior to the IPO. In the case when other investors or Promoter held the shares the stake holding comes down to the extent their shares are offered to the public. In other cases new shares are issued to the public and the shares, which are with the promoters stay with them. In both cases the share of the promoters in the total capital comes down. For example say there are 100 shares in a company and 50 of these are offered to the public in an IPO then in such a case the promoters stake in the company comes down from 100% to 50%. In another case the company issues 50 additional shares to the public and the stake of the promoter comes down from 100% to 67%. Normally in an IPO the shares are issued at a discount to what is considered their intrinsic value and thats why investors keenly await IPOs and make money on most of them. IPO are generally priced at a discount, which means that if the intrinsic value of a share is perceived to be Rs.100 the shares will be offered at a price, which is lesser than Rs.100 say Rs.80 during the IPO. When the stock actually lists in the market it will list closer to Rs.100. The difference between the two prices is known as Listing Gains, which an investor makes when investing in IPO and making money at the listing of the IPO. A Bullish Market gives IPO investors a clear opportunity to achieve long term targets in a short term phase.

EXECUTIVE SUMMARY

As we all know IPO INITIAL PUBLIC OFFERING is the hottest topic in the current industry, mainly because of India being a developing country and lot of growth in various sectors which leads a country to ultimate success. And when we talk about countrys growth which is dependent on the kind of work and how much importance to which sector is given. And when we say or talk about industries growth which leads the economy of country has to be balanced and given proper finance so as to reach the levels to fulfill the needs of the society. And industries which have massive outflow of work and a big portfolio then its very difficult for any company to work with limited finance and this is where IPO plays an important role. This report talks about how IPO helps in raising fund for the companies going public, what are its pros and cons, and also it gives us detailed idea why companies go public. How and what are the steps taken by the companies before going for any IPO and also the role of (SEBI) Securities and Exchange Board of India the BSE and NSE , what are primary and secondary markets and also the important terms related to IPO. It gives us idea of how IPO is driven in the market and what are various factors taken into consideration before going for an IPO. And it also tells us how we can more or less judge a good IPO. Then we all know that scams have always been a part of any sector you go in for which are covered in it and also few recommendations are given for the same. It also gives us some idea about what are the expenses that a company undertakes during an IPO. IPO has been one of the most important generators of funds for the small companies making them big and given a new vision in past and it is still continuing its work and also for many coming years.

RESEARCH OBJECTIVES OF THE STUDY To evaluate can immediate performance of an IPO be relied upon forthe equity in the long run. To analyze that More the subscription (times of issue size) of the IPO more is the immediate performance. To study the factors affecting IPO purchase decision of the Retail Investors.

Primary and Secondary markets In the primary market securities are issued to the public and the proceeds go to the issuing company. Secondary market is term used for stock exchanges, where stocks are bought and sold after they are issued to the public.

PRIMARY MARKET The first time that a companys shares are issued to the public, it is by a process called the initial public offering (IPO). In an IPO the company offloads a certain percentage of its total shares to the public at a certain price. Most IPOS these days do not have a fixed offer price. Instead they follow a method called BOOK BUILDIN PROCESS, where the offer price is placed in a band or a range with the highest and the lowest value (refer to the newspaper clipping on the page). The public can bid for the shares at any price in the band specified. Once the bids come in, the company evaluates all the bids and decides on an offer price in that range. After the offer price is fixed, the company allots its shares to the people who had applied for its shares or returns them their money.

SECONDRY MARKET

Once the offer price is fixed and the shares are issued to the people, stock exchanges facilitate the trading of shares for the general public. Once a stock is listed on an exchange, people can start trading in its shares. In a stock exchange the existing shareholders sell their shares to anyone who is willing to buy them at a price agreeable to both parties. Individuals cannot buy or sell shares in a stock exchange directly; they have to execute their transaction through authorized members of the stock exchange who are also called STOCK BROKERS.

Why Go Public? Basically, going public (or participating in an "initial public offering" or IPO) is the process in which a business owned by one or several individuals is converted into a business owned by many. It involves the offering of part ownership of the company to the public through the sale of debt or more commonly, equity securities (stock).

Going public raises cash and usually a lot of it. Being publicly traded also opens many financial doors: Because of the increased scrutiny, public companies can usually get better rates when they issue debt.

As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal.

Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent.

Being on a major stock exchange carries a considerable amount of prestige. In the past, only private companies with strong fundamentals could qualify for an IPO and it wasn't easy to get listed.

The internet boom changed all this. Firms no longer needed strong financials and a solid history to go public. Instead, IPOs were done by smaller startups seeking to expand their businesses. There's nothing wrong with wanting to expand, but most of these firms had never made a profit and

didn't plan on being profitable any time soon. Founded on venture capital funding, they spent like Texans trying to generate enough excitement to make it to the market before burning through all their cash. In cases like this, companies might be suspected of doing an IPO just to make the founders rich. This is known as an exit strategy, implying that there's no desire to stick around and create value for shareholders. The IPO then becomes the end of the road rather than the beginning. How can this happen? Remember: an IPO is just selling stock. It's all about the sales job. If you can convince people to buy stock in your company, you can raise a lot of money

INITIAL PUBLIC OFFERINGS: The first offering of a companys shares to the public. The shares offered may be existing ones held privately, or the company may issue new shares to the public.

PARTIES INVOLVED IN THE IPO: The promoters also should have a clear idea about the agencies to coordinate their activities effectively in the public issue. The various parties involved are: The manager to the issue, The registrars to the issue, Underwriters, Bankers, Advertising agencies, Financial Institutions and
Government /Statutory Agencies.

The Managers To The Issue: Lead managers are appointed by the company to manage the initial public offering campaign. Their main duties are:

Drafting of prospectus Preparing the budget of expenses related to the issue Suggesting the appropriate timings of the public issue Assisting in marketing the public issue successfully Advising the company in the appointment of registrars to the issue, underwriters, brokers, bankers to the issue, advertising agents etc.

Directing the various agencies involved in the public issue. The merchant banking division of the financial institutions, subsidiary of commercial banks, foreign banks, private sector banks and private agencies are available to act as lead mangers. Such as SBI Capital Markets Ltd., Bank of Baroda, Canara Bank, DSP Financial Consultant Ltd. ICICI Securities & Finance Company Ltd., etc.

The Registrar To The Issue:-

After the appointment of the lead managers to the issue, in consultation with them, the Registrar to the issue is appointed. Quotations containing the details of the various functions they would be performing and charges for them are called for selection. Among them the most suitable one is selected. It is always ensured that the
registrar to the issue has the necessary infrastructure like Computer, Internet and telephone.

The Registrars normally receive the share application from various collection centers. They recommend the basis of allotment in consultation with the Regional Stock Exchange for approval. Usually registrars to the issue retain the issuer records at least for a period of six months from the last date of dispatch of letters of allotment to enable the investors to approach the registrars for redressal of their complaints.

The Underwriters

Underwriting is a contract by means of which a person gives an assurance to the issuer to the effect that the former would subscribe to the securities offered in the event of non-subscription by the person to whom they were offered. The person who assures is called an underwriter. The underwriters do not buy and sell securities. They stand as back-up supporters and underwriting is done for a commission. Underwriting provides an insurance against the possibility of inadequate subscription. Underwriters are divided into two categories:

Financial Institutions and Banks

Brokers and approved investment companies.

The company after the closure of subscription list communicates in writing to the underwriter the total number of shares/debentures under subscribed, the number of shares/debentures required to be taken up by the underwriter. The underwriter would take up the agreed portion. If the underwriter fails to pay, the company is free to allot the shares to others or take up proceeding against the underwriter to claim damages for any loss suffered by the company for his denial.

The Bankers To The Issue: Bankers to the issue have the responsibility of collecting the application money along with the application form. The bankers to the issue generally charge commission besides the brokerage, if any. Depending upon the size of the public issue more than one banker to the issue is appointed. When the size of the issue is large, 3 to 4 banks are appointed as bankers to the issue. The number of collection centers is specified by the central government. The bankers to the issue should have branches in the specified collection centers.

Advertising Agents: Advertising plays a key role in promoting the public issue. Hence, the past track record of the advertising agency is studied carefully. Tentative program of each advertising agency along with the estimated cost are called for. After comparing the effectiveness and cost of each program with the other, a suitable advertising agency if selected in consultation with the lead managers to the issue. The advertising agencies take the responsibility of giving publicity to the issue on the suitable media. The media may be newspapers/ magazines/ hoardings/press release or a combination of all.

The Financial Institutions Financial institutions generally underwrite the issue and lend term loans to the companies. Hence, normally they go through the draft of prospectus, study the proposed program for public issue and approve them. IDBI, IFCI & ICICI, LIC, GIC and UTI are the some of the financial institutions that underwrite and give financial assistance. The lead manager sends copy of the draft prospectus to the financial institutions and includes their comments, if any in the revised draft. Government And Statutory Agencies The various regulatory bodies related with the public issue are: Securities Exchange Board of India Registrar of companies Reserve Bank of India (if the project involves foreign investment) Stock Exchange where the issue is going to be listed Industrial licensing authorities Pollution control authorities (clearance for the project has to be stated in the prospectus)

COLLECTION CENTERS Generally there should be at least 30 mandatory collection centers inclusive of the places where stock exchanges are located. If the issue is not exceeding Rs.10 Cr (excluding premium if any) the mandatory collection centers are the four metropolitan centers viz. Mumbai, Delhi, Kolkatta and Chennai and at all such centers where stock exchanges are located in the region in which the registered office of the company is situated. The regional divisions of the various stock exchanges and the places of their locations are given in the following table:

Table 1.2: Collection centres

Region
Northern Region

Exchange
Ludhiana Stock Exchange Delhi Stock Exchange Jaipur Stock Exchange U P Stock Exchange Hyderabad Stock Exchange Bangalore Stock Exchange Mangalore Stock Exchange Madras Stock Exchange Coimbatore Stock Exchange Cochin Stock Exchange Calcutta Stock Exchange Gawahati Stock Exchange Magadh Stock Exchange Bhubaneswar Stock Exchange Bombay Stock Exchange National Stock Exchange OTCEL Stock Exchange M P Stock Exchange Pune Stock Exchange Vadodara Stock Exchange Ahmedabad Stock Exchange Sauashtra Kutch Stock Exchange

City
Ludhiana Delhi Jaipur Kanpur

Southern Region

Hyderabad Bangalore Managlore Chennai Coimbatore Cochin

Eastern Region

Kolkatta Gawahati Patna Bhubaneswar

Western Region

Mumbai Mumbai Mumbai Indore Pune Vadodara Ahmedabad Rajkot

In addition to the collection branch, authorized collection agents may also be appointed. The names and addresses of such agent should be given in the offer documents. The collection agents are permitted to collect such application money in the form of cheques, draft, and stock-invests and not in the form of cash. The application money so collected should be deposited in the special share application account with the designated scheduled bank either on the same day or latest by the next working day. The application collected by the bankers to the issue at different centers are forwarded to the Registrar after realization of the cheques, within a period of 2 weeks from the date of closure of the public issue. The applications accompanied by stock-invests are sent directly to the Registrars to the issue along with the schedules within one week from the date of closure of the issue. The investors, who reside in places other than mandatory and authorized centers, can send their application with stock-invests to the Registrar to the issue directly by registered post with acknowledgement due card.

PLACEMENT OF THE IPO

Initial public offers are floated through Prospectus; Bought out deals/offer for sale; Private Placement and Book Building.

PRICING OF ISSUES The Controller of Capital Issues Act governed issue of capital prior to May 27, 1992 1947. Under the Act, the premium was fixed as per the valuation guidelines issued. The guidelines provided for fixation of a fair price on the basis of the net asset value per share on the expanded equity base taking into account, the fresh capital and the profit earning capacity.

The repealing of the Capital Issue Control Act resulted in an era of free pricing of securities. Issuers and merchant bankers fixed the offer prices. Pricing of the public issue has to be carried out according to the guidelines issued by SEBI.

At Premium: Companies are permitted to price their issues at premium in the case of the following: First issue of new companies set up by existing companies with the track record. First issue of existing private/closely held or other existing unlisted

companies with three-year track record of consistent profitability.

OFFER THROUGH PROSPECTUS

According to Companies (Amendment) Act 1985, application forms for shares of a company should be accompanied by a Memorandum (abridged prospectus). In simple terms a prospectus document gives details regarding the company and invites offers for subscription or purchase of any shares or debentures from the public. The draft prospectus has to be sent to the Regional Stock Exchange where the shares of the company are to be listed and also to all other stock exchanges where the shares are proposed to be listed. The stock exchange scrutinizes the draft prospectus. After scrutiny if there is any clarification needed, the stock exchange writes to the company and also suggests modification if any. The prospectus should contain details regarding the statutory provisions for the issue, program of public issue opening, closing and earliest closing date of the issue, issue to be listed at, highlights and risk factors, capital structure, board of directions, registered office of the company, brokers to the issue, brief description of the issue, cost of the project, projected earnings and other such details. The board, lending financial institutions and the stock exchanges in which they are to be listed should approve the prospectus. Prospectus is distributed among the stock exchanges, brokers and underwriters, collecting branches of the bankers and to the lead managers.

How to evaluate an IPO ? Whether you are buying stock from the secondary market or subscribing

to an initial public offering (IPO), make sure you have all the facts. That means going through the small print in the IPO document with a fine-toothed comb. Don't let market hype, investment trends or media reports influence you. Following these parameters should help: Promoters. Who runs the company? Professionals or a family? If the directors are well known, it gives a company credibility. Check the credentials of the promoters, directors and key managerial persons. See if they have at least five years' experience in the company's line of business, Industry outlook. There should be demand for the company's product or

service, with adequate profit potential. Business plans. Check the progress made, and the money invested in

aspects such as land/office space, plant and machinery, utilities, regulatory clearances, personnel, financing, projects in hand, sales and marketing, technical and marketing tie-ups. High investments from promoters lend credibility to the IPO plan, as do project appraisals by merchant bankers.

Financials. Check if the company is over-leveraged in terms of the

equity and debt on its books, and whether the additional issue of equity is justified. Check for consistency in revenue, profit growth and margins for at least three years before the IPO. A steady growth rate suggests a fundamentally sound company. More important, scale the historic trend into future projections: A company with a PAT (profit after tax) of Rs 10 lakh will find it difficult to reach a projected PAT of Rs 15 crore. Projections are based on assumptions, which give promoters leeway to manipulate figures. A good way to check if projections are true is to see whether the assumptions are realistic, given the company's scope of operations, and check how it compares with competitors' figures.

RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the problem. It includes all those steps that are generally adopted to solve the research problem. Thus, it refers to the systematic method consisting of enunciating the problem, formulating a hypothesis, collecting the facts or data, analyzing the facts and reaching certain conclusion either in the form of solutions towards the concerned problems or in certain generalizations for some theoretical formulation.

RESEARCH DESIGN

The research design in this study is Descriptive. Descriptive research studies are those studies, which are concerned with describing the characteristics of a particular individual, or of a group. The studies concerned with narration of facts and characteristics concerning individual, group or situation are all examples of descriptive research studies.

DATA COLLECTION

Collection of data is a very important step because accuracy in data is a factor of the method used for data collected. Thus there are two ways of collecting appropriate data:

PrimaryData SecondaryData

Primary Data are those, which are collected for the first time, thus happen to be original in character. For the purpose of collection of primary data personal interview of respondents were conducted. An unbiased, undisguised structured questionnaire was prepared which was administered to the respondents for the purpose of getting the information.

Secondary Data are those, which have already been collected by someone else. For the purpose of the study, the data were collected from secondary sources like Websites of NSE, Economic Times & related companies, Journals like The Chartered Accountant, the Dalal Street, The Financial Analyst, Newspapers like The Economic Times, The Times of India, The Financial Express etc. All of the 260 Companies were considered which had raised their public issues only in National Stock Exchange (NSE) from 1 January 2003 To 31 December2007 (compiling 5 years). Companys current stock price was taken as closing price at 3.30 pm on 31st December 2007.

SAMPLE SIZE In this research, a sample of 100 persons is taken.

SAMPLING TECHNIQUE All the respondents who were easily accessible and willing to share the information were administered the structured questionnaire to get the desired information. A non-probability sampling technique i.e. convenience sampling technique was used. STATISTICAL TOOLS USED Different statistical tools have been used in the study. Eg. Mean, Standard Deviation, Correlation, Standard Error, Z Test, Likert Scale.

FINDINGS AND CONCLUSION From the forgoing analysis followings were the findings: Immediate performance of IPO can be relied upon for the equity in the long run was rejected. It was proved from the fact that over last five years, there existed statistically insignificant positive correlation between percentage change in the issue price & list price of the IPO and percentage change in the issue price & current market price of the same. Therefore, We can conclude that immediate performance of a particular IPO can not be relied upon for the equity in the long run.

More the subscription (times of issue size) of the IPO, more is the immediate performance, was accepted. As there existed statistically significant positive correlation between subscription (times of issue size) of the IPO and its immediate performance at the time of listing. Thus, we can judge that the IPO will give high immediate returns, by the times of its oversubscription.

Out of 100, 53 investors i.e. Maximum Investors are in share trading for 2 to 10 years. Out of 100, 62 investors i.e. Maximum Investors are investing Less than Rs. 1,00,000 in the share market. price & list price of the IPO and percentage change in the issue price & current market price of the same. Therefore, We can conclude that immediate performance of a particular IPO can not be relied upon for the equity in the long run.

More the subscription (times of issue size) of the IPO, more is the immediate performance, was accepted. As there existed statistically significant positive correlation between subscription (times of issue size) of the IPO and its immediate performance at the time of listing. Thus, we can judge that the IPO will give high immediate returns, by the times of its oversubscription. Out of 100, 53 investors i.e. Maximum Investors are in share trading for 2 to 10 years. Out of 100, 62 investors i.e. Maximum Investors are investing Less than Rs. 1,00,000 in the share market.

Out of 100, 43 investors i.e. Maximum Investors are interested in investing Secondary Securities than IPOs. Maximum of the Investors who have yearly income less than Rs. 2,00,000 opt for Margin Funding. Maximum of the Investors who have yearly income between Rs. 2,00,000 to Rs. 5,00,000 opt for Hybrid Type of Investment consisting of margin funding and self. Maximum of the Investors who have yearly income more than Rs. 5,00,000 opt for self. Out of 100, 77 investors i.e. maximum of the Investors invest in IPOs for Listing Gains.

Out of 100, 69 investors i.e. maximum of the Investors who invest in the share market have Professional Knowledge about Share Market.

Since null hypothesis is rejected in case of all the Factors so sample mean > population mean.

Investors evaluate an IPO maximum from Promoters of the company, prevailing Market Trend & Recent IPO performance & Issue Size of the IPO and minimum from Suppliers of the company, Listing in Well Known Stock exchanges & Media Advertisements..

RECOMMENDATIONS

Initial return given by the IPO should not be treated as indication of its success or failure in the long run. Investors of the secondary market must take part in the primary markets as it has been seen that IPO activity in Indian Stock Market has been tremendously growing. And IPO is the safest stock market investment. Over subscription should be treated as indication of success of the issue. Whole amount for shares applied should be received in advance from QIBs just like retail investor so that they can quote real worth of the company in terms of money that they are ready to pay for it. Investors must analyze all the sectors before investing in the IPO, in order to get maximum returns.

Investors should take into consideration the promoters of the business, the prevailing market trend & Recent IPO performance before investing in an IPO.

Whole amount for shares applied should be received in advance from QIBs just like retail investor so that they can quote real worth of the company in terms of money that they are ready to pay for it. Investors must analyze all the sectors before investing in the IPO, in order to get maximum returns. Investors should take into consideration the promoters of the business, the prevailing market trend & Recent IPO performance before investing in an IPO.