Project Report

On
Investors attitude towards securities market
Submitted in partial fulfillment of requirement of Bachelor of Business
Administration (B.B.A) General

BBA VIth SEMESTER (B) (E)

BATCH 2012-2015

Name of guide: Dr. Ruchi Singhal

Name of Student: Abhishek Goel

Designation: Asst. Professor

Enrollment no.:12224501712

JAGANNATH INTERNATIONAL MANAGEMENT SCHOOL

[1]

ACKNOWLEDGEMENT

Success is an effort bounded activity that involves co-operation of all.

I hereby take the opportunity to express our profound sense of gratitude and reverence to
all those who have helped and encouraged us towards successful completion of the Project
Report. I would like to thank my Project Guide Dr. Ruchi Singhal for her immense
guidance, valuable help and the opportunity provided to me to complete the project under
her guidance. I would like to convey my heartfelt to my faculty for the trust she showed in
me in assigning me an important and interesting project by sparing time for me from her
busy schedule to discuss and clarify various issue connected with this project, for her
friendly advice and the motivation she provided me in the completion of the project.

Last but not the least, my gratitude to great almighty and my parents without whose
concerned and devoted support this project would not have been possible.

Date:
Place: New Delhi
Submitted by: Abhishek Goel

[2]

STUDENTS UNDERTAKING

I hereby declare that I have carried out project on the topic entitled Investors attitude
towards securities market at Jagannath International Management School, New Delhi.
I further declare that this project work is based on my original work and no part of this
project has been published or submitted to anybody.

(Abhishek Goel)

[3]

CERTIFICATE OF COMPLETION

This is to certify that the dissertation/project report entitled Investors attitude towards
securities market carried out by Abhishek Goel is an authentic work carried out by him at
Jagannath International Management School under my guidance. The matter embodied in
this project work has not been submitted earlier for the award of any degree to the best of my
knowledge and belief.

Date:

Dr. Ruchi Singhal

(Assistant Professor)

[4]

CONTENTS
Description
Acknowledgement
Student Undertaking
Certificate of Completion
List of Tables
Executive Summary
Introduction to topic
Research Methodology
Findings & Inferences
Recommendations and Conclusion
Bibliography

Page No.
2
3
4
6
7
9
55
60
72
78

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LIST OF TABLES
S.No.
(1)
(2)

Description

(3)
(4)
(5)

EXECUTIVE SUMMARY
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Page no.

The project work is pursued as a part of BBA (General) Curriculum at Jagannath

International Management School, Delhi.
The past twenty five years have witnessed a process of accelerating change in the worlds
financial markets. Driven by an interacting process of liberalization and innovation,
regulations have been removed, new product have emerged and old boundaries between
financial intermediaries have been blurred.
At the same time, growth of capital markets has posed new challenges to economic and
financial stability.
The role of Indian capital market which is to provide long term resources required by
industries for investment has observed buoyancy in share market with the liberalization of
industries and fiscal policies of the government. Finance, the life blood of industry is
mobilized especially through New Issue Market or Primary Market.
The primary market, also called the new issue market, is the market for issuing new
securities. Many companies, especially small and medium scale, enter the primary market to
raise money from the public to expand their businesses. They sell their securities to the
public through an initial public offering. The securities can be directly bought from the
shareholders, which is not the case for the secondary market. The primary market is a market
for new capitals that will be traded over a longer period.
In the primary market, securities are issued on an exchange basis. The underwriters, that is,
the investment banks, play an important role in this market: they set the initial price range for
a particular share and then supervise the selling of that share.
Investors can obtain news of upcoming shares only on the primary market. The issuing firm
collects money, which is then used to finance its operations or expand business, by selling its
shares. Before selling a security on the primary market, the firm must fulfill all the
requirements regarding the exchange.
After trading in the primary market the security will then enter the secondary market, where
numerous trades happen every day. The primary market accelerates the process of capital
formation in a country's economy.
The primary market categorically excludes several other new long-term finance sources, such
as loans from financial institutions. Many companies have entered the primary market to earn
profit by converting its capital, which is basically a private capital, into a public one, releasing
securities to the public. This phenomena is known as "public issue" or "going public."
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There are three methods though which securities can be issued on the primary market: rights
issue, Initial Public Offer (IPO), and preferential issue. A company's new offering is placed on
the primary market through an initial public offer.
The secondary market, is also called aftermarket, is the financial market in which
previously issued financial instruments such as stock, bonds, options, and futures are bought
and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by
a mortgage bank to investors such as Fannie Mae and Freddie Mac.
The term "secondary market" is also used to refer to the market for any used goods or
assets, or an alternative use for an existing product or asset where the customer base is the
second market (for example, corn has been traditionally used primarily for food production
and feedstock, but a "second" or "third" market has developed for use in ethanol production).
With primary issuances of securities or financial instruments, or the primary market, investors
purchase these securities directly from issuers such as corporations issuing shares in
an IPO or private placement, or directly from the federal government in the case of treasuries.
After the initial issuance, investors can purchase from other investors in the secondary
market.
The secondary market for a variety of assets can vary from loans to stocks, from fragmented
to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible
example of liquid secondary markets - in this case, for stocks of publicly traded companies.
Exchanges

such

as

the New

York

Stock

Exchange, London

Stock

Exchange and NASDAQ provide a centralized, liquid secondary market for the investors who
own stocks that trade on those exchanges. Most bonds and structured products trade over
the counter, or by phoning the bond desk of ones broker-dealer. Loans sometimes trade
online using a Loan Exchange.

CHAPTER I
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INTRODUCTION TO THE TOPIC

The economic development of a nation is reflected by the progress of the various economic
units, broadly classified into corporate sector, government and household sector. While
performing their activities, these units are in a surplus /deficit/ balanced budgetary situations.
There are areas or people with surplus funds or with a deficit. A financial system or financial
sector functions as an intermediary and facilitates the flow of funds from the areas of surplus
to the areas of deficit.
The financial system or the financial sector of any country consists of specialized and nonspecialized financial institutions, of organized and unorganized financial markets, of financial
instruments and services which facilitate transfer of funds. The word system, in the term
financial system, implies a set of complex and closely connected or interlinked institutions,
agents, practices, markets, transactions, claims, and liabilities in the economy. The financial
system is concerned about money, credit and finance. Money refers to the current medium of
exchange or means of payment. Credit or loan is a sum of money to be returned, normally
with interest. Finance is monetary resources comprising debt and ownership funds of the
state, company or person.
Economic growth implies a long-term rise in per capita national output. The basic conditions
determining the rate of growth are three- Effort, Capital and Knowledge. In the post
Second World War there has been an upsurge in the desire for economic growth following
rapid political and other developments and increasing impatience in the countries of Asia,
Africa and South America with their existing economic conditions. The keen desire for
development has tended to minimize the significance of factors associated with Efforts. As
regards Knowledge it is suggested that there already exists a vast amount of knowledge in
developed countries. This reasoning has led to emphasis being placed on increasing capital
formation as the most crucial factor in economic growth of the underdeveloped countries.
The rate of capital formation in the underdeveloped countries has for a long time been hardly
adequate to provide even for a rate of growth of national output at par with the rate of
population growth. While the developed countries have, with an average rate of population
growth of 1.9 percent, been investing 15 % to 18% (gross/net) of their national income, the
gross/net rate of investment in underdeveloped countries has been only 6% or 7% in the face
of population growth at the rate of 2.9 % per annum. Financial institutions, also called
[9]

financial intermediaries, provide means and mechanism of transferring command over

resources from those who have an excess of income over expenditure to those who can
make use of the same for adding to the volume of productive capital. They, on the one hand,
create claims in the form of their shares, debentures, deposits, etc., against themselves
which they induce the savers to accept in exchange for their savings (claims on society for
goods and services in the future). On the other hand, they acquire claims against the
investors by investing in their shares and debentures and by granting direct loans to them. It
is here that role of financial institutions can be traced. They provide a convenient and
effective link between savings and investment. Financial institutions channel existing
economic conditions. The keen desire for development has tended to minimize the
significance of factors associated with Efforts. As regards Knowledge it is suggested that
there already exists a vast amount of knowledge in developed countries. This reasoning has
led to emphasis being placed on increasing capital formation as the most crucial factor in
economic growth of the underdeveloped countries.
Volatile global markets, risk aversion, Euro zone sovereignty issues, Greek debt, rupee
depreciation; these are terms that the investors all over the globe have become accustomed
to these days. With equities markets giving negative returns all over the globe and the rupee
depreciating by over 12% to the USD, 6% against the Euro and over 15% against the AED,
the major question crossing minds of all NRIs, PIOs and OCIs is Is this the best time to
invest in India?
The Indian stock markets because of several reasons have underperformed the global
markets as well as the emerging markets to a certain extend because of which investors are
seeing negative returns, but if an investor has medium to long term view then this is the best
time to invest in India. The Reserve bank of India has already given signs that interest rates
in India have already peaked and if the inflation rate stabilize and start to reduce a bit the
Reserve bank of India will start reducing rates which in turn will push the bond prices up.
Looking at these scenarios NRIs have lot of investment opportunities depending on their
budget and the time frame they can remain invested for. Savings form an important part of
the economy of any nation. With the savings invested in various options available to the
people, the money acts as the driver for growth of the country. Indian financial scene too
presents a plethora of avenues to the investors. Though certainly not the best or deepest of
the markets in the world, it has reasonable options for an ordinary man to invest his savings.
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One needs to invest to and earn return on your idle resources and generate a specified sum
of money for a specific goal in life and make a provision for an uncertain future. One of the
important reasons why one needs to invest wisely is to meet the cost of inflation. Inflation is
the rate at which the cost of living increases. The cost of living is simply what it cost to buy
the goods and services you need to live. Inflation causes money to loss value because it will
not buy the same amount of a good or service in the future as it does now or did in the past.
The sooner one starts investing, the better. By investing early you allow your investments
more time to grow, where by the concept of compounding increases your income, by
accumulating the principle and the interest or dividend earned on it, year after year. The three
golden rules for all investors are:

Invest early

Invest regularly

Invest for long-term and not for short-term

This survey will also help to understand the investors facets before investing in any of the
investment tools and thus to scrutinize the important aspects of the investors before investing
that further helped in analyzing the relation between the features of the products and the
investors requirements.
Financial & Economic Meaning of Investment
Investment is the allocation of monetary resources to assets that are expected to yield some
gain or positive return over a given period of time. These assets range from safe investments
to risky investments. Investments in this form are also called Financial Investments.
From the point of view of people who invest their funds, they are the suppliers of Capital and
in their view, investment is a commitment of a persons funds to derive future income in the
form of interest, dividends, rent, premiums, pension benefits or the appreciation of the value
of their principal capital. To the financial investor, it is not important whether money is
invested for a productive use or for the purchase of second hand instruments such as
existing shares and stocks listed on the stock exchanges.
Most investments are considered transfers of financial assets from one person to another.
The nature of investment in the financial sense differs from its use in the economic sense. To
the economist, Investment means the net additions to the economys capital stock which
consists of goods & service that are used in the production of other goods & services. In this
[11]

context, the term investment, therefore, implies the formation of new and productive capital in
the form of new construction, new producers durable equipment such as plant and
equipment. Inventories & human capital are included in the economists definition of
investment.The financial & economic meanings of investment are related to each other
because investment is a part of savings of individuals which flow into the capital market either
directly or through institutions, divided in new and second hand capital financing. Investors
as suppliers and investor as user of long term funds find a meeting place in the market.
Why investments are important?
Investments are both important and useful in the context of present-day conditions. Some
factors that have made investment decisions increasingly important are:
Longer life expectancy or planning for retirement
Investment decisions have become significant as people retire between the age of 55 and 60.
Also, the trend shows longer life expectancy. The earnings should, therefore be calculated in
such a manner that a portion should be put away as savings. Savings by themselves do not
increase wealth; these must be invested in such a way that the principal and income will be
adequate for a greater number of retirement years.
The importance of investments decisions is further enhanced by the fact that there is
increasing number of women working in organizations. These women will be responsible for
planning their own investments during their working life so that after retirement they are able
to have a stable income.
Increasing Rates of Taxation
Taxation is one of crucial factors in any country, which introduces an element of compulsion
in a persons savings. There are various forms of savings outlets in our country in the form of
investments which help in bringing down the tax level by offering deductions in personal
income.

Interest Rates
Another aspect which is necessary for a sound investment plan is the level of interest rates.
Interest rates vary between one investment and another. These may vary between risky and
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safe investments; they may also differ due to different benefit schemes offered by the
investments. These aspects must be considered before actually allocating any amount. A
high rate of interest may not be the only factor favoring the outlet for investment. The investor
has to include in his portfolio several kinds of investments. Stability of interest is as important
as receiving a high rate of interest.
Inflation
Inflation has become a continuous problem since the last decade. In these years of rising
prices, several problems are associated coupled with a falling standard of living. Before funds
are invested erosion of the resources will have to carefully consider in order to make the right
choice of investments. The investor will try to search an outlet, which will give him a high rate
of return in the form of interest to cover a decrease due to inflation. He will also have to judge
whether the interest or return will be continuous or theres a likelihood of irregularity. Coupled
with high rates of interest he will have to find an outlet which will ensure safety of principal.
Besides high rate of interest & safety of principal, an investor also has to always bear in mind
the taxation angel. The interest earned through investment should not unduly increase his
taxation burden.
Income
Another reason why investment decisions have assumed importance is the general increase
in the employment opportunities. The employment opportunities gave rise to both male and
female working force. More incomes and more avenues of investment have led to the ability
and willingness of working people to save and invest their funds.
Investment Channels
The investor in his choice of investment will have to try to achieve a proper mix between high
rate of return and stability of return to reap the benefits of both. Some of the instruments
available are Corporate Stock, Provident Fund, Life Insurance, Fixed Deposits in the
Corporate Sector, Unit Trust Schemes and so on.
Elements of Investment

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The study of investments is concerned with the purchase and sale of financial assets and the
attempt of the investor to make logical decisions about the various alternatives in order to
earn returns of them. The returns are further dependent on the varying degrees of risk.
A functional definition as defined by Amling is, Investment maybe defined as the purchase by
an individual or institutional investor of a financial or real asset that produces a return
proportional to the risk assumed over some future investment period.
These definitions of investments bring froth three elements of investment, categorized as:

a.

Return

b.

Risk

c.

Relationship of risk & return

d.

Time factor
Return
Investors may buy and sell financial assets in order to earn returns on them. The returns,
better known as reward from investments, include both current income and capital gains or
losses which arise by the increase or decrease of the security prices. The capital gains or the
income earned are then treated as a percentage of the beginning investment. Returns,
therefore, may be expressed as the total annual income and capital gain as a percentage if
investment. Satisfactory returns are different for different people. Two rational investors may
be satisfied by different levels of anticipated return and estimated risk. Rational investors like
returns but are risk averse. They try to maximize their utility by buying, holding, or adjusting
their portfolio to achieve maximum utility.
Risk
Risk and uncertainty are an integral part of an investment decision. Risk is composed of the
demands that bring in variations in return of income. The main forces contributing to risk are
price and interest. Risk is also influenced by external and internal considerations. External
risks are uncontrollable and broadly affect investments. These external risks are called
systematic risk. Risk due to internal environment of a firm or those affecting a particular
industry are referred to as unsystematic risk.
Relationship of Risk & Return
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Risk and return are inseparable. To ignore risk and only expect return is an outdated
approach to investments. The investment process must be considered in terms of both
aspects risk and return. Return is a precise statistical term; it is not a simple expectation of
investors return but is measurable also. Risk is not a precise statistical term but we use
statistical terms to quantify it. The investor should keep the risk associated with the return
proportional as risk is directly correlated with return. It is generally believed that higher the
risk, the greater the reward but seeking excessive risk does not ensure excessive return. At a
given level of return, each security has a different degree of risk. The entire process of
estimating return and risk for individual securities is called security analysis.
Time
Time is an important factor in investments. Time offers several different courses of action. It
may involve from trading to buying and selling at major turning points in the market. It may
also consider the time period of investment such as long term, intermediate or short term.
Time period depends on the attitude of the investor. As investments are examined over the
time period, expected risk and return are measured. The investor usually selects a time
period and return that meet expectations of return and risk.
Investors Attitude towards Investments in Securities Market
Investment and savings attitudes and behavior are influenced by the structure, complexity,
transparency and perceived past and future performance of different kinds of investment
options; the general lack of independent financial advice; the recent superior performance of
property investment; perceptions and personal tolerance of risk; the often low level of
financial literacy about products other than property; the nature of the information people use
when making financial decisions; the personal or family experience people have with
investment; a general wish to have personal control over the investment and trust in the
advice of friends and family over unknown professional advisors.
Consumer decisions on saving are likely to be influenced by new or proposed changes in the
investment environment. The application of lower taxes to earnings in managed funds, and
forthcoming regulatory changes aimed at improving disclosure and prudential arrangements
applying to financial products, providers and advisors are also likely to have an impact.

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Investors Attitude towards Risk

There general consensus among investors is that most of them are unwilling to take much
risk with their money. This is the case even over the long term (five years or more).
The most common reasons cited for being averse to taking risks included the responsibility of
raising a family and taking on large financial commitments such as a mortgage. However,
some of the investors were willing to take higher risks with their money to give themselves
the chance of making higher returns. These participants tended to be young and single or
higher earners.
When it came to considering risk as a factor in financial decision-making, views are mixed.
Some investors would not consider taking out anything more risky than a savings account;
their sole focus, therefore, would be on the level of return available from savings accounts.
Other class of investors felt it was important to consider the potential returns whatever the
product.
Market
Actual or conceptual place in commercial world where forces of demand and supply operate,
and where buyers and sellers interact (directly or through intermediaries) to trade goods,
services, or contracts or instruments, for money or barter. Markets include mechanisms or
means for (1) determining price of the traded item, (2) communicating the price information,
(3) facilitating deals and transactions, and (4) effecting distribution. Market for a particular
item is made up of existing and potential customers who need it and have the ability and
willingness to pay for it. All markets, ultimately, consist of people also called marketplace.
Market, basically consists of:

Primary Market
Secondary Market

Primary Market
New Issues Market or Primary Market is that part of capital market where dealing exchanges
takes the boundaries de-marketing the financial services are fast eroding. Thanks to the
innovations in the financial services, the movement towards made by existing companies are
known as further issues.
The primary market is that part of the capital markets that deals with the issuance of new
securities. Companies, governments or public sector institutions can obtain funding through
the sale of a new stock or bond issue. This is typically done through a syndicate of securities
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dealers. The process of selling new issues to investors is called underwriting. In the case of a
new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is
built into the price of the security offering, though it can be found in the prospectus.
Mutual funds are seemingly the easiest and the least stressful way to invest in the stock
market. Quiet a large amount of money has been invested in mutual funds during the past few
years. Any investor would like to invest in a reputed Mutual Fund organization. UTI is one
such organization that provides a better overview of the Mutual Fund industry. Understanding
the attitude of investors on their investment would help the company to increase their profits.
In UTI they believe that the investors attitude would result in profits.
Features of primary markets are:
This is the market for new long term equity capital. The primary market is the market
where the securities are sold for the first time. Therefore it is also called the new issue market
(NIM).
In a primary issue, the securities are issued by the company directly to investors.
The company receives the money and issues new security certificates to the investors.
Primary issues are used by companies for the purpose of setting up new business or
for expanding or modernizing the existing business.
The primary market performs the crucial function of facilitating capital formation in the
economy.
The new issue market does not include certain other sources of new long term
external finance, such as loans from financial institutions. Borrowers in the new issue market
may be raising capital for converting private capital into public capital; this is known as "going
public."
The financial assets sold can only be redeemed by the original holder.

Secondary Market
This is the market wherein the trading of securities is done. Secondary market consists of
both equity as well as debt markets.
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Securities issued by a company for the first time are offered to the public in the primary
market. Once the IPO is done and the stock is listed, they are traded in the secondary
market. The main difference between the two is that in the primary market, an investor gets
securities directly from the company through IPOs, while in the secondary market, one
purchases securities from other investors willing to sell the same.
Equity shares, bonds, preference shares, treasury bills, debentures, etc. are some of the key
products available in a secondary market. SEBI is the regulator of the same.
Features of Secondary Market:
1. Economic Barometer: A stock exchange is a reliable barometer to measure the economic
condition of a country. Every major change in country and economy is reflected in the prices
of shares. The rise or fall in the share prices indicates the boom or recession cycle of the
economy. Stock exchange is also known as a pulse of economy or economic mirror which
reflects the economic conditions of a country.
2. Pricing of Securities:
The stock market helps to value the securities on the basis of demand and supply factors.
The securities of profitable and growth oriented companies are valued higher as there is
more demand for such securities. The valuation of securities is useful for investors,
government and creditors. The investors can know the value of their investment, the creditors
can value the creditworthiness and government can impose taxes on value of securities.
3. Safety of Transactions:
In stock market only the listed securities are traded and stock exchange authorities include
the companies names in the trade list only after verifying the soundness of company. The
companies which are listed they also have to operate within the strict rules and regulations.
This ensures safety of dealing through stock exchange.
4. Contributes to Economic Growth:
In stock exchange securities of various companies are bought and sold. This process of
disinvestment and reinvestment helps to invest in most productive investment proposal and
this leads to capital formation and economic growth.
5. Spreading of Equity Cult:
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Stock exchange encourages people to invest in ownership securities by regulating new

issues, better trading practices and by educating public about investment.
6. Providing Scope for Speculation:
To ensure liquidity and demand of supply of securities the stock exchange permits healthy
speculation of securities.
7. Liquidity:
The main function of stock market is to provide ready market for sale and purchase of
securities. The presence of stock exchange market gives assurance to investors that their
investment can be converted into cash whenever they want. The investors can invest in long
term investment projects without any hesitation, as because of stock exchange they can
convert long term investment into short term and medium term.
8. Better Allocation of Capital:
The shares of profit making companies are quoted at higher prices and are actively traded so
such companies can easily raise fresh capital from stock market. The general public hesitates
to invest in securities of loss making companies. So stock exchange facilitates allocation of
investors fund to profitable channels.
9. Promotes the Habits of Savings and Investment:
The stock market offers attractive opportunities of investment in various securities. These
attractive opportunities encourage people to save more and invest in securities of corporate
sector rather than investing in unproductive assets such as gold, silver, etc.
Buyer
1. Party which acquires, or agrees to acquire, ownership (in case of goods), or benefit or
usage (in case of services), in exchange for money or other consideration under a contract of
sale also called purchaser.
2. Professional purchaser specializing in a specific group of materials, goods, or services,
and experienced in market analysis, purchase negotiations, bulk buying, and delivery
coordination.
Seller
Entity that makes, or offers or contracts to make, a sale to an actual or potential buyer. Also
called vendor, particularly the one selling a real property.
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Negotiation
1. General: Bargaining (give and take) process between two or more parties (each with its
own aims, needs, and viewpoints) seeking to discover a common ground and reach an
agreement to settle a matter of mutual concern or resolve a conflict.
2. Banking: Accepting or trading a negotiable instrument.
3. Contracting: Use of any method to award a contract other than sealed bidding.
4. Trading: Process by which a negotiable instrument is transferred from one party
(transferor) to another (transferee) by endorsement or delivery. The transferee takes the
instrument in good faith, for value, and without notice of any defect in the title of the
transferor, and obtains an indefeasible title.
Business
Economic system in which goods and services are exchanged for one another or money, on
the basis of their perceived worth. Every business requires some form of investment and a
sufficient number of customers to whom its output can be sold at profit on a consistent basis.
Intermediary
Firm or person (such as a broker or consultant) who acts as a mediator on a link between
parties to a business deal, investment decision, negotiation, etc. In money markets, for
example, banks act as intermediaries between depositors seeking interest income and
borrowers seeking debt capital. Intermediaries usually specialize in specific areas, and serve
as a conduit for market and other types of information. Also called a middleman. See also
intermediation.
Reseller
One who buys goods from a manufacturer and resells them to customers unchanged.

Effects of the Asian Crisis

To a large degree these price declines are associated with the Asian crisis. During the early
and mid-1990s, consumption of primary commodities in most Asian developing countries
increased at rates much higher than in the rest of the world. Asian developing countries
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accounted for about two-thirds of the increase in world consumption of petroleum products
over the period 1992-96, and their share in world consumption increased from 12 percent to
15 percent. Korea and the ASEAN-4 countries (Indonesia, Malaysia, the Philippines, and
Thailand), in turn, accounted for about one-half of the increase in consumption of petroleum
products in Asian developing countries, and the share of these five countries in world
consumption rose from 5 percent to 6 1/2 percent. A similar pattern of growth in consumption
is observed for base metals, rubber, coarse grains, oil meals, and fats and oils. For most of
these non-fuel commodities, the share of Asian countries in world consumption in 1996 was
much greater than their share in the world consumption of petroleum products. China's
contribution to the growth in the markets for these commodities, however, has tended to be
much greater than that of Korea plus the ASEAN-4.
In the countries most directly affected, the Asian crisis has brought in its wake much reduced
construction activity, much higher import costs in terms of national currencies, less available
credit to finance imports, and, at a minimum, sharp reductions in demand. These conditions
have led to reductions in the rate of growth of demand, not only in the ASEAN-4 countries
and Korea but also, through the spillover and contagion effects of the crisis, in many other
countries in Asia and elsewhere. Thus certain commodity markets that as recently as mid1997 were expected to show a high rate of growth of demand are now facing a period of
considerable uncertainty with regard to demand prospects. Furthermore, for some non-fuel
commodities such as timber, rice, natural rubber, and vegetable oils, the large depreciations
of currencies of the Southeast Asian countries may also have had supply effects insofar as
they create incentives to increase exports from current inventories and to increase current
and prospective production.

Developments in Specific Markets

The interplay of the Asian crisis and other factors affecting commodity markets in recent
months comes more into focus in a review of developments in specific primary commodity
markets. Price decreases in excess of 10 percent (with prices measured in terms of SDRs)
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over the period June 1997 through January 1998 that were in some way associated with the
effects of weaker demand from Asian countries were recorded for nearly one-third of the
commodities included in the IMF's commodity price index. The price declines for five
commodities - copper, nickel, natural rubber, wool, and hides - appear to be associated
mainly with the Asian crisis. The Asian crisis also played an important role, but probably not
the predominant role, in the price declines of four other commodities - crude petroleum,
timber, zinc, and lead. For certain other commodities, such as aluminum, iron ore, meat,
maize, and soybean meal.
Problems of Indian Primary Market
There are several problems of the Indian primary market. But these problems can be
overcome too by mere application of simple rules (end of the article). These remedies have
been suggested by experts. Economists attribute these problems to various factors some of
which are highlighted below.
The function of the primary market with respect to the market for IPO or initial public offering
is to see that various companies are provided with opportunities for the acquisition of growth
capital. The primary market has withstood the tests of time.
Inappropriate allotment of shares:
There are many existing problems of the Indian primary market. Some of the instances
include the inappropriate assignment of shares to the public as was the case of the ONGC
public issues. Due to this there was a lot of confusion among the investors.
Withdrawal of IPOs:
Another problem lies in the fact that these days, IPOs are increasingly being withdrawn. An
expert has rightly said that there is no point expressing disappointment in the withdrawal of
the IPOs because it may be taken not as an indication of failure of the company and hence
the primary market but it may be considered as a disagreement of price between the seller
and the buyer. The primary markets are undulating the world over. The incidents occurring in
the primary markets are reflections of what is actually happening in the secondary markets. It
was fathomed that the IPOs, which were lately taken back had very "aggressive" price bands.
The price bands could have been aligned as per existing conditions of the market. The lead
managers responsible for the IPOs may also be blamed for the catastrophe. Few are of the
[22]

opinion that lack of judgment may have led to the withdrawal. "Investors fatigue" is being
accounted for in the withdrawals.
"Cornering" of shares:
Recently, there was an instance when investors "cornered" shares, which were to be alloted
to the public. The investor was actually a big investor who camouflaged as a small investor
cornered many shares.
The most important factor shaping in today's global economy is the process of globalization.
Indian companies are moving in search of low-cast markets, technology is driving growth in
production and competition is becoming more intense. A second factor is the fastest growth in
private capital flows, mainly short-term flows by banks and financial institutions, portfolio
flows by mutual funds and pension funds and foreign direct investment into India. A third
factor is the increasing share of India and other emerging market economies in world trade.
The outburst in communication technology has led to greater integration of Indian
financial markets across the world. The impact of these changes could be felt from the
extremely buoyant activity in Indian stock markets. A number of foreign financial service
providers have entered into the Indian financial market like Morgan Stanley, Templeton, and
Goldman Sachs. Currently FII investment is at $ 6.5 Billion compared to $ 2 Billion in 2001.
The stock market is booming with Sensex hovering around 16000-17000. SEBI has put in
place appropriate guidelines and controls to regulate the markets in tune with the changing
environment and attendant risks. All this is happening because of large amounts of
investment in the country.
People often invest in various asset classes to:
* To beat Inflation
* To fund future needs
* To meet contingencies
* To maintain same standard of living after retirement
All these factors matters a lot to the investors and the mutual fund route is one way through
which people can meet these needs.
Free economies are generally characterized to have financial markets to serve as channels
through which the savings of the society are made available to business enterprises. Such
financial markets may be classified as (1) Capital market, and (2) Money market where the
[23]

former refers to the market mechanism which envisages institutional arrangements for
marketing of long term and equity claims such as equity shares, preference shares,
debentures, bonds, etc., while the latter refers to the market mechanism which concerns with
floating of liquid funds and their short term uses in trade and industry through the banking
system.
The capital market which concerns with demand and supply of long term funds is again
dichotomized as primary or new issue market and secondary or stock market where the
former deals with new securities offered to the investing pubic, while the latter deals with the
existing securities. The joint stock companies raise funds from new issue markets but such
new issue are also listed with stock markets which provide them a regular market, ensure
regular valuation of and stability in prices of such securities, assure safety in dealings of the
securities, channelise funds in the desired direction and ensure wider ownership of the
securities.
The stock exchanges are, thus, primarily concerned with providing marketability to the
existing securities but these also activate the new issue markets which serve as primary
source of funds to the industrial enterprises for their new projects or for expansion,
diversification or modernization of existing ones. Both the primary and the secondary markets
are integral parts of the capital market and are susceptible to common influences. Public
responses are generally encouraging in the new issue market when there is boom in the
stock market and vice versa. Similarly, the secondary market is very sensitive to the impact of
development in the country and the same is transmitted to the new issue market.
New issues include initial issues as well as further issue where the former refers to the
securities issued buy the companies for the first time either on incorporation or on conversion
from private to public company while the latter refers to the new issues floated by existing
companies which needed funds for expansion/ diversification/ modernization. The initial and
further issues may be combined under new money issue which refer to the issues for
mobilization of new money for the corporate enterprises and there can be no new money
issue which include bonus/capitalization issues and exchange issues where the former
results from the capitalization to retained earnings enabling existing shareholders get new
shares without paying and the latter results from conversion of private company into public,
amalgamation, merger and equity dilution by FERA companies.
Initial Public Offerings (IPO)
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A corporate may raise capital in the primary market by way of an initial public offer, rights
issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public
in the primary market. It is the largest source of funds with long or indefinite maturity for the
company.
IPO Stocks: When the company wants to release their shares into the market for the first
time, they will invite the public to participate in an exercise called the IPO (Initial Public
Offering). This is when you see people filling in application forms and buying bank drafts to
purchase the company's shares (some countries do it electronically). Some call it "applying
for new shares".
Prices when applying for new shares are always much cheaper than what it should be listed
in the market later. However, if it is a very attractive company, there will be more people who
will participate in the IPO exercise and the draw-lots method will be used to determine who
will be allocated the shares.
Then, after the first stage, the company's shares will be listed in the stock market. That is
when if you have managed to purchase the shares during the IPO offering, you will be able to
sell them into the market to buyers who want a part of these shares. Buying stocks through
applying for IPO shares in general is always a safer method of investing in the stock market
as most companies price them attractively.
FUNCTIONARIES OF INITIAL PUBLIC OFFER
The functionaries in IPO are those concerned with the formation of joint stock companies and
the issue of their securities to the public. Public issue is essentially an exercise involving
active participation of a number of agencies. At earlier stages it was sole effort on the part of
the company and its personnel.
However with the growth of the number of public issues and the complexities in the efforts
involved, it has now become necessary to enlist active participation and support of a number
of agencies in making any public issue a success. The promoter, as a principal representative
of the company which is making the public issue, should be clear in his mind about the
number of agencies involved and their respective roles in the entire exercise so as to be able
to coordinate effectively the efforts of these agencies. These functionaries are:
Promoters
Modern industrial enterprises require large amounts of capital which can only be raised by
resorting to the joint stock company is done by company promoters and syndicates. It is the
[25]

promoter who is responsible for conception or discovery of the idea to exploit the possibility of
some industrial proposition. He has to work up details, formulate the financial plan, which he
usually does with the help of an issue house and finally he has to put his proposition into
active operation. The work of the promoter entails difficulties and risks and sometimes he has
to stake his whole fortune and reputation in order to make the venture a success. Prior to
founding the company a lot of expenditure has to be incurred by the promoter on employment
of engineers, technical and other experts. In case the company is successfully established
and investors come forth to take up its shares, the promoter is duly rewarded, otherwise he
stands to lose not only his money he had sunk in the venture but his reputation as well.
The promoter, if he is well endowed financially, will work alone, but in the case of projects of
large dimensions he usually form a syndicate. All members of the syndicate work up the
possibilities of the proposition and undertake the investigation and examination of the
scheme. It may be turned over to the technical staff employed and on its favorable report the
formulation of the financial plan will be taken up by the financial experts who are supposed to
be well conversant with the conditions in the capital market. After completing the financial
plan, the work of drawing up the prospectus, the memorandum of association and articles of
association for the formal incorporation as a company is proceeded with. After all the
formalities are completed, the new company is ready to be launched and its issue is to be
placed before the public.
Managers to the issue
These persons are actively associated in the selection of various agencies involved with new
issue planning the timing of the issue, strategies to be adopted by way of publicity and
marketing of the issue, etc. they advise the company on selection of the registrars to the
issue, underwriters, brokers and bankers to the issue, advertising agents, printer etc. and
also give a sense of direction to the various agencies involved in the entire issue. Besides,
the other activities mainly performed buy them are drafting of prospectus, preparing project
profiles for underwriters, preparing budget of expenses, suggesting the appropriate timings
for the public issue, assisting in marketing the public issue successfully, etc. there are a
number of agencies specializing in the role of managers to the issue. These merchant
banking divisions of some all India financial institutions, subsidiaries of commercial banks and
also some private agencies where traditional stock brokers have graduated into providing
specialized merchant banking services.
[26]

SEBI has made the registration of merchant bankers compulsory to ensure that only
professionals with requisite qualification and financial background enter into the job. These
MBs are classified into four categories where the first category MBs must have a minimum
net worth of Rs. 100 lacs and can undertake all activities of issue management (preparation
of prospectus, determining financial structure, final allotment and refund of subscription)
portfolio management, underwriting, consultant or advisers in the issue. The second
categories of MBs must have a minimum net worth of Rs. 50 lacs and can undertake all
activities except issue management. The third categories of MBs must have a minimum net
worth of Rs.20 lacs and can undertake works of underwriter, adviser and consultant while
there is no minimum net worth requirement for fourth category of MBs but they can function
as adviser or consultant only.
Registrars
The registrars sometimes, also called the issue house are responsible normally for receiving
the share applications from the various collection centers through controlling branches of
bankers to the issue, analyzing them, recommending the basis of allotment in consultation
with the managers to the regional stock exchange for approval arranging for dispatch of
allotment letters and preparing the register of members, etc. their job normally starts with the
opening of the subscription list, and continues till the share certificates are dispatched, and
register of members along with other related registers/details are handed over to the
company. Sometimes, the registrars to issue continue their association with the company in
the role of share transfer agents, even after the issue is completed.
Underwriters
The underwriters are the people who actually ensure that the company is able to raise the
capital issued by it for a commission charged by them. They make a commitment to get the
issue subscribed either by others or themselves. Usually the underwriters can be divided into
two categories, namely, financial institutions and banks, on the one hand, and broker
underwriters and approved investment companies/trust, on the other.
Brokers
These are the people who actually bring the prospective investors and the company together.
It may not be an exaggeration to state that the success or failure of a public issue depends to
large extent on the reaction of the brokers. Generally, they are the members of recognized
[27]

stock exchanges, with a view to providing better and professional services to investing public
and to promote development of capital market on healthy lines, the government has since
allowed multiple membership to members of stock exchanges and accorded recognition to
corporate entities and the financial institutions including subsidiaries of the banks.

[28]

Bankers
These are the commercial banks, which will receive the application money along with the
share application forms from the prospective investors. Depending upon the size of the issue,
at least 4 or 5 banks are designated as bankers to the issue. Different branches of these
banks are named at various locations where such application money is accepted. These
collecting branches send the application forms and the money received by them to specified
branch, where the details of the application are consolidated. Such specified branch of the
banker to the issue is called controlling branch/ the controlling branch is usually selected in
the city where the managers to the issue/registrars to the issue/registered office of the
company is situated. However, it is not necessary that controlling branch should be at a place
where the managers to the issue/ registrars to the issue/registered office of the company is
situated.
Publicity and advertising agents
Public issue is an effort to motivate and persuade members of the public to invest in the
shares of the company. It is, therefore, essential that the general public is made aware of the
company, its activities, its plans for future, etc. it is of vital importance that publicity is given
before the public issue by giving newspaper and TV advertisements. Press releases, press
conference, leaflets and brochures, hoardings and posters and even audio visual shows are
the usual media of publicity used for public issue. There are some advertising agencies,
which specialize in financial advertising and publicity campaign for public issues.
Financial institutions
Term lending financial institutions at the time of sanctioning underwriting support loans to the
company, usually stipulate that the draft of the prospectus and also the proposed program for
public issue is approved by them.
The three principal all India financial institutions are the IDBI, IFCI and ICICI. Even when all
the three institutions jointly finance a project under their participating finance scheme, one of
them is generally chosen as the lead financials institution which acts on behalf of the other
two. Hence, it is generally adequate if the company obtains the necessary approval from the
regional office of the lead institution only. In some cases where other institutions like the LIC,
GIC, UTI, etc. have also given financial assistance, it might be necessary to seek separate
[29]

approvals from them, if insisted for. But generally an advance copy of the draft prospectus is
sent to them with a request forward their comments, if any, direct to lead institution.
Other Agencies
In addition, the company will also have a interaction with other agencies like auditors, legal
advisors, taxation or technical experts whose names or statements are mentioned or quoted
in the prospectus.
Government/Statutory Agencies
Besides the various agencies which are directly connected with a public issue whose efforts
will have to be coordinated by the company, there are some statutory/government agencies
that are connected with public issue. These are: (1) SEBI which provides guidelines for public
issue, (2) registrar of the companies with whom the prospectus has to the filed and registered
before the public issue under section 60 of the companies act, 1956, (3) reserve bank of India
from whom necessary permission has to be obtained for non resident investment, of any in
the company, (4) the stock exchanges where the companys share are to be listed (5
industrial licensing authorities for necessary industrial license to be obtained for the project or
other statutory bodies like DGTD etc. with whom the capacity of the project has to be
registered, and (6) pollution control authorities and other local authorities from whom the
clearance may have to be obtained and such clearance is referred to in the prospectus.

[30]

A NEW CONCEPT OF IPO MARKETBOOK BUILDING

SEBI guidelines defines Book Building as "a process undertaken by which a demand for the
securities proposed to be issued by a body corporate is elicited and built-up and the price for
such securities is assessed for the determination of the quantum of such securities to be
issued by means of a notice, circular, advertisement, document or information memoranda or
offer document".
Book Building is basically a process used in Initial Public Offer (IPO) for efficient price
discovery. It is a mechanism where, during the period for which the IPO is open, bids are
collected from investors at various prices, which are above or equal to the floor price. The
offer price is determined after the bid closing date.
As per SEBI guidelines, an issuer company can issue securities to the public though
prospectus in the following manner:
1.

100% of the net offer to the public through book building process

2.

75% of the net offer to the public through book building process and 25% at the
price

determined through book building. The Fixed Price portion is conducted like a normal

public issue after the Book Built portion, during which the issue price is determined.
The concept of Book Building is relatively new in India. However it is a common practice in
most developed countries.
Difference between Book Building and Public Issue
In Book Building securities are offered at prices above or equal to the floor prices, whereas
securities are offered at a fixed price in case of a public issue. In case of Book Building, the
demand can be known everyday as the book is built. But in case of the public issue the
demand is known at the close of the issue.

[31]

The book building process:

The book building process:

The company approaches lead manager for IPO

The company and lead manager suggest a price band at which shares are to be offered

Application are invited

Based on demand for the shares a certain price is established by promoters and the lead
manger

The allotment is made on the basis of the market clearance price

Post issue the price stabilization is undertaken by the lead manager.

WHAT SEBI DID TO ENCOURAGE RETAIL INVESTOR

SEBI has announced a series of measures to encourage retail participation in the primary
market. This is perhaps the first instance where the market regulator has got the timing of
reform measures spot on.
[32]

Coming close on the heels of the hugely successful Maruti IPO, these measures should
arouse retail interest in some of the big public offers expected in the near future BPCL,
Idea Cellular, TCS and Nalco. The principle of these changes seems to be that greater
participation of retail investors in the primary market is possible only when they have a
reasonable chance of making gains, certainly not the case earlier. To enable such
participation, Sebi has adopted a two-fold approach. First, the market watchdog has made
sure that retail investors actually get an allotment in book-built IPOs. Hence, the 10%
increase in the allocation for retail investors. But more significant is the change in the
definition of what constitutes retail from those applying for up to 1,000 shares to
applications for shares worth Rs 50,000 or less. This would ensure that retail is truly retail.
Take the i-flex IPO, priced at Rs 530 a share. An application for 1,000 shares entailing
investment of Rs 5.3 lakh would have qualified for the retail category. Second, to ensure
some quality, the regulator has introduced the concept of net tangible asset, making certain
that issuing company has some pre-IPO history. Additionally, to discourage fancy ideas being
sold to public and subsequently abandoned (plantation schemes), issuers have been asked
to tie-up funds for a project before the issue. Of course, willful defaulters have been barred.
Lastly, to fix accountability, the CEOs or the CFOs of the issuing company would have to
certify disclosures in the offer document.
These measures should translate into higher allotment for retail investors and keep a check
on the quality of issuers as well. The decision to disallow withdrawal of bids by institutional
investors and the shift to price band instead of a floor price will prevent manipulation in
pricing and subscription, both inimical to retail interest while the availability of a green shoe
option should deliver price stability post listing in the case of over subscription. Beyond this,
there is precious little a regulator can do. The rest is upto the market and investors.

HOW TO BE WATCH FUL OF IPO BOOM

The Indian capital market is on the verge of an unprecedented IPO boom. Reports emanating
from the office of the Securities and Exchange board of India clearly indicate that the year
[33]

2004 is all set to emerge as a record breaking year for initial public offer as over 600
companies big, medium as well as small are planning to raise a whopping sum of Rs. 60,000
crore! Interestingly, it had taken 15 years for over 5,600 companies to raise this amount! The
2004 performance will, thus, be a historical feat in the realm of the Indian capital market.
Of course, the IPO market was literally comatose for the last six years after the previous fiveyear (1992-96) boom period when about 5,000 companies had raise around Rs 45,000 crore!
At least one third of this amount has vanished into thin air as several cheaters, unscrupulous
businessmen belonging to select industrial groups and fly by night operators had palmed off
worthless scrap papers in the name of share certificates to millions of hapless investors. The
watchdog could not see in which direction the promoters fled after downing the shutters of
their companies and stock exchange authorities took easiest route to forget about the fraud
by de-listing the shares of these companies. And the poor investors are still burdened with
these worthless papers, originally valued at millions of rupees.
This body blow was enough to disenchant the investing public from the new issue market
which wore a deserted look for the last six years. But now that business activity has picked
up, economy is on the path of rapid growth and wheels of industries have started running at a
fast pace, the new issue market is showing some activity once again. On the one side, the
government is in dire need of funds to meet its budgetary plans and, for this, disinvestments
of PSU offers the easiest route. And on the other hand, with business activity picking up,
there is need for larger production of industrial and consumer goods, which, in turn, needs
funds for expansion and setting up new plants. At he same time, as interest rates on various
instruments of saving have come down drastically and equities have emerged as more
remunerative avenue for investment, the public is willing to go for equities. The buoyancy in
the stock market has further aided this trend.
Taking advantage of this favorable climate, over 600 companies have planned to come out
with issues to raise over Rs 60,000 crore. It is almost certain that cheaters and looters among
businessmen will once again be at their game mopping up funds through bad or bogus
issues. Lured by hefty fees and heftier out of pocket expanses, merchant bankers will also try
to hard sell these shares. The capital market watchdog, SEBI has already washed its hands
of any say in it by declaring that SEBI does not take any responsibility either for the financial
soundness of any scheme or the project for which the issues are proposed to be made or for
the correctness of the statements made or opinion expressed in the offer document.
[34]

The SEBI clarification raises a pertinent question: have we moved forward or backward from
the controller of capital issues days in investor protection? By and large, merchant bankers
are more interested in their fees rather than in the quality of the issues. Can you rely on
analysts? Just recall the paeans they had sung on issues which shook the very foundation of
a giant institution like UTI
The best thing for investors to do to ensure that thy are not cheated in this IPO boom, is to
follow the following evaluation process
THE EVALUATION PROCESS
Backed by aggressive merchant bankers, the pink papers, and gung ho TV channels. Rs.
40,000 crore is hard to resist. But dont forget that your personal rs 4000 are as valuable to
you as it will be with a couple of zeroes more. Before you jump on to the bandwagon. Do your
homework. Its not easy to analyze the performance even of al listed company that has been
around for a while and has a record of market performance; for a company making an initial
public offer, this analysis is rather more difficult. But some point to be considered are as
follows
The business
Make sure you understand the companys business. The attempt should be to understand the
long-term sustainable advantage of the business and the companys position in it. The
prospectus has a section dedicated for such information and this is a must read. A
voluminous offer document can seem daunting but if you focus on the key aspects, it gets
less tedious. Study the document to understand product portfolio, competitive strengths, new
business initiatives and strategy, regulations and so on.
The Company
Next, choose companies with leadership positions. Three successful recent issues have been
Maruti, TV today and Patni computers. Maruti is an industry leader and the largest passenger
car manufacturer in India with a diverse product portfolio, which includes 10 basic models
with over 50 variants. In 2003, Marutis share stood at 54.6 percent; the balance was divided
among nine other manufacturers. Similarly, TV Today is Indias leading news broadcaster and
Patni computer is Indias largest IT services company.
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The promoter
An old business adage says, its better to have an a team with a c team with an a product,
and even better to have an a team with a a product. After all its people who run the
business. Hence, its important to focus on the credentials of the promoter and key
management figures. Invest in companies with a proven management track record, since its
the management philosophy and ability that determines attitude towards minority
shareholders and the likely success of a venture. For instance, the promoters of Indraprastha
gas and Maruti have proven management credentials. On the other hand, theres a Tips
industry, where there were allegations against one to the promoters in the Gulshan Kumar
murder case such issues are best avoided.
The lock in
During an IPO, the underwriter makes the companys key shareholders sign a lock-in
agreement. The agreement is legally binding on the promoters and other key shareholders,
prohibiting them from selling their shares for a specified period of time. The inevitable supply
overhang when these previously restricted investors are permitted to sell shares can put
downward pressure on the stock price. For example, in Patni computers, the lock in period for
key promoters is three years, but for general Atlantic, a foreign venture capital investor
holding 28.3 percent of outstanding shares, the lock in period is 180 days from listing.
The finances
A good management and a sound business model count, but what matters most is
performance. Check for consistency in revenue and profit growth and margins for at least
three years before the IPO. Also, check if the company has an overly high debt equity ratio,
or carries contingent liabilities, or has disputed tax claims, or faces litigation in short, factors
bearing on the companys operations and results.
The Risk
This is the most relevant part of the offer document. Although the offer document is tailor
made to sell the issue, the risk factors help you get a fair idea of the impact of such risks on
the companys operations. For example, in the case of Bharti Televenture the biggest risk
came from regulations governing Indian telecom. Increased competition in cellular services,
[36]

unrestricted competition in fixed line services and the decision to allow fixed line operators to
provide limited mobility using WLL were some of the risks at the time of the IPO.
The objects
In bull markets, price increases defy fundamentals, and companies are prone to capitalize on
this sentiment to raise money. If you study the objects of the issue, you will be able to weed
out the chaff. For example, if the money is being raised to repay loans or to provide and exit
option to existing investors investigate. If the business is doing well, the company should not
need to raise fresh capital to repay its debt.
However, a proceeds of the issue going towards research, marketing, or capacity expansion
paints a better picture. Companies like Bharti and Divis have used the funds raised to create
infrastructure, which will drive growth for these companies in future. On the other hand, BAG
films had earmarked 60 percent of he issue proceeds towards production to feature films,
which exposes it to significant risks considering that film production is not a safe business,
especially when the company does not have prior experience in it.
The Fine Print
Often, the most critical bits of information on a companys financial health are buried in the
prospectus. Expect the red flags, in particular, to be lost in acres of fine print. For example,
BAG films converted its 14 percent fully convertible debentures and accumulated interest into
equity shares and issued them to UTI and IDBI at a 10 percent discount to the issue price at
Rs. 9 per share.
Rarely, some good news also gets buried and goes unnoticed. The discounts and royalty
waivers by Suzuki to Maruti, for instance, will result in savings of over Rs.80 crore, which will
directly flow to the bottom line. This means Marutis Rs.146 crore net profit in 2003 will get a
boost of 40 percent by just this little clause.
The Price
The pricing of the issue determines the demand for the stock. Although issues are usually
attractively priced to attract investors, benchmarking it with valuations of comparable listed
companies is a good idea. This will give you a sense o f the relative attractiveness of the
issue and scope for appreciation. For valuation purposes, compare the companys profit
margins, capital efficiency, price earning ratio and other financial parameters with that of
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similar payers. For example, Patni scores high on the valuation front but low on performances
parameters like operating margins.
The Hype
Given that there is only one IPO for a company, they are often presented as not to be missed
opportunity and much hype is created by lead managers and brokers to get as much
attention as possible. Remember that it is their business to make clients buy and sell stocks.
Our advice: dont buy stocks just because they are making a debut in the market.
The broker
The lead managers track record is as important as that of the companys. History suggests
that the best merchant bankers usually undertake some due diligence before associating
themselves with an issue. Since business fortunes of merchant bankers depend on their track
record, there is more reason for them to handle only quality issues. Look for known lead
managers like Kotak investment, SBI capital markets, DSP Merill lynch, Enam, JM Morgan.
Be wary of smaller investment banks that may be willing to make any company public.
Investors attitude towards risk: what can we learn from options?
Market commentators often cite changes in investors attitude towards risk as a possible
explanation for swings in asset prices. Indeed, episodes of financial turmoil coincide with
anecdotal evidence of abrupt shifts in market sentiment from risk tolerance to risk avoidance.
While these shifts may be potentially driven by changes in the fundamental disposition of
individual investors towards risk, they are more likely to reflect the effective risk attitude as
manifested through the behaviour of currently active investors. In particular, behaviour similar
to that induced by shifts in the fundamental preferences of investors over risk and return can
also reflect changes in the composition of active market players or tactical trading patterns,
induced by the interaction of prevailing market conditions with institutional features. Tools that
track the dynamics of investors willingness to take risks can lead to a better understanding of
the functioning of financial markets. In particular, they can contribute not only to more
effective risk management from the point of view of individual institutions, but also to improve
monitoring of market conditions by policymakers. This article constructs an indicator of
investors effective aversion to risk. The indicator is obtained by comparing the statistical
likelihood of future asset returns, which is estimated on the basis of historical patterns in spot
[38]

prices, with an assessment of the same likelihood filtered through market participants
effective risk preferences, which are derived from option prices. In particular, we argue that
the relative size of downside risk, as assessed from the preference-weighted and the
statistical vantage points, co-moves with the prevailing effective attitude of market
participants towards risk. Remarkably, we find that indicators of risk attitude derived from
different equity markets have a significant common component, indicating that investor
sentiment transcends national boundaries. In the next two sections we first describe and
motivate the methodology and then discuss the time patterns displayed by the indicator of
effective risk aversion for three equity market indices. In the last section we analyse the
statistical behaviour of asset prices, conditional on whether the indicator signals a high or low
investor aversion to risk. The observed patterns are consistent with accounts suggesting that
periods of investor retrenchment from risk-taking are also characterised by higher equity price
volatility and subdued co-movement between bond and equity markets.

[39]

Chapter II
Research Methodology
Research in common parlance refers to the search for knowledge. One can define research
as a scientific and systematic search for pertinent information on a specific topic. It is the
voyage of discovering new facts. This inquisitiveness is the mother of all knowledge and the
method employed in this quest is known as research. Research is thus an original
contribution to the existing stock of knowledge making for its advancement. Research
methodology is an attempt to solve the research problem systematically. Research
methodology plays an important part in any investigation. Unless the methodology is correct,
the analysis and conclusion may not be scientific.
Research methodology is a way to solve the problems scientifically and systematically.
Research Problem
The research problems, in general refers to some difficulty with a researcher experience in
the contest of either a particular a theoretical situation and want to obtain a salutation for
same, The problem statement are to Investors attitude towards securities market.
Research Design
Research design is the blue print of conditions for collection and analysis of data in manner
that aims to, combine relevance to the research purpose with economy in procedure. The
research design used in my study is basically analytical in nature.
Objectives of the study
The following are the other ancillary objectives:

To know about the perception of investors towards securities market.

To know about the risk of primary and secondary market.

To study about the regular return.

To study how to earn more liquidity.

To study the safety of investment.

To find out the important factor which do mostly affect to the customer
[40]

To develop a good strategy and process that improves the business of the organization

To be able to compare and analyze the various Financial Products

Business development and revenue generation

Portfolio management services helps investors to make a wise choice between alternative
investments with pit any post trading hassles this service renders optimum returns to the
investors by proper selection of continuous change of one plan to another plane with in the
same scheme, any portfolio management must specify the objectives like maximum returns,
and risk capital appreciation, safety etc in their offer.
Primary data collection: - Primary data collection, which is collected through observation or
direct communication with the respondent in one form or another. These are two methods for
primary data collection.

Observation Method

Through Questionnaire

But as the time was limited I used the Questionnaire method for data collection
Secondary Data: - Secondary data is also collected by me from various documents of the
company from the Internet. But two main methods to collect it i.e. Books and Journals and
Official sources.
Sampling PROCEDURE: - This refers to the procedure by which the respondents should be
chosen. In order to obtain a representative sample, a sample of the population was drawn
non-random sampling can be of following types:

Sample Random Sample

Stratified Random Sample

Cluster (Area) Sample

In this case, random sampling was done.

Data Analysis
For analysing data, bar diagrams and pie charts have been used. Tables showing data over
past years have also been included.
[41]

LIMITATIONS OF THE STUDY

The various limitations of the study are:

People were not willing to fill the entire questionnaire due to the less time available to
them.

Some respondents might be hesitant to divulge personal and financial information

which can affect the validity of all responses.

There is lack of awareness among people about investing in stock market. So the
people who are aware of such things were found in specific areas for survey purposes.

Most people are comfortable with traditional system in small towns and like to trade
from their respective brokers, hence not providing a true opinion of theirs.

Some of the respondents who did not do online trading were able to respond to only
few questions.

The survey was done in the New Delhi region and may not truly express the opinion of
whole country.

In spite of all the above mentioned limitations and constraints, every sincere efforts has been
made to complete the study and to derive the reliable and viable results for analyzing.

[42]

Chapter 3
Analysis & Interpretation
Q.1

Which age group do you belong?

Age Group
18-30
30-45
45-55
Above 55

No. of Respondents
14
89
58
19

Analysis:
The above diagram shows that 14 respondents were from 18 to 30 age group, 89
respondents were from 30 to 45 age group, 58 respondents were 45 to 55 age group and
19 respondents were from above 55 age group.
[43]

Q.2 What is the Employment Status?

Category

No. of Respondents

Per cent

Salaried

129

64.8

Professional

21

10.5

Business

26

13.0

Others

23

11.5

Total

200

100

Others
12%
Business
13%
Professional
10%

Salaried
65%

Table 3.2 indicates that most of the respondents are from the working or employed class. The
respondents were given four options to choose from: Salaried, Professional, Business and
Others. Others here represent the retired and the homemakers who are investors.

[44]

2) Have you ever invested in stock market?

Invested in Stock Market
Yes
No

No. of Respondents
150
30

17%

Yes
No

83%

Analysis:
The above diagram shows that 150 respondents said that they are invested in the stock
market and 30 respondents said that they did not invest in the stock market.

[45]

Q3)

If yes, in which type of market?

Type of Market
Primary
Secondary
Both

No. of Respondents
100
30
20

100
90
80
70
60
50
40
30
20
10
0
Primary

Secondary

Both

Analysis:
The above diagram depicts that 100 respondents said that they invest in primary market, 30
respondents said that they invest in secondary market and 20 respondents said that they
invest in both markets i.e. primary as well as secondary.

[46]

Q4)

What is the source of information regarding primary market?

Source of Information
News
Broker
TV
Internet
Any Other

No. of Respondents
16
89
6
2
7

90
80
70
60
50

89

40
30
20
10

16

0
News

Broker

TV

Internet

Any Other

Analysis:
The above diagram shows that 89 respondents i.e. maximum from total 120 respondents said
that they got the knowledge from their brokers, 16 respondents said that they got knowledge
about primary market from News/newspaper, 6 respondents got information through TV, 2 from
Internet and 7 respondents said any other sources for information.

[47]

Q5)

In which of the following you would like to invest your money?

Like to Invest
Private Co.
Govt. Co.
Semi Govt.
Any Other

No. of Respondents
43
18
37
22

50
45

43

40

37

35
30
25

22

Column1

18

20
15
10
5
0
Private Co.

Govt. Co.

Semi Govt.

Any Other

Analysis:
The above diagram depicts that 43 respondents said that they like to invest in Private
companies, 18 respondents said Govt. companies, 37 respondents said they like to invest in
Semi-Govt. companies and 22 respondents said they like to invest in any other companies.

[48]

Q6)

How much % of your income you invest yearly?

%age of Income Invest
0-20%
20-35%
35-50%
Above 50%

No.of Respondents
49
32
29
10

49
50
45
40

32

35

29

30
25
20
10

15
10
5
0
0-20%

20-35%

35-50%

Above 50%

Analysis:
The above diagram shows that 49 respondents said that they invest upto 20% of their income
in primary market, 32 respondents said that they invest upto 20% to 35% of their income, 29%
respondents said they like to invest in 35% to 50% of their income, and 10 respondents said
that they invest above 50% of their income in primary market.

[49]

Q7) In which sector you like the invest the money?

Investment Sector
Insurance
Infrastructure
Telecom
IT Sector
Any Other

No. of Respondents
16
48
33
23
10

48

50
45
40

33

35
30

23

25
20

16

15

10

10
5
0
Insurance Infrastructure

Telecom

IT Sector

Any Other

Analysis:
The above diagram shows that 16 respondents said that they invest in insurance sector, 48
respondents said they invest in Infrastructure sector, 33 respondents said that they invest in
Telecom sector, 23 respondents said that they invest in IT sector and 10 respondents said that
they invest in any other sectors.

[50]

Q8)

How much is your portfolio?

Portfolio
Rs.10000 to 50000
Rs.50000 to 1 Lac
Above Rs.1 Lac

No.of Respondents
41
58
21

21
41
Rs.10000 to 50000
Rs.50000 to 1 Lac
Above Rs.1 Lac

58

Analysis:
The above diagram shows that 41 respondents said that their yearly portfolio has been
between Rs.10000 to 50000, 58 respondents said that their yearly portfolio has been between
Rs.50000 to 1 Lac and 21 respondents said that their yearly portfolio has been above Rs. 1
Lac.

[51]

Q9) For how much period you would prefer to invest?

Investment Time
Short Term
Long Term

No. of Respondents
96
24

24

Short Term
Long Term

96

Analysis:
The above diagram shows that 96 respondents said that they invest for short time and
24 respondents said that they invest for long term.

[52]

Q10) Investing in primary market is risky or not?

Risky Investment
Yes
No

No. of Respondents
26
94

26

Yes
No

94

Analysis:
The above diagram shows that 78% respondents i.e. 94 said that primary market
investment is risky and 22% respondents i.e. 26 said that primary market investment is not
risky.

[53]

Q11) If yes, then how much risky in this?

Risk
Highly
Moderately
Lower

No. of Respondents
6
2
18

20

18

18
16
14
12
10
8
6

2
0
Highly

Moderately

Lower

Analysis:
The above diagram shows that 6 respondents said that primary market is highly risky, 2
respondents said moderately risky and 18 respondents said primary market is risky but not
highly or moderately.

[54]

Q12) How much return has been earned from securities market?
%age of Return
10-50%
50-100%
100-150%
150-200%

No. of Respondents
63
31
18
8

8
18
63

10-50%
50-100%
100-150%
150-200%

31

Analysis:
The above diagram shows that 63 respondents said that they earn 10-50% return from
their primary market investments, 31 respondents earn 50-100% return, 18 respondents earn
100 to 150% return and 8 respondents said that they earn between 150 to 200% return from
primary market.

[55]

Q.13 What criteria you used to invest in any IPO?

Criteria for Invest
Past Experience
Company Results
Any Other

No. of Respondents
29
59
32

Column1
29

32

Past Experience
Company Results
Any Other

59

Analysis:
The above diagram shows that 29 respondents said that they use their past experience
for new investment into primary market, 59 respondents said they watch current results of
companies in which they want to invest and 32 respondents said they watch other things
whenever they go for investment in primary market.

[56]

Q.14 From where you get to know about these criteria?

Knowledge about Criteria
Share Broker
Newspaper
Magazine

No. of Respondents
87
25
8

100
90
80
70
60
50
40

87

30
20

25

10

0
Share Broker

Newspaper

Magazine

Analysis:
The above diagram shows that 87 respondents said that know about their criteria from
their Share brokers, 25 respondents said they got knowledge from Newspapers and 8
respondents said they got knowledge from Magazines.

[57]

Q.15. What is your Saving Objective?

Occupation

No. of Respondents

Childrens Education

Per cent

12

Growth Plan

72

36

Retirement Plan

48

24

Home Purchases

40

20

Others

20

10

TOTAL

200

100

Health Care Expenses

40%

36%

30%

24%

20%
10%

20%
6%
4%

0%

[58]

10%

ANALYSIS & INTERPRETATION

Analysis is the process of placing the data in the ordered form, combining them with the
existing information and extracting the meaning from them. In other words, analysis is an
answer to the question what message is conveyed by each group of data . Data, which are
otherwise raw facts and are unable to give a meaningful information. The raw data become
information only when they are analyzed and when put in a meaningful form.
Interpretation is the process of relating various bits of information to other existing information.
Interpretation attempts to answer what relationship exists between the findings to the research
objectives and hypothesis framed for the study in the beginning

Most of respondents said that they are invested in the stock market and few of
them said that they did not invest in the stock market.

Maximum respondents said that they got the knowledge from their brokers, &
some of them said that they got knowledge about primary market from News/newspaper &
very few respondents got information through TV from Internet and any other sources for
information.

Retail investor divert their fund from the banking system to the primary market.
As the interest rate of saving account deposit decreased very much.

Most of respondents said that they invest less portion of their income in primary
market. Very few investors like to invest major portion of their income in primary market.

Respondents view is that primary market investment is risky. So there is a fear in

the mind of respondents about to invest in primary market.

[59]

The study shows that maximum respondents among the sample respondents are
getting information related to the different services from the agents. It implies that most
powerful source of information about services is an agent.

There is a need to bring awareness among the general public about primary
market.

[60]

SUGGESTIONS
On the basis of the Market survey conducted has put very interesting findings in the Market. The
very first suggestion to the investor is that the best thing for the investors to do to ensure that
they are not cheated in this IPO boom, is to study the prospectus themselves, read various
comments and take their own decision. Investors have to beware as all those who are keen to
grab a piece of the cake of the impending IPO boom, are doing so at their cost. Keep in mind
three Ps before investing in any IPO & Three Ps are

Promoter

Performance

Price

The next best suggestion to the investor is that they should be steer clear
of IPOs from lesser known industry and focus on offerings by well-known industry leader with
quality management and strong financials.

The investor should not follow the IPO boom blindly as they can get
cheated as they during nineties IPO fiasco.

The companies should make regular contact with his customer through his
marketing executives. This would not only help in strengthening the business relation but
would also help in taking proper feedback of their products.

The majority of customers are price conscious so they should improve or

decrease their price/commission rate.

The companies should concentrate more on the sale promotion activities

through different media.

The market is not well aware of the product line of the companies, so
companies should give full information of there product line to the investors.

In corporate and institutions, people are looking for better service. So by

providing this it can gain the big reach its break even as soon as possible and can earn profit
from there.

[61]

Customers get dissatisfied very soon. So they must be supported by a

good customer care unit. They need care and by providing that a long customer-organization
relationship can be built.

CONCLUSION
This project is based on the study of Investors attitude towards primary market. In the today
scenario its very important to study the customers psychological behaviour regarding the
various services provided by them.
In the end, I conclude that investor should not invest their hard earned money blindly in the
IPOs but they should invest their money by taking different safeguards like understand the
company business, who its promoter are, how is its management, its risk factor and pricing of
the issue etc.
Although there is SEBI to protect the investor but he company which follow the legal binding of
the SEBI is not fool proof that the company is a good one.
It has been concluded that on the one hand the customers are somewhat satisfied but on the
other hand, still some improvements are required. So, the broking companies segment is
flooded with the new schemes from new & existing players and moreover, lot many schemes
are waiting to hit the ramp in the coming years.

The main reason behind people not wanting to have investing of a particular
company is the lack of proper information. Moreover, people dont want to come out of cocoon
of their seemingly uncomplicated life. They seem satisfied with their old ways and are wary of
modern, new age products.

The most important factor that attracts the people towards investment in primary
market is the communication factor. This is the most important reason and for this, people feel
persuaded to buy it.

[62]

BIBLIOGRAPHY
1)

M.Y Khan., Financial Services, Himalaya publishing house Pvt. Ltd. New Delhi,
2001, p-10-20.
Kothari, C.R, Research methodology methods & techniques, 2 nd edition, New

2)

age international ltd. Publishers, 2005, P. No. 27-42.

Wilkinson & Bhandarkar, Business Research Methodology, 6 th edition, Tata

3)

McGraw Hill Publications, Delhi, 2005, PP 237-243.

4)

Dr. Bansal K Lalit, Merchant Banking & Financial Services Vikas Publications,
2002, (Page 152- 155) (Page 175-185)

Journals and Magazines:1)

Applied Finance, page no 261-268, volume 5 / Dec.2007.

2)

Financial review, edition January 2007, pages no 34-40.

3)

Management Accountant, May 2006 P. No.- 359-412.

Websites

o
o
o
o
o
o

www.thehindubusinessline.com
www.indiainfoline.com
www.prowessdatabase.com
www.indiatimes.com
www.economywatch.com
http://www.sebi.gov.in/sebiweb/
searchString=nri%20investment

http://www.rbi.org.in/scripts/BS_EntireSearch.aspx?

http://www.prlog.org/11884280-rupee-depreciation-is-it-the-

right-time-fornris-to-invest-in-india.html
o
http://www.femaonline.com/nricms.php?id=1
[63]

QUESTIONNAIRE
Q1)

3.

4.

Q2)

General Information
1.

Name ____________________________

2.

Age______________

Occupation
a)

Businessman

b)

Serviceman

c)

Professional

d)

Any other

b)

Rs.1 Lac to 3 Lacs

Annual Income
a)

Rs.50000 to 1 Lac

c)

Above Rs.3 Lacs

Which age group do you belong?

18 - 30

Q3)

30 - 45

No

If yes, in which type of market?

Primary Market

Q5)

Secondary Market

What is the source of information regarding primary market?

News

Q6)

above 55

Have you ever invested in stock market?

Yes

Q4)

45 - 55

Broker

TV

Internet

In which of the following you would like to invest your money?

Private Co.

Govt. Co.

Semi Govt.
[64]

Any other

Any other

Q7)

Q8)

Q9)

How much % of your income you invest yearly?

0-20%

20-35%

35-50%

50% & above

In which sector you like the invest the money?

Insurance

Infrastructure

IT Sector

Any Other

Telecom

How much is your portfolio?

Rs.10000 50000

Rs.50000 1 Lac

Above 1 Lac

Q10) For how much period you would prefer to invest?

Short term

Long term (5 & above)

Q11) Investing in primary market is risky or not?

Yes

No

Q12) If yes, then how much risky in this?

Highly

Moderately

Lower

Q13) How much return has been earned from primary market?
10% 50%

50%-100%

100%-150%

150% - 200%

Q.14 What criteria you used to invest in any IPO?

Past Experience

Company Result

Any Other

Q.15 From where you get to know about these criteria?

Share Broker

Newspaper

Magazine

[65]