Presentation on Summer Training Report on

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

Submitted By:
Lect. Kiranjit Kaur Lect. in Management

Submitted By:
Ramandeep Kaur BBA 4th (sem.)

CORDIA COLLEGE SANGHOL

Contents
S. No.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Introduction Initial Public Offering (IPO) Valuation of public issues IPO pricing mechanism Types of investors SEBI guidelines Objectives of the study Research Methodology Data Analysis and Interpretation Limitations Findings Managerial Recommendations

Particulars

Page No.
3-4 5 6 7 8 9 10 11 12-32 33 34 35
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 The Indian capital market is an emerging

stock market. This implies that market is in the process of transformation, growing in size and sophistication. The capital market is further of two types :1) Primary Market 2) Secondary Market Top three stock markets are Delhi, Mumbai and Banglore.
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Initial Public Offering

An initial public offering is a specific case of public issue; it is the first equity offering by a company to the public at large. Thus IPO is basically companys first sale of stock to the public. The various reasons for a firm to go public are: Increasing companys financial base Enhancing liquidity Setting right the capital structure of the company Regulatory compulsions
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Valuation of Public Issues

There are various concepts regarding pricing of public issues: Issue Price it is the price at which equity shares are offered to the public. It can be priced at par, premium or discount. List Price it is the market price on the first day of trading after listing on stock exchange. Fair value it is the price which reflects the intrinsic value or true worth of a share.
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IPO Pricing Mechanism

There are two methods for making initial public issue: Fixed Pricing Method Book Building Method

Types of Investors
There are three kinds of investors in a book building issue.

SEBI Guidelines
It has net tangible assets of at least Rs. 3 crores
in each of the preceding 3 full years, of which not more than 50% should be in monetary assets. It has a net worth of at least Rs.1 crore in three years. The issue size does not exceed 5 times the preissue net worth. It has distributable profits in at least three years as per the terms of the Companies Act.
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Objectives of the study

To examine the investors perception
about IPOs To identify various determinants of issue price of new corporate securities. To study the awareness level of investors about IPOs. To determine the investment criteria of investors.

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Research Methodology

Research Design Type of sampling Sampling units Sample size Sampling area Tools & Techniques Descriptive Random sampling Investors 70 Khanna Pie charts and Bar charts Primary data and Secondary data
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Methods of data
collection

Demographic Profile of the Respondents

Gender:
Gender
Male Female Total

Frequency
44 26 70

Percent
62.9 37.1 100

Percent

37.1

62.9 Male Female

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 Age:
Age
15-30

Frequency Percent
46 65.7

31-45
46-60 Total

14
10 70
Percent

20.0
14.3 100

14.3 20 65.7 15- 30 31-45 46-60

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 Profession:
Profession
Student Govt. Employee Professional Self employed Total

Frequency
13 17 26 14 70
Percent

Percent
18.6 24.3 37.1 20 100

20 37.1

18.6 24.3

Student Govt. Employee Professional Self employed

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 Education:
Education
Matriculation Graduation Post Graduation Diploma Total

Frequency
4 20 45 1 70
Percent

Percent
5.7 28.6 64.3 1.4 100

1. 5.7 4

64.3

28.6

Matriculation Graduation Post Graduation Diploma

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Factors Affecting IPO Perception

Corporate Image Present Market Conditions Performance of Previous IPO's Size Price

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1. Corporate Image
corporate image strongly disagree disagree neither agree nor disagree agree strongly agree 15.7

8.6 17.1

31.4 27.1

Interpretation: It can be seen that 49 out of 70 respondents

believe that the corporate image of the company is an important criteria when deciding over investing in a companys IPO. 18

2. Present Market Conditions

present market conditions strongly disagree disagree neither agree nor disagree agree strongly agree 24.3

5.7 24.3 8.6

37.1

Interpretation: Almost 61.4 percent of the sample agrees that

present market conditions are important when deciding over the investment in an IPO.
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3. Performance of Previous IPOs

performance of previous IPOs strongly disagree disagree neither agree nor disagree agree strongly agree 27.1 41.4

17.1

5.7 8.6

Interpretation: Almost 58.5 percent of the population

agreed upon the importance of this factor.
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4. Size
issue size strongly disagree disagree neither agree nor disagree agree strongly agree

8.6

12.9

15.7 42.9 20

Interpretation: It can be seen that a major portion of the population i.e.

around 50 out of the 70 respondents agree that size does play a major role in IPO investment.
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5. Price
price of IPO strongly disagree disagree neither agree nor disagree agree strongly agree

12.9

10

15.7

47.1

14.3

Interpretation: 60 percent of the sample agrees that the

price of the public issue helps them determine whether they
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want to invest in the public issue or not.

Comparative Relationship on the basis of Data Collection

Relationship of the average annual investment with the corporate image

Avg annual Disagree investment Neither disagree nor agree Agree Strongly agree Total

10,00050,000 50,0001,00,000 1,00,000 & above Total

0 5 1 6

8 6 1 15

22 11 7 40

6 2 1 9

39 24 10 70

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 Interpretation:

It shows that investors investing in the bracket of 10000 to 50000 are the people who have the maximum impact of corporate image on their investment decision.
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Relationship of present market conditions with the average investment

Avg annual Investment Disagree Neither Disagree nor Agree Agree Strongly Agree Total

10,00050,000 50,000100000 1,00,000 & above Total

1 2 0 3

3 2 0 5

22 15 5 42

10 5 5 20

36 24 10 70
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 Interpretation: It shows that investors investing in the bracket of 10000 to

100000 lay great emphasis on the present market conditions while deciding on investing in a new public issue.
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Relationship of the size with the average annul investment

Avg annual Investment Strongly Disagree Disagree Neither Disagree nor Agree Agree Strongly Total Agree

10,00050,000 50,0001,00,000

3 1

3 2 2 7

3 8 0 11

26 11 7 44

1 2 1 4

36 24 10 70

1,00,000 & 0 above Total 4

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 Interpretation: It shows that all the respondents investing in all income

brackets give a considerable importance to this aspect.
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Relationship of the performance of previous IPOs

Avg annual Investment Disagree Neither Disagree nor agree Agree Strongly agree Total

10,00050,000 50,0001,00,000 1,00,000 & above Total

1 0 2

3 7 0

28 11 4

4 6 4

36 24 10

10

43

14

70
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 Interpretation: It shows that a large number of people base their

decision on the performance of previous public issues in the market especially the ones that have come out in the recent past.
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Perception of the people while measuring performance of the company

Interpretation:

It shows a comparative relationship between the investment made by the investors and their criteria for judging the performance of the company. It needs to be noted that the investors investing the highest amounts of money 32 usually base their decisions on the growth and profits.

Limitations of the study

Since certain parameters had to be used to select the
sample size from the desired population, it led to a selection of a very small sample which in turn was not totally an accurate representative of the given population.

Stock markets are highly volatile in nature and thus they

get affected even by the minutes of happenings.

A major drawback of convenience sampling is that the

results in this case are not generalized hence they cannot be duplicated in case the study is replicated in the future.
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Findings
When investing in IPO's companies generally consider five main
factors i.e. the corporate image, size, performance of previous IPO's, price and present market conditions.

People in the age group of below 30 invest in small and medium

amounts (below 100000) and people above the age of 45 tend to invest in higher amounts.

It can be observed that the three categories of investors on the basis

of investment amounts, give major emphasis on the growth of the firm.

It can also be concluded that most of the investments is done by

investors having either graduate or post graduate qualifications.

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Managerial Recommendations
The investors should look into the variables which make a company fundamentally
strong before taking any concrete decisions.

It was also observed during the course of the study that merchant bankers and
accountants possess an art and tendency of manipulating accounting figures and present inflated results.

An investor should not have herd mentality and should invest into IPO only when he
is satisfied with working and financial strength of the company.

The present market conditions also have considerable impact on investors so the
timing of coming out with a public issue should also be evaluated carefully.

The growth of the company is one of the most important judging criteria for a
companys performance; therefore the company should make sure it projects a good growth rate before coming out with a public issue.

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THANKS