FINAL PROJECT
ON
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DECLARATION
Countersigned
Director/Dean/Coordinator
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Presentation In charge
(Faculty)
ACKNOWLEDGEMENT
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TABLE OF CONTENT
Chapter:
Content:
Page No.
Acknowledgement
List of Tables
List of Diagrams
(1)
Introduction
1.1
07-34
Initial public offering (IPO)
7-19
What is IPO?
7-9
10-12
13-14
14-15
IPO Procedure
15-19
1.2
22-25
22-24
1.4 Hypothesis
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26-33
1.5
(2)
Research Methodology
Source of Data
(3)
(4)
Other Source
35-37
35
36
38-48
38-44
2.2
45-48
48-64
48-50
51-64
65-67
68-69
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Table No.
Page No.
1.1.
1.2.
Industrial Distribution
48
50
1.3.
Table No.
58
Page
No.
1.1.
11
1.2.
13
1.3.
IPO Process
1.4
1.5
IPO Returns
15
23
40
1.6.
44
1.7.
46
1.8.
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51
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has been introduced in the country in 1999 and it helps the company to find out
the demand and price of its shares. A merchant banker is nominated as a book
runner by the Issuer of the IPO. The company that is issuing the Initial Public
Offering (IPO) decides the number of shares that it will issue and also fixes the
price band of the shares. All these information are mentioned in the company's
red herring prospectus. During the company's Initial Public Offering (IPO) in
India, an electronic book is opened for at least five days. During this period of
time, bidding takes place which means that people who are interested in buying
the shares of the
Company makes an offer within the fixed price band. Once the book building is
closed then the issuer as well as the book runner of the Initial Public Offering
(IPO) evaluate the offers and then determine a fixed price. The offers for shares
that fall below the fixed price are rejected. The successful bidders are then
allotted the shares
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The increase in the capital: An IPO allows a company to raise funds for
utilizing in various corporate operational purposes like acquisitions,
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Liquidity: The shares once traded have an assigned market value and
can be resold. This is extremely helpful as the company provides the
employees with stock incentive packages and the investors are provided with
the option of trading their shares for a price.
Valuation: The public trading of the shares determines a value for the
company and sets a standard. This works in favor of the company as it is
helpful in case the company is looking for acquisition or merger. It also
provides the shareholders of the company with the present value of the
shares.
dividing
of
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the
as
partnership.
in
evident from the trend of the resources of the primary capital market which
includes rights issues, public issues, private placements and overseas issues.
The IPO Market in India experienced a boom in its activities in the year 1994.
In the year 1995 the growth of the Indian IPO market was 32 %.
The growth was halted with the South East Asian crisis.
The markets picked up speed again with the introduction of the software stocks.
IPO - PROCEDURE
IPOs generally involve one or more investment banks as "underwriters."
The company offering its shares, called the "issuer," enters a contract with a
lead underwriter to sell its shares to the public. The underwriter then approaches
investors with offers to sell these shares.
The sale (that is, the allocation and pricing) of shares in an IPO may take
several forms. Common methods include:
Best efforts contract
Firm commitment contract
All-or-none contract
Bought deal
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Dutch auction
Self-distribution of stock
A large IPO is usually underwritten by a "syndicate" of investment banks led by
one or more major investment banks (lead underwriter). Upon selling the
shares, the underwriters keep a commission based on a percentage of the value
of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling
the largest proportions of the IPO, take the highest commissionsup to 8% in
some cases.
Multinational IPOs may have as many as three syndicates to deal with differing
legal requirements in both the issuer's domestic market and other regions. For
example, an issuer based in the E.U. may be represented by the main selling
syndicate in its domestic market, Europe, in addition to separate syndicates or
selling groups for US/Canada and for Asia. Usually, the lead underwriter in the
main selling group is also the lead bank in the other selling groups.
Because of the wide array of legal requirements, IPOs typically involve one or
more law firms with major practices in securities law, such as the Magic Circle
firms of London and the white shoe firms of New York City.
Usually, the offering will include the issuance of new shares, intended to raise
new capital, as well the secondary sale of existing shares. However, certain
regulatory restrictions and restrictions imposed by the lead underwriter are
often placed on the sale of existing shares.
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Public offerings are primarily sold to institutional investors, but some shares are
also allocated to the underwriters' retail investors. A broker selling shares of a
public offering to his clients is paid through a sales credit instead of a
commission. The client pays no commission to purchase the shares of a public
offering; the purchase price simply includes the built-in sales credit.
The issuer usually allows the underwriters an option to increase the size of the
offering by up to 15% under certain circumstance known as the green shoe or
over allotment option.
The first sale of stock by a private company to the public. IPOs are often issued
by smaller, younger companies seeking the capital to expand, but can also be
done by large privately owned companies looking to become publicly traded. In
an IPO, the issuer obtains the assistance of an underwriting firm, which helps it
determine what type of security to issue (common or preferred), the best
offering
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Allotment of shares
Listing of shares
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The increase in the capital: An IPO allows a company to raise funds for
Liquidity: The shares once traded have an assigned market value and
can be resold. This is extremely helpful as the company provides the employees
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with stock incentive packages and the investors are provided with the option of
trading their shares for a price.
Valuation: The public trading of the shares determines a value for the
towards IPO as it can increase the wealth of the company, without dividing the
authority as in case of partnership.
Drawbacks of IPOs
It is true that IPO raises huge capital for the issuing company. But, in
order to launch an Initial Public Offering (IPO), it is also necessary to make
certain investments. Setting up an IPO does not always lead to an improvement
in the economic performance of the company. A continuing expenditure has to
be incurred after the setting up of an IPO by the parent company. A lot of
expenses have to be incurred in the form of legal fees, printing costs and
accounting fees, which are connected to the registering of an IPO. Such
expenses might cost hundreds of US dollars. Apart from such enormous costs,
there are other factors as well that should be taken into consideration by the
company while introducing an IPO.Such factors include the rules and
regulations involved to set up public offerings and this entire process on the
other hand involve a number of complexities which sometime require the
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India Inc's fund raising via IPO in 2008 dips to 3-yr low- The Economic
Time
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1.4 Hypothesis
PAST/ PRESENT/ FUTURE OF IPO
Indias rapid economic growth, robust corporate profit stability, and a fouryear bull run on Bombays Stock Exchange (BSE), continue to fuel Indias
strong IPO markets. Keen investor interest in Indias strong growth story has
been real acted in the attractive valuations and key price/earnings multiples
garnered by Indian companies, says R. Balanchine, IPO Leader, Strategic
Growth Markets, Ernst & Young India. In 2006, Indias markets launched 78
IPOs and raised US$7.23 billion. Currently, Indias exchanges rank eighth in
the world for numbers of IPOs and value in 2006. Despite a May 2006 market
tumble that erased more than US$100 billion in value in the BSE and sparked
concerns that the four-year Indian stock rally was over, Indian IPO activity
quickly resumed its upward momentum. In 2006, Indias IPO market has been
fairly broad-based, although energy companies dominated with more than 50%
share of funds raised. In 2006, Indias largest IPO was petroleum rife nine
company, Reliance Petroleum, which raised US$1.8 billion, followed by the oil
production and exploration company, Cairn Energy, which raised US$1.3
billion. Real estate IPOs also generated stellar returns for investors.
In the United States, during the dot-com bubble of the late 1990s, many venture
capital driven companies were started, and seeking to cash in on the bull
market, quickly offered IPOs. Usually, stock price spiraled upwards as soon as
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Underwriting Agreements
Firm Allotments
Statutory advertisements
SEBI GUIDELINES
Filing of prospectus:
Prospectus to be filed with SEBI through Merchant Banker At least 30 days <
filing with ROC SEBI may suggest changes < 30 days SEBI to consider only
after approval from St.Ex
Issuer is obligated
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Dematerialization of shares:
Agreement with Depository Present shares also to be in demat public may opt
either physical or demat shares
Mutual funds;
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An
infrastructure
Company, whose
project
is
IPO Grading:
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paid-up:
Price Band:
Denomination of shares
The Face Value may be less, where the issue price is Rs.500
or more
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Understandable language
No advertisement in Crawlers
invest or avoid investments in any IPO is most often a function of the pricing,
the lack of this aspect in the present IPO grading system could make the whole
process an unfinished task. Also, rating agencies (experienced in debt rating)
could face trouble with rating the equities, which, unlike debt rating, is more
dynamic and cannot be standardized. Further, IPO grading mechanism is a
globally-unique initiative; it could increase the cost of raising capital in India
and urge companies to seek capital overseas.
Markets, in the short term, can be price-driven and not purely motivated
by company fundamentals. That is to say that, at times, even good companies at
a higher price could be a bad investment choice, while the not-as-good ones
could be a steal at lower prices.
Despite having disclaimers, a higher graded IPO may well tempt small
investors into falsely believing that a high premium would come about on
listing.
Similarly, investors may get deluded by a low-graded IPO, which could
become a `missed opportunity' in the future. The purpose of introducing
grading, thus, might get defeated if it leads to a false sense of buoyancy or
alarm among investors.
Till such time the utility of the IPO grading system is unraveled, it is
advisable for investors to use the grades only as an additional input to make an
informed decision. Investors need to be convinced about the business potential,
pricing and valuations of an IPO, together with the grading, to make a final
choice.
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Secondary Data- the secondary data was collected through the following:
Online Research material of the Various Financial Institution directly or
indirectly involved with IPO, Secondary Data used in External Source of
Information Like internet, magazine, paper cutting.
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Analysis Method
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markets
for
high
growth
opportunities.
In
the
stock
awash
liquidity,
in
vibrant
escalating
between
the
worlds stock exchanges, the rise of more world-class financial centers, the
boom in large listings on local exchanges, and the proliferation of capitalraising options, especially private equitys emergence as a key player behind so
many large IPOs. In 2007, globalizing capital and a surge in IPO ready
companies worldwide are broadening the horizons of the worlds financial
markets
GREATER CHINA
KEY TRENDS:
Greater Chinas IPO markets launched megaIPOs in 2006,
with larger (but no longer super-sized) IPOs in 2007.
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INDIA
KEY TRENDS:
The strength of Indias economy, stock market, corporate profits, energy
sector, and private equity fuel IPOs in 2006 and 2007.
Indian exchanges hosted several billion-dollar IPOs in 2006, all prime
examples of the rise in localization.
Cross border activity and the role of foreign capital continue to grow.
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EUROPE
KEY TRENDS:
Europes IPO markets rose to an all-time high in 2006, and remain highfl years in
London has become the top listings destination for cross-border issuers
seeking relatively quick and easy capital.
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MIDDLE EAST
KEY TRENDS:
After three years of record growth, most Middle East markets endured
erratic performance in 2006, but seem to be steadier in 2007.
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CIS/RUSSIA
KEY TRENDS:
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AUSTRALIA
KEY TRENDS:
As Australian stock markets rise for the fourth year in a row, Australias stable
economy, record corporate profi ts and booming resources sector have led to an
extraordinarily active IPO market. In 2006, Australia launched 173 IPOs,
raising US$4.2 billion, with many listings in the resources and energy sector.
The largest Australian IPO of 2006 was explosives maker Dyno Nobel worth
US$800 million.
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UNITED STATES
KEY TRENDS:
In the past 18 months, the vitality of the US stock market has whet investor
appetite for risk, and spurred US-domiciled IPO numbers to record heights.
Although some market watchers blame US regulations for the rise in non-US
cross-border issuances, globalization of capital may be the primary force behind
the trend as it has lead to stronger, more liquid, competitive markets worldwide.
For a truly global company, a US listing is still seen as the gold standard with
access to the deepest pool of capital, a valuation premium, and
strategic advant
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ages.
Mahindra Holidays & Resorts India Ltd whose lead manager is HSBC
Securities And Capital Markets India Pvt. Ltd.
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Resurgere Mines & Minerals India Ltd whose lead manager is Motilal
Oswal Securities Ltd.
Kiridyes and Chemicals Ltd whose lead manager is Centrum Capital Ltd.
Neel Metal Products Ltd whose lead manager is ICICI Securities Ltd.
Jhaveri Flexo India Ltd whose lead manager is SREI Capital Markets Ltd.
Gokul Refoils And Solvent Ltd whose lead manager is Intensive Fiscal
Services Pvt. Ltd.
Oil India Ltd. whose lead manager is Citigroup Global Markets India Pvt,
Ltd.
Oswal Wollen Mills Ltd. whose lead manager is UTI Bank Ltd.
TCG Life sciences whose lead manager is Enam Securities Pvt. Ltd.
Uma Precision Ltd. whose lead manager is Karvy Stock Broking Ltd.
Future Ventures India Ltd. whose lead manager is Enam Securities Ltd.
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Cox & Kings (India) Ltd. whose lead manager is Enam Securities Ltd.
Aishwarya Telecom Ltd. whose lead manager is SREI Capital Markets Ltd.
ACME Tele Power Ltd. whose lead manager is Kotak Securities Ltd.
Ramsarup Lohh Udyog Ltd. whose lead manager is Microsec Capital Ltd.
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Public issue of Tata Group firm Tata Capital got subscribed over six times of
the offer, receiving bids worth over Rs 3,000 crore, driven by robust response
from all categories of investors.
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Government is planning to list at least PSUs in the stock markets after a similar
effort last year had to be shelved at the last moment when the stock markets
tanked following the global financial meltdown.
investor as he or she does not have any clue regarding the performance of the
shares on the first day of sale.
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To provide capital adequacy for it's loan and investment portfolio section.
Indian Bank has more than 22,000 employees. The Indian Bank has 1411
branches spread all across the country. Indian Bank offers diversified banking
services and has three subsidiary companies. The foreign branches of Indian
Bank are set up in Singapore and Colombo
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The Maruti IPO has set a price range of Rs. 125 per share
above the Floor price of Rs. 115. The subscription for Maruti
IPO opened on June 12, 2003 and closed on June 19, 2003. The
response to Maruti IPO was overwhelming within the subscription period,
which led to an over-subscription of the public offerings of Maruti by more than
ten times.
The government decided to shell out 85 percent shares of IPO to the noninstitutional investors and 15 percent shares to the non-institutional high networth individuals. Consequently, government would get Rs.993 crores for 7.94
crores shares. But SEBI recommended that 60 percent can be given to the
institutional investors but at least 40 percent should be allotted for the retail
investors as well. The government has allotted 60 percent shares to the retail
investors and 40 percent shares to the institutional investors. The shares were
allotted to the individuals on a pro rata basis. The IPO of Maruti is claimed to
be one of the biggest capital market transactions in recent years in India and
also the largest Book Built IPO that has been implanted in India till date. Maruti
IPO received more than 300,000 applications which is a record in the history of
IPO in India. The majority of applicants to these comprise of the Indian retail
investors. They received the allotments on the basis of the price range already
fixed by the government. A huge number of institutional investors also paid a
lot of importance in investing in Maruti.
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of
the
legendary
Indian
business
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Market return indicates that, 11 companies had given positive return for 1
month.
Only 5 companies were able to give positive returns for all the periods.
Highest rate of return was offered by ICRA Ltd. For one month and 3
months at 184.27% and 214.22%.
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For 6 months and 1 year, Orbit Corporation Ltd. Gave highest return i.e.
464.41% and 289.41%.
S.D. was lowest for Oriental Trimex Limited at 2.14, 1.62, 2.55, 3.88 for
all the periods indicating that it is less riskier than other.
S.D. was highest for Autoline Industries Limited at 56.7 indicating that it
is the riskiest than any other security for 1 month.
For 3 months, Advanta India Limited has the highest S.D. at 93.44
For 6 months, Orbit Corporation Limited was riskiest than any other scrip
at 131.39
Also, Orbit Corporation Limited has offered highest return for 6 month
and 1 year.
5.2 Conclusion
IPO is used by a company to raise its funds. The extra amount obtained from
public may be invested in the development o f the company, although it costs a
little to a company but it gives a way to get more money for long term
investments.
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http://www.reliancemoney.com
http://en.wikipedia.org
http://finance.indiamart.com/india_business_information/sebi_investors_kno
whow.html
http://www.hinduonnet.com/2003/03/26/stories/2003032604291800.htm
http://demataccount.com/2008/01/15/learning-basic-concepts-of-ipo-india/
http://www.sebi.gov.in
http://www.google.com
http://www.economywatch.com/business-and-financial/IPO-industry
http://www.fibre2fashion.com/IPO-article
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