Finance Report on Project Training

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Report on Project Training

STUDY AND ANALYSIS OF INVESTMENT

IN INITIAL PUBLIC OFFER (I.P.O)

Submitted

To

Symbiosis Centre for Distance Learning

In partial fulfillment of the

Requirements for the award of Certificate of

Post Graduate Diploma in Business Administration

Submitted by:

Rajesh Kumar

Registration No.200604946

Mob No. +91-9810665772

E-mail- [email protected]

DIRECTORATRE OF DISTANCE EDUCATION

SYMBIOSIS CENTRE FOR DISTANCE LEARNING

(2010)

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TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled STUDY AND ANALYSIS OF

INVESTMENT IN IPO (INITIAL PUBLIC OFFER). carried out by

Mr. Rajesh Kumar S/O Sri Uma Shankar Jha has been accomplished under my

guidance & supervisionas a duly registered PGDBA student of the Symbiosis Centre for

Distance Learning, Pune. This project is being submitted by him in the partial fulfillment of

the requirements for the award of the Post Graduate Diploma in Business Administration

from Symbiosis Centre For Distance Learning.

His dissertation represents his original work and is worthy of consideration for the award of

the Certificate of PGDBA.

CA. DEVI PRASAD AGARAWAL

(Chartered Accountant)

Member Ship No

Date: 28th May 2010

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DECLARATION

I, "RAJESH KUMAR, hereby declare that the work presented herein is genuine work

done originally by me and has not been published or submitted elsewhere for the

requirement of a degree programme. Any literature, data or works done by others and cited

within this dissertation has been given due acknowledgement and listed in the reference

section.

RAJESH KUMAR

Registration No.-200604946

(Student's name & Signature)

Date: 28th May 2010

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ACKNOWLEDGEMENT

This project comes out to be a great source of learning and experience. Lot of efforts has

been put by various people to make this project a success. This has greatly enhanced my

knowledge about the vast field of Investments in Initial Public Offering.

I would like to thankMr. Devi Prasad Agarwal (Chartered Accountantl) for providing

me an in depth knowledge about the IPO investments and helping me devise various

investments strategies.

And at last I would like to extend my gratitude towards my project guide MsAstha Chaudhari (MBA) andMr. Rakesh Pratap Singh (Sub-Broker, Angel Securities

Ltd), whose valuable inputs had helped me a lot for successfully completing the projectwithout her co-operation and guidance this project would not have been possible.Needless to say, errors and omissions are mine.

Last but not the least, no one is forgotten but all may not be mentioned.

To concluded, we thank our mind and heart for going hand in hand.

EXECUTIVE SUMMARY

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A good system must be able to cope with an extremely complex and dynamic

environment.

This project gave me a great insight about the IPO and its Process. The purpose of this

Project was to understand the IPOs that were issued in the last 2-3 months; buyback of

shares; IPO Grading and Reforms in IPO Process.

The IPO was an extensive learning experience in which I involved myself with the live

issues hitting the market. I began my study by going through the SEBI guidelines regarding

eligibility norms, pricing structure, requirements of the promoters and their obligations,

post issue obligations, book building guidelines etc.

I enhanced my understanding over IPO issues of various companies by going through their

Bid-cum application forms and the Red-Herring prospectus, which contained all the

information regarding the issue, purpose of the issue, all the financials and results for the

past 3-5 years and many other details which are required by an investor for a sound

analysis.

The Project report starts with defining the various public issues with the need for the

company to take out an IPO. It goes on further to explain the advantages of an IPO. It

analyses in detail the Indian IPO Scenario. It explains the evolution of the IPO in India

and explains how the scene has changed dramatically after liberalization esp. after the

introduction of book building process.

All over the world, IPO is one of the most popular instruments for investment. Its

popularity with consumer has dramatically increased over the last couple of

worldwide; the IPO has a long and successful history. The popularity of IPO has

increased manifold.

The project Study And Analysis Of Investment In IPO is undertaken as a part of

learning process during the training with DPA & Co(Chartered Accountants) and a short

period association with Ms. Astha chaudhary(Assistant Manager-Investments), HDFC

Securities Ltd and Mr. Rakesh Pratap Singh(Sub-Broker, Angel Securities Ltd).

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For our study, we collected the data related to Ludhiana Stock Exchange.

The research was done by taking the response from respondents through a structured

questionnaire which covers aspects like individual and corporate customers intentions,

factors which play an important role in customer investment decision etc. I found out

from the research that IPO are not as popular in India as in other countries because

returns are not assured. People in India are very averse towards risk taking. They do not

want to take any type of risk.

Other most important reason for the non-popularity is that the consumers lack awareness

of it. Very few customers knew properly what IPOs are and how they work.

The key learning from the project was the knowledge of IPO of different companiesand the psychology of the investors. It is most important to deal with an established and

reputed online trading agency.

SCOPE OF THE STUDY

The scope of my study lies within the organization itself. This Concept is relatively new

in the Indian market. During the course of my study I found many difficulties.

The main difficulty was the people are not aware about IPOs. It is very difficult toconvience the general public according to age and profession. To add to the problem it is

very difficult to approach the investors. Even if I was successful in approaching them they

were hesitant in giving appointments especially in the case of professional people. The

persons who was ready for investments was quite hesitant in producing the documents

required for formalities from investors. The most difficult work is to deal with the business

man because they dont have enough time to understand this. And also it is a risky

investment so they dont want to invest easily .During the course I met some investors who

wanted returns in less time which is a very unwise act. Also it was very difficult to follow

up with investors from the database .And the most important thing that I found was that

investors are very unwilling to take risks even though a scheme may yield very good

returns provided they are willing to take risk.

This project assist those persons who are either ignorant about the market and also those

who would like to strike a fair deal on investments at a low cost in the share market.

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OBJECTIVES OF THE STUDY

To know the awareness of IPO among people.

To ascertain the percentage of income the investors invest in IPO

To know the different attitudes of people regarding risk, rate of return, period of

investment

To study the procedure of IPO

DESCRIPTIVE RESEARCH

The study falls under the category of Descriptive research. Descriptive research includes

survey and fact finding inquiries of different kind. It is the description of the state of

affair as it exists at present. The main characteristics of this method are that the researcher

has no control over the variables; he can only report what has happened or what is

happening. The method of research used in this research was survey method.

METHOD

In the present study investors are included and questionnaire distributed to them. Every

person has equal probability of being selected. Thus the sample become a SIMPLE

RANDOM SAMPLE. The present research was conducted on the investors and persons

who invest in IPO .In both cases the samples of fifty persons were considered who filled

the questionnaire

LIST OF FIGURES

Figure No. Name Page No.

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1. Classification of issues 13

2. Book building process 25

3. Trading Mechanism 57

4.1 Knowledge about IPO 69

4.2 %age of income 70

4.3 objectives of investing in IPO 71

4.4 factors you consider while investing in IPO 72

4.5 returns in IPO investment 73

4.6 D-mat & Trading account 74

4.7 present broking company 75

4.8 problems you facing while investing in IPO 76

LIST OF TABLES

Table No. Name Page No.

1 List of gainers 20

2 List of losers 21

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3 Bids for prices 29

4 IPO grades 34

5 Major Stock exchanges 48-49

6. Mile stones n

achievements of LSE

58

4.1 Knowledge about IPO 69

4.2 %age of income 70

4.3 objectives of investing

in IPO

71

4.4 factors you consider

while investing in IPO

72

4.5 returns in IPO

investment

73

4.6 D-mat & Trading

account

74

4.7 present broking

company

75

4.8 problems you facing

while investing in IPO

76

CONTENTS

1. Introduction to the subject Theoretical Foundation 1-35

Review of Literature 36-42

2. Introduction to Stock Market and Ludhiana Stock Exchange

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Overview of stock market 43-45

Major stock exchange 46-49

Role of stock exchange 50-52

LSE 53-54

Operations of LSE 55-57

Swot analysis 59-60

Recent IPOS 60-63

3. Research Methodology 65-67

4. Data analysis and Interpretation 68-775. Summary , Findings, Recommendations and Limitations 78-80

6. References 81-84

7. Appendices 85-87

8. Abbreviations 88

CHAPTER 1: INTRODUCTION

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1.1 THEORETICAL FOUNDATION

1.1 Initial Public Offer

1.1.1 Introduction

Initial Public Offer (IPO), also referred to simply as a "public offering", is when a

company issues common stockorshares to the public for the first time. They are often

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issued by smaller, younger companies seeking capital to expand, but can also be done by

large privately-owned companies looking to becomepublicly traded.

In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it

determine what type ofsecurity to issue (common orpreferred), best offering price and

time to bring it to market. IPOs can be a risky investment. For the individual investor, it

is tough to predict what the stock or shares will do on its initial day of trading and in the

near future since there is often little historical data with which to analyze the company.

Also, most IPOs are of companies going through a transitory growth period, and they are

therefore subject to additional uncertainty regarding their future value.

IPO is New shares Offered to the public in the Primary Market .The first time the

company is traded on the stock exchange. A prospectus is issued to read about its risk

before investing. IPO is A company's first sale of stock to the public. Securities offered in

an IPO are often, but not always, those of young, small companies seeking outside equity

capital and a public market for their stock. Investors purchasing stock in IPOs generally

must be prepared to accept very large risks for the possibility of large gains. Sometimes,

Just before the IPO is launched, Existing share Holders get a very liberal bonus issues as

a reward for their faith in risking money when the project was new

A company can raise capital through issue of shares or debentures. The various types of

issues are: Public Issue, Rights Issue, Bonus Issue, Private Placement.

1.1.2 There can be two kinds of public issues, namely:

Initial Public Offer (IPO)

Further Public Offer (FPO)

IPO

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market.

It is when an unlisted company makes either a fresh issue of securities or an offer for sale

of its existing securities or both for the first time to the public. This paves way for listing

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and trading of issuers securities. The sale of securities can be through book building or

normal public issue.

FPO

Further Public Offers are issued by companies or corporate bodies whose shares are

already being traded in the capital market and they are issuing fresh shares either to fund

the expansion of their existing business or to invest into other business activities.

Fig. 1 classification of issues

1.1.3 How to apply to a public issue ?

When a company floats a public issue or IPO, it prints forms for application to be filled

by the investors. Public issues are open for a few days only. As per law, any public issue

should be kept open for a minimum of 3days and a maximum of 21 days. For issues,

which are underwritten by financial institutions, the offer should be kept open for a

minimum of 3 days and a maximum of 21 days. For issues, which are underwritten by all

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Y

25 per cent on application

25 per cent on allotment

50 per cent in two or more calls

As market regulators move towards more disclosure-based regimes, one of the biggest risks

to a successful public listing is the lack of full disclosure because of the availability of

reliable information .The collection of reliable information about an issuer for the offering

document can be particularly difficult for financial and other advisors who have not

conducted a full investigative due diligence.

1.1.4 Risk Factors

While every industry, geography, enterprise and IPO offering is different, over the many

years International Risk has been involved in providing Investigative Due Diligence

services, we have identified a number of common risk factors which, historically, can be

problematic to the IPO process:

Principal management of companies to be listed being, in fact, other than the

professional management disclosed in the draft prospectus

Non-disclosure of related party transactions

Acceptance by accountants, acting for sponsors, as to the valuation of properties

involved in inter-company, paper transactions, prior to the IPO exercise

Potential conflicts of interest arising from the involvement of the candidates seniormanagement in other competing but not openly disclosed businesses

Previous or current brushes with the law, both civil and criminal, being omitted or

insufficiently described in the prospectus

Issues over the intended use of the IPO proceeds - especially in relation to

companies with a complicated structure

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Inaccurate statements of academic qualifications and technical expertise when

describing senior management background and experience

Undisclosed tax liabilities a significant problem

Undisclosed environmental problems or fines

Undisclosed industrial labor disputes in outlying areas

Undisclosed previous or current organized crime connections

Other omissions of important facts, such as previous un-discharged or current

pension obligations of state-owned enterprises

Insufficient separation of the accounting functions in inter-group transactions

Many variations on these themes

1.1.5 Reasons for Going Public

Raising funds to finance capital expenditure programs like expansion,

diversification, modernization, etc.

Financing of increased working capital requirements

Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers

for shares of another firm, etc.

Debt Refinancing

Exit Route for Existing Investors

1.1.6 Advantages of Going Public

Facilitates future funding by means of subsequent public offerings

Enables valuation of company

Provides liquidity to existing shares

Increases the visibility and reputation of the company

Commands better pricing than placement with few investors

Enables the company to offer its shares as purchase consideration or as an exchange

for the shares of another company

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1.1.7 Disadvantages of Going Public

Dilution of Stake makes co vulnerable to future takeovers

Involves substantial Expenses

Need to make continuous disclosures

Increased regulatory monitoring

Listing fees and Documentations

Cost of maintaining Investor relations

Takes substantial amount of management time and efforts

1.1.8 EVOLUTION AND GROWTH OF INDIAN PRIMARY MARKET.

Early Liberalization Phase: 1992-1995 (Fixed Pricing)

The initiation of the process of reform in India also would not have been possible without

changes in the regulatory framework. The New Economic policy (1991) led to a major

change in the regulatory framework of the capital market in India. The Capital Issues

(Control) Act 1947 was repealed and the Office of the Controller of Capital Issues (CCI)

was abolished. The Securities and Exchange Board of India (SEBI), established in 1988and armed with statutory powers in 1992, came to be established as the regulatory body

with the necessary authority and powers to regulate and reform the capital market. SEBI

came to be recognized as a regulatory body for the capital market after the abolition of

the CCI. The control on pricing of capital issue has been abolished and easy access is

provided to the capital market. Initial Public Issue caught the attention of general public

only after the success of Reliance, when millions of small investors made huge returns

which were unheard of till then. Dhirubhai Ambani was the first promoter who raised

huge amounts through the public issue route to finance large facilities.

The offer was always at a fixed price, whether premium or par. The companies had to

appoint intermediaries like merchant bankers, registrars, bankers etc. Merchant bankers

had the responsibility of fixing the prices, in consultation with the company, carrying out

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with due diligence, preparing the prospectus (offer documents) etc. The prospectus had to

be submitted to SEBI for getting scrutiny.

The trend continued in the early nineties as many large projects were launched after the

economy was liberalized. Many of these companies came out with public issues and the

retail participation increased dramatically. But many of the companies which raised

money during this period just disappeared without a trace.

Late Liberalization Period: 1996-2005 (Book Building)

The late nineties and the first few years of the current decade did not see much activity in

the primary market. The bad experiences of retail investors kept them away from the

market and made it difficult for companies to launch successful issues. The corporate

sector was recovering from the damage caused by large capacity expansions and new

projects set up in the nineties.

.The issue of Maruti Udyog, through which the government sold part of its stake in the

company. The issue was made at a very reasonable price and investors made very good

returns immediately.The year 2004 saw the primary market activity at its historic peak as

some large private companies also came out with issues. Further divestment by the

government; including the largest ever issue by an Indian company from ONGC,

attracted more retail investors into the market. The IPO market continues to buzz in the

current year as well. Taking advantage of the strength in the secondary market, many

high profle companies are lining up to raise money from the market.

2006 onwards scenario:

India's IPO market emerged as the eighth largest with $7.23 billion (Rs 30,000 crore) in

net proceeds through 78 public issues, global research and consultancy firm Ernst &

Young said in its Global IPO report. Across the world, the companies raised $246 billion,

up from $167 billion in 2005, through a total of 1,729 IPOs, led by Chinese companies at

the top with net proceeds of $56.6 billion. However, the biggest number of IPOs came

from the United States with 187 offerings, followed by Japan with 185 and China with

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175 IPOs. The localisation trend in India is evidenced by several billion-dollar IPOs

hosted by Indian exchanges. In 2006, India's largest IPO, Reliance Petroleum raised $1.8

billion, followed by the oil production and exploration company, Cairn Energy, which

raised $1.3 billion with both companies listing on domestic exchanges.

The private equity rush into India is creating the potential for many IPO exits. In 2006,

private equity firms invested more than $7 billion in India. Top global private equity

funds as well as local funds, have been key drivers of Indian IPO markets.

List of Gainers since 2009Listed on BSE Check NSE Prices

Company Price %Gain/loss

Issue Current

Refex Refrigerants 65.00 280.30 331.23

SEL Manufacturing Company 90.00 380.00 322.22

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Redington (India) 113.00 303.75 168.81

Religare Enterprises 185.00 389.65 110.62

Glory Polyfilms 48.00 100.00 108.33

Koutons Retail India 415.00 808.00 94.70

ICRA 330.00 634.00 92.12

Power Grid Corporation of

India

52.00 97.35 87.21

Table 1 List of gainers

List of Losers since 2009Listed on BSE Check NSE Prices

Company Price %Gain/loss

Issue Current

Evinix Accessories* 120.00 8.90 -92.58

Motilal Oswal Financial

Services

825.00 113.80 -86.21

Vijayeswari Textiles 100.00 20.10 -79.90

AMD Industries 75.00 21.10 -71.87

Broadcast Initiatives 120.00 35.20 -70.67

Empee Distilleries 400.00 119.50 -70.13

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Abhishek Corporation 100.00 38.10 -61.90

Reliance Power* 450.00 171.65 -61.86

Table 2 List of losers

1.1.9 REGULATORY FRAMEWORK FOR IPOS

1.1.9.1 Eligibility Conditions for Companies Issuing Securities

The companies issuing securities offered through an offer document shall satisfy the following

at the time of filing the draft offer document with SEBI and also at the time of filing the final

offer document with the Registrar of Companies/ Designated Stock Exchange:

Filing of offer document

No issuer company shall make any public issue of securities, unless a draft

Prospectus has been filed with the Board through a Merchant Banker, at least 30

days prior to the filing of the Prospectus with the Registrar of Companies (ROC):

Provided that if the Board specifies changes or issues observations on the draft

Prospectus (without being under any obligation to do so), the issuer company or the

Lead Manager to the Issue shall carry out such changes in the draft Prospectus orcomply with the observation issued by the Board before filing the Prospectus with

ROC.

Companies barred not to issue security

No company shall make an issue of securities if the company has been prohibited

from accessing the capital market under any order or direction passed by the Board.

Application for listing

No company shall make any public issue of securities unless it has made an

application for listing of those securities in the stock exchange

Issue of securities in dematerialized form

No company shall make public or rights issue or an offer for sale of securities,

unless:

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a. The company enters into an agreement with a depository for

dematerialization of securities already issued or proposed to be

issued to the public or existing shareholders; and

b. The company gives an option to subscribers/ shareholders/ investors

to receive the security certificates or hold securities in

dematerialized form with a depository.

IPO Grading

No unlisted company shall make an IPO of equity shares unless the following

conditions are satisfied as on the date of filing of Prospectus with ROC:

a. the unlisted company has obtained grading for the IPO from at least

one credit rating agencyb. Disclosures of all the grades obtained, along with the rationale/

description furnished by the credit rating agency(ies) for each of the

grades obtained.

1.1.10 Eligibility Norms for IPO

An unlisted company may make an initial public offering (IPO) of equity shares only if :-

The company has net tangible assets of at least Rs. 3 crores in each of the preceding

3 full years (of 12 months each), of which not more than 50% is held in monetaryassets.

The company has a track record of distributable profits in terms of Section 205 of

the Companies Act, 1956, for at least three (3) out of immediately preceding five

(5) years.

The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full

years (of 12 months each).

In case the company has changed its name within the last one year, atleast 50% of

the revenue for the preceding 1 full year is earned by the company from the activity

suggested by the new name.

The aggregate of the proposed issue and all previous issues made in the same

financial year in terms of size (i.e., offer through offer document + firm allotment +

promoters contribution through the offer document), does not exceed five (5) times

its pre-issue networth as per the audited balance sheet of the last financial year.

1.1.11 PROCEDURE FOR IPOS

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The Book-Building Process

Fig. 2 Book building process

In simple terms, book-building is a mechanism by which the issue price is discovered on

the basis of bids received from syndicate members/brokers and not by the issuers/merchant

bankers.

An Issuer Company can issue capital through book building in following two ways:

75% Book Building process

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ISSUER

BOOK RUNNINGLEAD MANAGERS

MUTUALFUNDS

UNDERWRITERSMERCHANT BANKERS

STOCKBROKERS

I N V E S T O R S

MFs Financial Foreign Financial NRIs Corporations HNIs Retail InvestorsInstitutions Institutions


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Under this type of public offer, the issue of securities has to be categorized into:

Placement portion category

Net offer to the public

The option of 75% Book Building is available to all body corporate that are otherwise

eligible to make an issue of capital to the public. The securities issued through the book

building process are indicated as 'placement portion category' and securities available to

public are identified as 'net offer to public'. In this option, underwriting is mandatory to the

extent of the net offer to the public. The issue price for the placement portion and offers to

public are required to be same

100% of the net offer to the public through Book Building process - In the 100% of the net

offer to the public, entire issue is made through Book Building process. However, there can

be a reservation or firm allotment to a maximum of 5% of the issue size for the permanent

employees, shareholders of the company or group companies, persons who, on the date of

filing of the draft offer document with the Board, have business association, as depositors,

bondholders and subscribers to services, with the issuer making an initial public offering.

The number of bidding centres, in case of 75% book building process should not be less

than the number of mandatory collection centres specified by SEBI. In case of 100% book

building process, the bidding centres should be at all the places where the recognised stock

exchanges are situated.

1.1.11.2 Book Building Process in India

The steps which are usually followed in the book building process can be summarized

below:

The issuer company proposing an IPO appoints a lead merchant banker as a BRLM.

Initially, the issuer company consults with the BRLM in drawing up a draft

prospectus (i.e. offer document) which does not mention the price of the issues, but

includes other details about the size of the issue, past history of the company, and aprice band. The securities available to the public are separately identified as net

offer to the public.

The draft prospectus is filed with SEBI which gives it a legal standing.

A definite period is fixed as the bid period and BRLM conducts awareness

campaigns like advertisement, road shows etc.

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The BRLM appoints a syndicate member, a SEBI registered intermediary to

underwrite the issues to the extent of net offer to the public.

The BRLM is entitled to remuneration for conducting the Book Building process.

The copy of the draft prospectus may be circulated by the BRLM to the institutionalinvestors as well as to the syndicate members.

The syndicate members create demand and ask each investor for the number of

shares and the offer price.

The BRLM receives the feedback about the investors bids through syndicate

members.

The prospective investors may revise their bids at any time during the bid period.

The BRLM on receipts of the feedback from the syndicate members about the bid

price and the quantity of shares applied has to build up an order book showing the

demand for the shares of the company at various prices. The syndicate members

must also maintain a record book for orders received from institutional investors for

subscribing to the issue out of the placement portion.

On receipts of the above information, the BRLM and the issuer company determine

the issue price. This is known as the market-clearing price.

The BRLM then closes the book in consultation with the issuer company anddetermine the issue size of (a) placement portion and (b) public offer portion.

Once the final price is determined, the allocation of securities should be made by

the BRLM based on prior commitment, investors quality, price aggression,

earliness of bids etc. The bid of an institutional bidder, even if he has paid full

amount may be rejected without being assigned any reason as the Book Building

portion of institutional investors is left entirely at the discretion of the issuer

company and the BRLM.

The Final prospectus is filed with the registrar of companies within 2 days ofdetermination of issue price and receipts of acknowledgement card from SEBI.

Two different accounts for collection of application money, one for the private

placement portion and the other for the public subscription should be opened by the

issuer company.

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The placement portion is closed a day before the opening of the public issue

through fixed price method. The BRLM is required to have the application forms

along with the application money from the institutional buyers and the underwriters

to the private placement portion.

The allotment for the private placement portion shall be made on the 2nd day from

the closure of the issue and the private placement portion is ready to be listed.

The allotment and listing of issues under the public portion (i.e. fixed price portion)

must be as per the existing statutory requirements.

Finally, the SEBI has the right to inspect such records and books which are

maintained by the BRLM and other intermediaries involved in the Book Building

process

1.1.12 Pricing

Before establishment of SEBI in 1992, the quality of disclosures in the offer documents

was very poor.

The main drawback of free pricing was the process of pricing of issues. The issue price was

determined around 60-70 days before the opening of the issue and the issuer had no clear

idea about the market perception of the price determined.

In Book Building the price is determined on the basis of demand received or at price above

or equal to the floor price.

Allotment Process through Book-building:

Step1-The Company will 'discover' its price

Earlier, the company determined a fixed price for the stock issue. The issue was marketed

to the general public through advertisements and a media campaign.

Today, companies prefer a book building process. Book building is the process of price

discovery. That means there is no fixed price for the share. Instead, the company issuing

the shares comes up with a price band. The lowest price is referred to as the floor and the

highest, the cap. Bids are then invited for the shares. Each investor states how many sharess/he wants and what s/he is willing to pay for those shares (depending on the price band).

The actual price is then discovered based on these bids.

Step2-Players of the game

Three classes of investors can bid for the shares:

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Qualified Institutional Buyers: QIBs include mutual funds and Foreign Institutional

Investors. At least 50% of the shares are reserved for this category.

Retail investors: Anyone who bids for shares under Rs 50,000 is a retail investor. At

least 25% is reserved for this category.

The balance bids are offered to high networth individuals and employees of the

company.

Individuals who apply for the IPO put in their bids.

The process is transparent. One can check on the issue subscription at the BSE and NSE

Web sites.

After evaluating the bid prices, the company will accept the lowest price that will allow it

to dispose the entire block of shares. That is called the cut-off price.

The process can be illustrated with an example:

Number of shares issued by the company = 100.

Price band = Rs 30 - Rs 40.

If individuals have bid for prices as follows:

Bid Number of shares Price per share

1 20 Rs 40

2 10 Rs 38

3 20 Rs 37

4 30 Rs 36

5 20 Rs 35

6 20 Rs 33

7 20 Rs 30

Table 3 Bid for prices

The shares will be sold at the Bid 5 price of 20 shares for Rs 35.Why?

Because Bidders 1 to 5 are willing to pay at least Rs 35 per share.

The total bids from Bidders 1 to 5 ensure all 100 shares will be sold (20 + 10 + 20 +

30 + 20).

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The cut-off price is therefore Bid 5's price = Rs 35.

Bidders 1 to 5 get allotments at that price. Bidders 6 and 7 don't get an allotment because

their bids are below the cut-off price.

The bids are first allotted to the different categories and the over-subscription (more shares

applied for than the shares available) in each category is determined.

1.1.13 ROLE OF VARIOUS INTERMEDIARIES IN IPO

Intermediarys help corporations design securities that will be attractive to investors, buy

these securities from the corporations, and then resell them to savers in the primarymarkets.

Merchant Bankers/ Lead Manager

Merchant bankers play an important role in issue management process. Lead managers

have to ensure correctness of the information furnished in the offer document. They have

to ensure compliance with SEBI rules and regulations as also Guidelines for Disclosures

and Investor Protection. To this effect, they are required to submit to SEBI a duediligence certificate confirming that the disclosures made in the draft prospectus or letter

of offer are true, fair and adequate to enable the prospective investors to make a well

informed investment decision. The role of merchant bankers in performing their due

diligence functions has become even more important with the strengthening of disclosure

requirements and with SEBI giving up the vetting of prospectuses. Their functions are:

To act as intermediaries between the company seeking to raise money and the

investors. They must possess a valid registration from SEBI enabling them to do

this job.

They are responsible for complying with the formalities of an issue, like drawing up

the prospectus and marketing the issue.

If it is a book building process, the lead manager is also in charge of it. In such a

case, they are also called Book Running Lead Managers.

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Post issue activities, like intimation of allotments and refunds, are their

responsibility as well.

Underwriters

Underwriters are required to register with SEBI in terms of the SEBI (Underwriters)

Rules and Regulations, 1993. In addition to underwriters registered with SEBI in terms of

these regulations, all registered merchant bankers in categories I, II and III and

stockbrokers and mutual funds registered with SEBI can function as underwriters. In

1996-97, the SEBI (Underwriters) Regulations, 1993 were amended mainly pertaining to

some procedural matters.

Bankers to an Issue

Scheduled banks acting as bankers to an issue are required to be registered with SEBI in

terms of the SEBI (Bankers to the Issue) Rules and Regulations, 1994. These regulations

lay down eligibility criteria for bankers to an issue and require registrants to meet

periodic reporting requirements.

Portfolio managers

Portfolio managers are required to register with SEBI in terms of the SEBI (Portfolio

Managers) Rules and Regulations, 1993. The registered portfolio managers exclusively

carry on portfolio management activities. In addition all merchant bankers in categories I

and II can act as portfolio managers with prior permission from SEBI.

Registrars to an Issue and Share Transfer Agents

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Registrars to an issue (RTI) and share transfer agents (STA) are registered with SEBI in

terms of the SEBI (Registrar to the Issue and Share Transfer Agent) Rules and

Regulations, 1993. Under these regulations, registration commenced in 1993-94 and is

granted under two categories: category I - to act as both registrar to the issue and share

transfer agent and category II - to act as either registrar to an issue or share transfer agent.

With the setting up of the depository and the expansion of the network of depositories,

the traditional work of registrars is likely to undergo a change.

1.1.14 IPO Grading

IPO grading (initial public offering grading) is a service aimed at facilitating the

assessment of equity issues offered to public. The grade assigned to any individual issue

represents a relative assessment of the fundamentals of that issue in relation to the other

listed equity securities in India. IPO grading is positioned as a service that provides an

independent assessment of fundamentals to aid comparative assessment that would

prove useful as an information and investment tool for investors. Moreover, such a

service would be particularly useful for assessing the offerings of companies accessing

the equity markets for the first time where there is no track record of their market

performance.

IPO grade assigned to any issue represents a relative assessment of the fundamentals of

that issue in relation to the universe of other listed equity securities in India. This grading

can be used by the investor as tool to make investment decision. The IPO grading will

help the investor better appreciate the meaning of the disclosures in the issue documents

to the extent that they affect the issues fundamentals. Thus, IPO grading is an additional

investor information and investment guidance tool.

Credit Rating agencies (CRAs) like ICRA, CRISIL, and Fitch Ratings who are registered

with SEBI will carry out IPO grading. SEBI does not play any role in the assessment

made by the grading agency. The grading is intended to be an independent and unbiased

opinion of that agency. IPO grading is not mandatory but is optional and the assigned

grade would be a one time assessment done at the time of the IPO and meant to aid

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investors who are interested in investing in the IPO. The grade will not have any ongoing

validity.

1.1.14.1 Sebi Guidelines on IPO Grading

No unlisted company shall make an IPO of equity shares or any other security which maybe converted into or exchanged with equity shares at a later date, unless the followingconditions are satisfied as on the date of filing of Prospectus (in case of fixed price issue)or Red Herring Prospectus (in case of book built issue) with ROC:

The unlisted company has obtained grading for the IPO from at least one creditrating agency;

Disclosures of all the grades obtained, along with the rationale/description furnishedby the credit rating agency(ies) for each of the grades obtained, have been made inthe Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of

book built issue); and

The expenses incurred for grading IPO have been borne by the unlisted companyobtaining grading for IPO.

1.1.14.2 FEATURES OF IPO GRADING

IPO grading covers both internal and external aspects of a company seeking to make an

IPO in general. The internal factors include competence and effectiveness of the

management, profile of promoters, marketing strategies, size and growth of revenues,

competitive edge, technology, operating efficiency, liquidity and financial flexibility,

asset quality, accounting quality, profitability and hedging of risks. Among external

factors, the key one is the industry and economic/business environment for the issuer.

Here, it is important to note that internationally, the global rating agencies such as

Standard & Poors and Moodys do not perform grading of IPOs at all. While Standard &

Poors is the majority stakeholder in CRISIL Ltd, Moodys is the single biggest

stakeholder in ICRA Ltd. Similarly, the third global player Fitch IBCA (which acquired

another rating agency Dun & Bradstreet in 2000) also does not grade IPOs as yet. The

IPO grading is indicated on a five point scale and a higher score indicating stronger

fundamentals.

1.1.14.3 An IPO grading Scale

IPO grade Assessment

5/5 Strong fundamentals

4/5 Above average fundamentals

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3/5 Average fundamentals

2/5 Below average fundamentals

1/5 Poor fundamentals

Table 4 IPO grades

1.1.14.4 BENEFITS OF IPO GRADING

There are various positive sides of an IPO grading. The most significant factors that go in

favor of IPO grading are:

Professional and Independent Appraisal: IPO grading will create awareness

about the fundamentals of the companys IPO and will provide focused company

information as a key input to prospective investors that will be helpful in taking an

investment decision, in a manner similar to what a credit rating is for debt investors.

Removal of Information Burden: Where disclosures of issues are large and

complex, a service analyzing and interpreting these disclosures independently and

quickly will be extremely useful in cutting through the clutter. Thus, the usefulness

of IPO grading would be particularly high for small investors as it will serve as a

guide about the company coming out with the issue.

Impediment for Weak Companies: While fundamentally sound companies willgain from the market, companies whose fundamentals are not very strong will beimpeded in building up speculative demand among investors. Such weak companieswill need to offer pricing, which will adequately compensate investors for the risksthey take. Therefore, IPO grading provides disincentives for weak companiesplanning to come to the market to raise easy capital.

Improved Investors Sophistication: It is perceived that an independent and

informed opinion on the fundamental quality of the company will bring aboutgreater level of investor sophistication in a scientific manner. In fact, investors maytake investment decisions in a better way on the basis of opinion of CRAs regardingIPO grading. However, the assessment is not a recommendation to buy or not buy astock. It is, instead, a powerful tool to assist the investors in making up their mindabout the quality of a company proposing to offer an IPO investment option.

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CHAPTER 1

1.2 REVIEW OF LITERATURE

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1.2.1 Jaemin Kim, Kuntara Pukthuanthong-Le, Thomas Walker (2008) describes ahigh degree of pre-IPO leverage serves as a positive signal of firm quality as it forces a

firm's managers to adhere to tough budget constraints. The purpose of this paper is to

question the validity of this assumption when it is indiscriminately applied to all firms,

while other potentially important determinants of a firm's optimal capital structure are

ignored. High-tech versus low-tech firms are specifically focused on.

debt only serves as a signal of better firm quality for low-tech IPOs, as reflected in smaller

price revisions and lower under-pricing. For high-tech IPOs, the effect of leverage is

reversed: for these firms, higher leverage is associated with increased risk and uncertainty

as reflected by higher price revisions and greater under-pricing

1.2.2 Dimitris F. Kenourgios, Spyros Papathanasiou, Emmanouil Rafail Melas (2007)

provide additional international evidence on the initial public offerings (IPOs) by

examining the initial performance and two main determinants of short-run underpricing of

169 IPOs listed on the Athens Stock Exchange (ASE) over the period 1997-2002. In the

first stage, the initial performance of the IPOs is measured by two calculated formulas: theraw returns and the excess or adjusted returns of the first, fifth and 21st day, respectively.

In the second stage, a proxy is used to rank the underwriters' prestige along with the times

of oversubscription, which are introduced as explanatory variables in the model. The results

of the analysis on the initial performance of the IPOs provide evidence of significant

underpricing. Furthermore, the cross-sectional analysis on the determinants of the IPOs

shows that both the underwriters' prestige and the times of oversubscription significantly

affect the underpricing level of the IPOs.

1.2.3 Stefano Paleari and Silvio Vismara (2007) investigates whether the analysts make

systematic errors when forecasting the performance of the firm undergoing the IPO by

comparing analysts ex-ante expectations to actual ex-post figures. Using a sample of pre-

IPO analysts reports, the paper performs a regression analysis using the forecast errors

(FE) of post-issue sales as dependent variable in order to find out the determinants of mis-

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valuation.Nuovo Mercato has been essentially a market for projects in which young

enterprises endowed with a few tangible assets sold their business plans to the market

exploiting high-growth opportunities. In the aftermarket, stock and operating performances

are found to be declining, falling short of initial expectations. The extent of the actual post-

issue growth was lower than the ex-ante estimations by financial analysts, whose valuations

were systematically upwardly biased. Affiliated analysts are found not to be more over-

optimistic than the unaffiliated. FE appear to be primarily driven by the extent of forecasted

growth, by market sentiment and (inversely) by the size of the firm. this study contributes

to the understanding of the helpfulness and limits of the analysts forecasts in investment

decisions and, more generally, of the determinants of over-optimism. This study addresses

the issue of over-optimism and provides empirical evidence of it. This paper also

contributes to the literature on the rise and fall of the new European stock markets.

1.2.4 Jay R. Ritter (2006) demonstrate that there is a monotone relation between the

(expected) underpricing of an initial public offering and the uncertainty of investors

regarding its value. We also argue that the resulting underpricing equilibrium is enforced by

investment bankers, who have reputation capital at stake. An investment banker who

"cheats" on this underpricing equilibrium will lose either potential investors (if it doesn't

underprice enough) or issuers (if it underprices too much), and thus forfeit the value of its

reputation capital. Empirical.

1.2.5 Alexander liungqvist (2004 ) We model underpricing as being endogenous to the

wealth loss minimization problem encountered in a stock market flotation. The benefits of

reducing underpricing depend on the entrepreneur's participation in the offering, via the

secondary shares he sells, as well as the magnitude of the dilution he suffers on his retained

shares, which increases in the number of newly issued shares. However, reducing

underpricing is costly. Therefore, it is not surprising that there is positive underpricing inequilibrium, as entrepreneurs trade off the costs and benefits of lower underpricing. Using

two large data sets of US IPOs, we find support for the comparative statics predictions of

our model, in particular those which distinguish our model from existing work. We also

find support for the prediction that equilibrium wealth losses are unrelated to the level of

underpricing-reduction costs and the quality of underwriter, which indicates that

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entrepreneurs choose such variables optimally. Non-monetary considerations such as

private benefits of control appear not to be taken into account by the entrepreneur. Our

empirical results are robust to a number of economic and econometric considerations.

1.2.6 Nancy Beneda (2004) examines the pricing of Initial Public Offerings (IPOs) in the

secondary market on the first day of aftermarket trading. The focus of this study is on shifts

in average returns over time, and does not necessarily address the cross-sectional

implications of a risk/return relation. The focus of the study is to examine the

reasonableness of first day trading prices of IPOs. Initial returns of IPOs, issued during the

period, January 1, 1999 to June 30, 2000, reached as much as 800 per cent, and the average

initial return for the study sample was of 76 per cent. An important question is whether the

high initial returns, observed during this time period, are appropriate for the level of riskassociated with these new issues. Related to this question is the pricing of these securities

by investment bankers (i.e. the offer price) and the pricing of the securities in aftermarket

trading (i.e the secondary market). The results of this study indicate the presence of

speculative excesses in the initial pricing of IPOs in aftermarket trading during 1999 and

part of 2000. Further there is no indication that IPOs are excessively underpriced by

investment bankers during the study period, January 1, 1997 through June 30, 2000. The

results of this study may be useful to investors in making decisions about purchasing new

public securities in the secondary market.

1.2.7 Bijesh Tolia and Yew Mun Yip (2003) IPO lockup is defined as the restricted

period during which certain insiders are prohibited from selling their holdings in the open

market. Usually, the lead underwriter imposes the restriction, and the customary restriction

period lasts for about 6 months. Different theories have been extended to predict the stock

price behavior around the expiration day of IPO-lockup. In this study, we will investigate

whether the stock price behavior around the expiration day of IPO lockup is different for

Hot and Cold IPOs. We hypothesize that the stock prices of Hot IPOs, in terms of

average returns, are less affected by the unlocking of a large volume of shares. On the other

hand, for Cold IPOs, investors, in particular, venture capitalists will have a tendency to

dispose of their shares in order to preempt further decline in their wealth, and as a result we

anticipate a significant decline in stock prices for Cold IPOs. Our initial results show that

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on the lockup expiration day, the market adjusted returns for all four categories of IPOs

decline by more 1 percent however, only the decline for Hot IPOS is statistically

significant. The results are robust even after controlling for various specifications of the

market index.

1.2.8 A.H. van der Zwaan and J.H. von Eije (2002) looked for the organizational and

human resource changes that accompany the transformation from a private into a public

firm. We observed a growing efficiency climate and accountability drives, as well as a

relationship between financial participation and performance, as recent literature seems to

imply. This suggests that HR and IPO are related to each other, under the transparency and

accountability imperatives that accompany IPOs. In contrast to most other IPO studies, the

average Dutch case featured over- instead of under-performance during the first few yearsafter quotation.

1.2.9 Chandrasekhar and Pradeep (2002) Describes the environment for making initial

public offerings (IPOs) in India and the process itself; and discusses the applicability of

various research explanations for underpricing to the Indian Market. Suggests that it will be

greater for new firms and issues managed by reputable merchant bankers; and analyses

1992-1994 data on 386 IPOs to assess their performance. Shows that issues with high risk

and/or smaller offer prices are more underpriced; and that returns are strongly correlated

with subscription levels. Discusses the underlying reasons for this and the implications for

public policy.

1.2.10 M. Banu Durukan (2002) Reviews previous research on initial public offering

(IPO) pricing and performance, classifying it by six hypotheses which are not mutually

exclusive. Uses 1990-1997 data on IPOs on the Istanbul Stock Exchange to test these

hypohteses, explains the methodology and presents the results, which show initial abnormal

returns (realized by investors), but no long run underperformance of the market. Analyses

the factors affecting short and long run IPO returns, considers consistency with other

research and supports the winners curse and the fads hypotheses. Concludes that initial

abnormal returns are due to both deliberate underpricing and overvaluation by investors

and that factors which decrease uncertainty lead to lower returns.

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select areas reviewed, and violations of the Investment Advisers Act of 1940 (Advisers

Act) found during compliance examinations of investment advisers. Item II of the letter

addressed trade allocations and more specifically, allocations of IPOs.

1.2.15 Tim Jenkinson and Alexander liungqvist (2000) By 1999, close to 80% of non-

U.S. IPOs were marketed using bookbuilding methods. We study whether the recent

introduction of this technology by U.S. banks and their inclusion in non-U.S. IPO

syndicates has promoted efficiency in primary equity markets. We analyze both direct and

indirect costs (associated with underpricing) using a unique dataset containing information

on 2,051 initial public offerings in 61 non-U.S. markets during the period 1992-1999. The

direct costs of bookbuilding are typically twice as large as direct costs for fixed-price

offers. However, bookbuilding leads to substantially less underpricing. This benefit is more

pronounced when the target market includes U.S. investors, when U.S. listing is sought and

when U.S. banks are part of the syndicate.

1.2.16 Lon W. Taylor (1988) Going public with a new stock issue is a satisfying,

perplexing, and complicated process, with an aura of mystery and potential for pitfalls. As a

method for capital infusion, however, initial public offerings (IPOs) have emerged as a

significant force in allowing small, vigorous companies the growth momentum to become

primary players in their marketplaces

1.2.17 Allen D. Morton (1998) uses a multifactor logit model to analyze the aftermarket

performance of randomly chosen IPO's in hot and cold markets. The theories of risk

aversion and utility maximization, in conjunction with the paper's empirical results, suggest

that cold market investors are more risk averse than are hot market investors.

1.2.18 Marcus Gerbich and Mario Levis (1995 ) Summarizes the regulatory

environment and practices for providing a property company with a public listing.Furthermore, reports evidence of the direct and implied costs of undertaking a property

initial public offering. The results indicate that choice of issue method and timing are key

decisions to be made by property company financial managers.

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CHAPTER -2

2.1 Introduction of the Industry and

Organisation

2.1.1 STOCK MARKET

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Bulls make money, Bears make money, and Pigs get slaughter

A market with a trading floor where securities are bought and sold is called a stock

exchange.

The market or place, where securities, viz. shares are exchanged / traded or simply

where buying and selling takes place, is called stock exchange or stock market.

A stock exchange, share market or bourse is a corporation ormutual organization which

provides "trading" facilities for stock brokers and traders, to trade stocks and other

securities. Stock exchanges also provide facilities for the issue and redemption of securities

as well as other financial instruments and capital events including the payment of income

and dividends. The securities traded on a stock exchange include: shares issued by

companies, unit trusts and other pooled investment products and bonds. To be able to trade

a security on a certain stock exchange, it has to be listed there. Usually there is a central

location at least for recordkeeping, but trade is less and less linked to such a physical place,

as modern markets are electronic networks, which gives them advantages of speed and cost

of transactions. Trade on an exchange is by members only. The initial offering of stocks

and bonds to investors is by definition done in the primary market and subsequent trading is

done in the secondary market. A stock exchange is often the most important component of

a stock market. Supply and demand in stock markets is driven by various factors which, as

in all free markets, affect the price of stocks There is usually no compulsion to issue stock

via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such

trading is said to be off exchange orover-the-counter. This is the usual way that bonds are

traded. Increasingly, stock exchanges are part of a global market for securities.

Financial market consists of :-

Money market

Capital market.

Money market provides short-term capital to borrowers for meeting there short term

working capital requirements.

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http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Electronic_networkshttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Electronic_networkshttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Bond_(finance)


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Capital market is a market for long term funds. The major borrowers in this market

are corporate, agriculture sector and the govt. the corporate sector needs funds for

capital investment purpose like expansion, diversification, integration, mergers and

acquisitions. The govt. needs funds for its various programs for infrastructure

development like roads, highways, power, sanitation, water supply etc. The supply

of funds for the capital market comes from individual households, corporate banks,

insurance companies, specialized financial agencies and the govt. Capital market

is divided into debt market and equity market. Though in common parlance, when

we talk of market, it is to imply equity market or stock market. Capital market is

further sub-divided into;

2.1.2 STOCK MARKET SEGMENTS

Broadly speaking, the stock market can be divided into two independent and inseparable

segments viz.

Primary segment market (New issue market)

Secondary Segment (Stock market)

Primary segment market - 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 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.

Methods of issuing securities in the primary market are:

Initial public offering;

Rights issue (for existing companies);

Preferential issue.

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Secondary segment market- The secondary market, also known as the aftermarket, is the

financial market where previously issued securities and financial instruments such as stock,

bonds, options, and futures are bought and sold.

The secondary market for a variety of assets can vary from fragmented to

centralized, and from illiquid to very liquid. The major stock exchanges are the most visible

example of liquid secondary markets. Most bonds and structured products trade over the

counter, or by phoning the bond desk of ones broker-dealer.

2.1.3 STOCK EXCHANGES IN INDIA

Presently, the stock market in India consists of twenty one regional stockexchanges, one

Bombay stock exchange and two national exchanges, namely

1. National Stock Exchange of India (NSE)

2. Over the Counter Exchange of India (OTC)

The Bombay Stock Exchange (BSE) is the largest Stock Exchange, in the country, where

maximum transactions, in terms of money and shares take place. Bombay Stock Exchange

Limited is the oldest stock exchange in Asia. Popularly known as BSE it was established as

"The Native Share & Stock Brokers Association" in 1875.

It is the first stock exchange in India to obtain permanent recognition from the

Government of India under the Securities Contracts (Regulation) Act, 1956.

Bombay Stock Exchange The Exchange has a nation-wide reach with a presence in 417

cities and towns of India. BSE provides an efficient and transparent market for trading in

equity, debt instruments and derivatives.

National stock exchange limited (NSE), is a Mumbai-based stock exchange. It is the

largest stock exchange in India in terms of daily turnover and number of trades, for both

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equities and derivative trading. The NSE's key index is the S&P CNX Nifty, known as the

Nifty, an index of fifty major stocks weighted by market capitalisation.

NSE is mutually-owned by a set of leading financial institutions, banks, insurance

companies and other financial intermediaries in India but its ownership and management

operate as separate entities. There are at least 2 foreign investors NYSE Euro next and

Goldman Sachs who have taken a stake in the NSE. As of 2006, the NSE VSAT terminals,

2799 in total, cover more than 1500 cities across India. In October 2007, the equity market

capitalization of the companies listed on the NSE was US$ 1.46 trillion, making it the

second largest stock exchange in South Asia. NSE is the third largest Stock Exchange in

the world in terms of the number of trades in equities. It is the second fastest growing stock

exchange in the world with a recorded growth of 16.6%.

FEATURES OF THE STOCK EXCHANGE

It provides the trading platform where buyers and sellers meet to transact in

securities.

The stock exchange in India is under the supervision of the regulatory authority,

the Securities and Exchange Board of India

It is the place where sale and purchase of existing securities is done.

It enables an investor to adjust his holdings of securities in response to changes

in assessment about risk and return.

It enables to meet the liquidity needs by providing market for sale of securities.

Stock exchange is an association of individual members called member brokers.

Stock exchanges are formed for the purpose of regulating and facilitating the

buying and selling of securities.

2.1.4 LIST OF VARIOUS STOCK EXCHANGES IN INDIA

Sr.no. Name of stock exchange Year of establishment Type of organization

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1 Bombay stock exchange 1875 Voluntary non-profit

organization

2 Ahmadabad stock exchange 1897 Voluntary non-profit

organization

3 Calcutta stock exchange 1908 Public limited

company

4 M.P. stock exchange, Indore 1930 Voluntary non-profit

organization

5 Madras stock exchange 1937 Co. limited by

guarantee

6 Hyderabad stock exchange 1943 Co. limited by

guarantee

7 Delhi stock exchange 1947 Public limited

company

8 Bangalore stock exchange 1957 Pvt. Converted into

public ltd. Co.

9 Cochin stock exchange 1978 Public limited

company

10 U.P. stock exchange Kanpur 1982 Public limited

company

11 Pune stock exchange 1982 Co. limited by

guarantee

12 Ludhiana stock exchange 1983 Public limited

company

13 Jaipur stock exchange 1983 Public limited

company

14 Guahati stock exchange 1984 Public limited

company

15 Kannaar stock exchange 1985 Public limited

company

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16 Magadh stock exchange 1986 Co. limited by

guarantee

17 Bhuveneshwar stock

exchange

1989 Co. limited by

guarantee

18 Saurashtra stock exchange

,Kutch

1989 Co. limited by

guarantee

19 Vadora stock exchange 1990 N.D.

20 Meerut stock exchange 1991 N.D.

21 O.T.C.I (over the counter

exchange of India),Mumbai

1993 Pure demutualised

22 National stock exchange 1995 Pure demutualised

23 Coimbtoor stock exchange 1996 N.D.

24 Sikkam stock exchange 1997 N.D.

Table 5 List Of Stock Exachanges

2.1.5 Role of stock exchanges

Stock exchanges have multiple roles in the economy, this may include the following:

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for expansion

through selling shares to the investingpublic.

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Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation

of resources because funds, which could have been consumed, or kept in idle deposits with

banks, are mobilized and redirected to promote business activity with benefits for several

economic sectors such as agriculture, commerce and industry, resulting in a stronger

economic growth and higherproductivity levels and firms.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase

distribution channels, hedge against volatility, increase its market share, or acquire other

necessary business assets. A takeoverbid or a mergeragreement through the stock market

is one of the simplest and most common ways for a company to grow by acquisition or

fusion.

Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, both casual and professional

stock investors, through dividends and stock price increases that may result in capital gains,

will share in the wealth of profitable businesses.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve on

their management standards and efficiency in order to satisfy the demands of these

shareholders and the more stringent rules for public corporations imposed by public stock

exchanges and the government. Consequently, it is alleged that public companies

(companies that are owned by shareholders who are members of the general public and

trade shares on public exchanges) tend to have better management records than privately-

held companies (those companies where shares are not publicly traded, often owned by the

company founders and/or their families and heirs, or otherwise by a small group of

investors). However, some well-documented cases are known where it is alleged that there

has been considerable slippage in corporate governance on the part of some public

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companies (Pets.com (2000), Enron Corporation (2001), One.Tel (2001), [[Sunbeam

Products|Sunbeam]] (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), or

Parmalat (2003), are among the most widely scrutinized by the media).

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open

to both the large an small stock investors because a person buys the number of shares they

can afford. Therefore the Stock Exchange provides the opportunity for small investors to

own shares of the same companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance

infrastructure projects such as sewage and water treatment works or housing estates by

selling another category ofsecurities known asbonds. These bonds can be raised through

the Stock Exchange whereby members of the public buy them, thus loaning money to the

government. The issuance of such bonds can obviate the need to directly tax the citizens in

order to finance development, although by securing such bonds with the full faith and credit

of the government instead of with collateral, the result is that the government must tax the

citizens or otherwise raise additional funds to make any regular coupon payments and

refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces.

Share prices tend to rise or remain stable when companies and the economy in general

show signs of stability and growth. An economic recession, depression, orfinancial crisis

could eventually lead to a stock market crash. Therefore the movement of share pricesand in general of the stock indexes can be an indicator of the general trend in the

economy.

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http://en.wikipedia.org/wiki/Pets.comhttp://en.wikipedia.org/wiki/Enron_Corporationhttp://en.wikipedia.org/wiki/One.Telhttp://en.wikipedia.org/wiki/Webvanhttp://en.wikipedia.org/wiki/Adelphiahttp://en.wikipedia.org/wiki/MCI_WorldComhttp://en.wikipedia.org/wiki/Parmalathttp://en.wikipedia.org/wiki/Stock_investorhttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Market_(economics)http://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Economic_recessionhttp://en.wikipedia.org/wiki/Financial_crisishttp://en.wikipedia.org/wiki/Stock_market_crashhttp://en.wikipedia.org/wiki/Stock_indexhttp://en.wikipedia.org/wiki/Pets.comhttp://en.wikipedia.org/wiki/Enron_Corporationhttp://en.wikipedia.org/wiki/One.Telhttp://en.wikipedia.org/wiki/Webvanhttp://en.wikipedia.org/wiki/Adelphiahttp://en.wikipedia.org/wiki/MCI_WorldComhttp://en.wikipedia.org/wiki/Parmalathttp://en.wikipedia.org/wiki/Stock_investorhttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Market_(economics)http://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Economic_recessionhttp://en.wikipedia.org/wiki/Financial_crisishttp://en.wikipedia.org/wiki/Stock_market_crashhttp://en.wikipedia.org/wiki/Stock_index


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2.1.6 Profile

The Ludhiana Stock Exchange Limited was established in 1981, by Sh. S.P. Oswal and Sh.

B.M. Munjal, leading industrial luminaries, to fulfil a vital need of having a Stock

Exchange in this region. Since its inception, the Stock Exchange has grown phenomenally.

The Stock Exchange has played an important role in channelizing savings into capital for

the various industrial and commercial units of the State of Punjab and other parts of the

country.

The Ludhiana Stock Exchange is a technology savvy, forward looking and modern

Regional stock exchange. The stock exchange has introduced latest technological

developments in the capital markets to keep itself in pace with the changes sweeping across

the stock exchanges through out the country.

The Ludhiana Stock exchange was incorporated in the year 1983. It was granted

recognition in the year 1993.

Exchanges among the Regional Stock Exchanges of the country, and has been providing

trading platform for the investors situated in Punjab, J&k, Himachal Pradesh &

Chandigarh. At present, it has 380 listed companies and among them, 249 are listed as

regional companies.

OBJECTIVES

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1. To channelize the saving into investment in capital market there by providing funds

for growth & expansion.

2. To provide liquidity to the investors of the region by providing them with a

secondary market network.

3. Disseminating information among investors thereby saving their interests.

4. To maintain high standard of commercial honor & integrity.

5. To promote and inculcate honorable practice and just & equitable principle of trade

& business.

6. To discourage and to suppress malpractice detrimental to the interest of investors at

large,

FEATURES

1. First regional stock exchange to give proposal of making subsidiary as broker of

NSE & BSE for survival of stock exchange and second to start operations like

broker of NSE & BSE

2. First regional stock exchange to start trading in commodities market.

3. First regional stock exchange to start courses on capital market, only BSE is

performing this sort of activities and NSE is also performing courses on capitalmarket only for members but LSE have started for outsiders also.

2.1.7 OPERATIONS OF LSE

TURNOVER

Ludhiana Stock Exchange is one of the leading Stock Exchanges among the Regional Stock

Exchanges of the country, and has been providing trading platform for the investors

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situated in Punjab, J&k, Himachal Pradesh & Chandigarh. At present, it has 380 listed

companies and among them, 249 are listed as regional companies. It had been generating

significant amount of the business in the secondary market. It recorded a peak turnover of

Rs.9154 crores during the year 2000-2001. The structural changes that took place in the

recent past in the Capital Market of the country had a negative impact on the trading

volume of the Regional Stock Exchanges. There has been a significant reduction of

turnover during the financial year 2001-2002, but the reduction in the turnover of the

Exchange has been more than adequately compensated by substantial rise in the turnover of

LSE Securities Limited, a subsidiary of Ludhiana Stock Exchange.

LISTING

Listing is one of the major functions of a Stock Exchange wherein the securities of the

Companies are enlisted for trading purpose. Any Company incorporated under Companies

Act, 1956, coming out with an IPO, has to mandatorily list its shares on a Stock Exchange.

The Listing Department of Ludhiana Stock Exchange deals with listing of securities,

further listing of issues like bonus and rights issues, post listing compliance of the

companies which is already listed with Ludhiana Stock Exchange. The Companies desirous

of lis

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