A

COMPREHENSIVE PROJECT REPORT

ON Correlation between the Credit Rating and the performance of the Stock Submitted to

S.R. LUTHRA INSTITUTE OF MANAGEMENT

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

In

Gujarat Technological University

UNDER THE GUIDANCE OF Faculty Guide: Dr. J.M.Kapadia Ass. Professor Company Guide: Mr. Asif Saiyed Investment Consultant Advisor (Frotline Securities)

Submitted by
MR. SALAHUDDIN SAIYED [Batch No. 2011-13, Enroll. No.117500592055] MR. SANDIP DANKHARA [Batch No. 2011-13, Enroll. No.117500592026] MBA SEMESTER IV

S.R. LUTHRA INSTITUTE OF MANAGEMENT - 750

MBA PROGRAMME Affiliated to Gujarat Technological University Ahmedabad MAY 2013

Students Declaration

We, Mr. Salahuddin J. Saiyed & Mr. Sandip T Dankhara, hereby declare that the report for Comprehensive Project entitled Correlation between the Credit Rating and the performance of the Stock is a result of our own work and our indebtedness to other work publications, references, if any, have been duly acknowledged.

Place: Surat

Date: __________________ (Salahuddin J. Saiyed)

__________________ (Sandip T Dankhara)

Institutes Certificate
2

Certified that this Comprehensive Project Report Titled Correlation between the Credit Rating and the performance of the Stock is the bonafide work of Mr. Salahuddin J. Saiyed (Enrollment No.117500592055) and Sandip T Dankhara (Enrollment No.117500592026), who carried out the research under my supervision. I also certify further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Place: Surat Date:

___________________ (Dr. J.M. Kapadia) Ass. Professor

___________________ (J.M. Kapadia) I/C Director

PREFACE
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We are the students of MBA Program and are prepared during our two years to face real life problems and solve them. In order to develop this skill, the curriculum of MBA has in it the comprehensive project, which helps us to apply our conceptual (theoretical) knowledge in practice. This project will help us apply our conceptual knowledge about various aspects in practice. Capital Market understanding is one of the most important aspects for us as we have opted for finance as our specialization. The growth and development of Capital Market is relevant because for the economy to develop, a developed Capital Market is required. Capital Market helps in converting the savings into investment which helps in economic growth and development. Investors investing their savings into the capital market generally relying on the firms past performance. Credit rating agencies rate the firm on the basis of various criteria and also by evaluating the past financial and operational performance. The rating given by agency helps the firm in raising the finance from the market and to show the creditworthiness of the firm. Generally, the investment advisor and consultant comment on the security based on the rating announced for the security. This study tries to find out if there is any relationship between credit rating assigned to a stock and the performance of the stock.

ACKNOWLEDGEMENT
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We are thankful to Mr. Asif Saiyed, Investment Consultant Advisor, for his consistent support and motivation We are also grateful to Dr. J.M. Kapadia, Incharge Director, for his expertise advice and excellent guidance. He has not only given the project a scrupulous critical reading but given us many suggestions to improve it. We are indebted to our other faculty members who gave time and again review portions of this project and provide many valuable comments. We would like to express our appreciation towards our friends for their encouragement and support throughout this project.

Salahuddin J. Saiyed Sandip T Dankhara

EXECUTIVE SUMMARY

The intent behind this research report is to find out the correlation between the credit rating and the performance of the stock with special reference to last 50 rated IPOs by the credit rating agencies like ICRA, CRISIL, FITCH, CARE. Generally it was believed that a high rated IPOs performs well as compared to the low rated IPOs, but in reality their is no such correlation of the credit rating assigned to the IPO and its performance instead in most of the cases there is an inverse relationship between the rate assigned to the IPO and its performance. The study contains last 50 rated IPOs listed on both the stock exchanges BSE and NSE as well as survey of 125 IPO investors. The tool used for the study includes Regression Analysis and Chi Square. The study reveals the fact that investors have lost their money in most of the IPOs, though having considered a good rated IPO. From the study report it can be recommended that there should be some amount of introspection by the investment banks so that the investors confidence in the primary market could be sustained, otherwise along with the retail investors, an institutional investors will lose interests in the new issues and it will become difficult for the genuine companies to raise the capital from the public.

TABLE OF CONTENTS Sr. No. Particulars

6

Page No.

1. 2.

Introduction CAPITAL MARKET Global Scenario of Capital Market Indian Capital Market PESTEL Analysis Current trends in Indian Capital Market Major Participants in Capital Market Types of Securities in Indian Capital Market Company Profile Company Profile Organization structure Divisions/ Departments SWOT Analysis

10-17 18-36

18 20 24 27 33 36
37-41

3.

37 39 40 41
42-44 45-48

4. 5.

Review of Literature Research Methodology Problem Statement Research Objective Research Design Type of Design Sampling Data Collection Tools for Analysis Limitations of the Study

45 45 45 46 46 46 47 47 49-82 57-60 61-69 70-82 83 85 86 89 90

6.

Data Analysis and Interpretation Data Analysis using Demographic Information Data Analysis using Other information Test application

7. 8. 9.

Findings Conclusions Recommendations Annexure Bibliography

LIST OF TABLES Table Particulars No. 1 Page No. 27

Sr. No. 1

Trends in Indian Capital Market List of Top 10 Brokerage Firms in India (As per Trading Volume)

2 3 4 5 6 7

2 3 4 5 6 7

35 49 52 55 61 62

List Of Last 50 IPO Rated Companies IPO Rating V/s Price Rating V/s Volume Duration Of Trading In Stock & IPOs IPO Grading Helps To Take Informed Decision In The New Issue Market

Frequency Of IPO Grade consideration While Doing Investment

64

There is relationship between the grade assigned and performance of the stock Investor should give priority to IPO having good grading than low grade Experience with previous IPO investment (with reference to return) Percentages Gained/Losses From IPO Investment Investor should rely on the grade assigned to IPO or not LIST OF FIGURES

65

10 11 12 13

10 11 12 13

67 68 69 70

Sr. No.

Figure Particulars
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Page No.

No.

1 2 3 4 5

Structure of Indian Capital Market Primary Market (Equity Issues) Trends through Public and Rights Issues (Rs. crore) Movement of Sensex and Nifty Trends of Equity Derivatives Segment at NSE Organization structure

2 3 4 5 6

12 31 32 30 39

INTRODUCTION

Capital markets provide for the buying and selling of long term debt or equity backed securities. The capital markets channel the wealth of savers to those who can put it to long term productive use, such as companies or governments making long term investments. Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), Indias Securities and Exchange Board of India (SEBI) etc. oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. 21st century capital markets are almost invariably hosted on computer based Electronic trading systems; most can be accessed only by entities within the

financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public. There are thousands of such systems, most only serving only small parts of the overall capital markets. Entities hosting the systems include stock exchanges, investment banks, and government departments. Physically the systems are hosted all over the world, though they tend to be concentrated in financial centers like London, New York, and Hong Kong. Capital markets are defined as markets in which money is provided for periods longer than a year. A key division within the capital markets is between the primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors, often via a mechanism known as underwriting. The main entities seeking to raise long term funds on the primary capital markets are governments (which may be municipal, local or national) and business enterprises (companies).

Governments tend to issue only bonds, whereas companies often issue either equity or bonds. The main entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, and less commonly wealthy individuals and investment banks trading on their own behalf. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-thecounter, or elsewhere. The existence of secondary markets increases the willingness of investors in primary markets, as they know they are likely to be able to swiftly cash out their investments if the need arises.

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1.1 STRUCTURE OF INDIAN CAPITAL MARKET On the basis of the types of institutions involved in capital market, it can be classified into various categories such as the Government Securities market or Gilt-edged market, Industrial Securities market, Development Financial Institutions (DFIs) and financial intermediaries. All of these components have specific features to mention. The structure of the Indian capital market has its distinct features. These different segments of the capital market help to develop the institution of capital market in many dimensions. The primary market helps to raise fresh capital in the market. In the secondary market, the buying and selling (trading) of capital market instruments takes place. The following chart will help us in understanding the organizational structure of the Indian Capital market: Figure-1: Structure of Indian Capital Market
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Indian Capital Market

Govt. Securities market

Industrial Security market

Development al Banks

Financial Intermediarie s

New issue market

Secondary market

IFCI

ICICI

SFCs

IDBI

IIBI

UTI

Merchant banks

Mutual funds

Leasing firms

Venture capital firms

Other financial firms

(Source- Reference Book: Financial service and system by Mathews TATA McGraw-hill publication/ capital market/ institutional framework page no. 65) Government Securities Market: This is also known as the Gilt-edged market. This refers to the market for government and semi-government securities backed by the Reserve Bank of India (RBI). Industrial Securities Market: This is a market for industrial securities i.e. market for shares and debentures of the existing and new corporate firms. Buying and selling of such instruments take place in this market. This market is further classified into two types such as the New Issues Market (Primary) and the Old (Existing) Issues Market (secondary). In primary market fresh capital is raised by companies by issuing new shares, bonds, units of mutual funds and debentures. However in the secondary market already existing i.e. old shares and debentures are traded. This trading takes place through the registered stock exchanges. In India we have three prominent
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stock exchanges. They are the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) and Over The Counter Exchange of India (OTCEI). Development Financial Institutions (DFIs) : This is yet another important segment of Indian capital market. This comprises various financial institutions. These can be special purpose institutions like IFCI, ICICI, SFCs, IDBI, IIBI, UTI, etc. These financial institutions provide long term finance for those purposes for which they are set up. Financial Intermediaries: The fourth important segment of the Indian capital market is the financial intermediaries. This comprises various merchant banking institutions, mutual funds, leasing finance companies, venture capital companies and other financial institutions.

1.2 TRANSACTION PLATFORM: Domestic Exchanges: Indian equities are traded on two major exchanges: Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE): Bombay Stock Exchange (BSE) BSE is the oldest stock exchange in Asia. The extensiveness of the indigenous equity broking industry in India led to the formation of the Native Share Brokers Association in 1875, which later became Bombay Stock Exchange Limited (BSE). BSE is widely recognized due to its pivotal and pre-eminent role in the development of the Indian capital market.

National Stock Exchange (NSE)

NSE was recognized as a stock exchange in April 1993 under the Securities Contracts (Regulation) Act. It commenced its operations in Wholesale Debt Market in June 1994. The capital market segment
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commenced its operations in November 1994, whereas the derivative segment started in 2000. NSE introduced a fully automated trading system called NEAT (National Exchange for Automated Trading) that operated on a strict price/time priority. This system enabled efficient trade and the ease with which trade was done. NEAT had lent considerable depth in the market by enabling large number of members all over the country to trade simultaneously, narrowing the spreads significantly.

International Exchanges Due to increasing globalization, the development at macro and micro levels in international markets is compulsorily incorporated in the performance of domestic indices and individual stock performance, directly or indirectly. Therefore, it is important to keep track of international financial markets for better perspective and intelligent investment. NASDAQ (National Association of Securities Dealers Automated Quotations). NASDAQ is an American stock exchange. It is an electronic screen-based equity securities trading market in the US. It was founded in 1971 by the National Association of Securities Dealers (NASD). However, it is owned and operated by NASDAQ OMX group, the stock of which was listed on its own stock exchange in 2002. The exchange is monitored by the Securities and Exchange Commission (SEC), the regulatory authority for the securities markets in the United States. LSE (London Stock Exchange) The London Stock Exchange was founded in 1801 with British as well as overseas companies listed on the exchange. The LSE has four core areas: i. ii. iii. Equity markets Trading services Market data information
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iv.

Derivatives

Frankfurt Stock Exchange It is situated in Frankfurt, Germany. It is owned and operated by Deutsche Borse. The Frankfurt Stock Exchange has over 90 percent of turnover in the German market and a big share in the European market. The exchange has a few well-known trading indices of the exchange, such as DAX, DAXplus, CDAX, DivDAX, LDAX, MDAX, SDAX, TecDAX, VDAX, and EuroStoxx 50. DAX is a blue-chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Prices are taken from the electronic Xetra trading system of the Frankfurt Stock Exchange.

1.3 CAPITAL MARKET REGULATOR: In India, the responsibility of regulating the securities market is shared by DCA (the Department of Company Affairs), DEA (the Department of Economic Affairs), RBI (the Reserve bank of India), and SEBI (the Securities and Exchange Board of India). The DCA is now called the ministry of company affairs, which is under the ministry of finance. The ministry is primarily concerned with the administration of the Companies Act, 1956, and other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with the law. The ministry exercises supervision over the three professional bodies, namely Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI), and the Institute of Cost and Works Accountants of India (ICWAI), which are constituted under three separate Acts of Parliament for the proper and orderly growth of professions of chartered accountants, company secretaries, and cost accountants in the country.
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 SEBI protects the interests of investors in securities and promotes the development of the securities market. The board helps in regulating the business of stock exchanges and any other securities market. SEBI is also responsible for registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, and such other intermediaries who may be associated with securities markets in any manner.

1.4 CONSTITUENT IN CAPITAL MARKET: Fund Raisers: Fund raisers are companies that raise funds from domestic and foreign sources, both public and private. Fund Providers: Fund providers are the entities that invest in the capital markets. These can be categorized as domestic and foreign investors, institutional and retail investors. The list includes subscribers to primary market issues, investors who buy in the secondary market, traders, speculators, FIIs/ sub accounts, mutual funds, venture capital funds, NRIs, ADR/GDR investors, etc. Intermediaries: Intermediaries are service providers in the market, including stock brokers, sub-brokers, financiers, merchant bankers, underwriters, depository participants, registrar and transfer agents, FIIs/ sub accounts, mutual Funds, venture capital funds, portfolio managers, custodians, etc. Organizations:
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Organizations include various entities such as BSE, NSE, other regional stock exchanges, and the two depositories National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CSDL). Market Regulators: Market regulators include the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Department of Company Affairs (DCA). 1.5 PARTICIPANT IN CAPITAL MARKET: The Securities Appellate Tribunal (SAT), regulators (SEBI, RBI, DCA, DEA), depositories, stock exchanges (with equity trading, debt market segment, derivative trading), brokers, corporate brokers, sub-brokers, FIIs, portfolio managers, custodians, share transfer agents, primary dealers, merchant bankers, bankers to an issue, debenture trustees, underwriters, venture capital funds, foreign venture capital investors, mutual funds, collective investment schemes.

2.1 Global Scenario of capital market

Global integrationthe widening and intensifying of linksbetween highincome and developing countries has accelerated over the years. Over the past few years, the financial markets have become increasingly global. The Indian market has gained from foreign inflows through the investment of Foreign Institutional Investors (FIIs). Following the implementation of reforms in the securities industry in the past few years, Indian stock markets have stood out in the world ranking. India posted a turnover ratio of 75.6 percent, which was comparable to that of the other developed markets. As per Standard and Poors Fact Book 2011, India ranked 7th in terms of market capitalization (11th in 2009), 10th in terms of total value traded in stock exchanges, and 22nd in terms of turnover ratio, as of December 2010. The stock markets worldwide have grown in size as well as depth over the years. Significantly, the US alone accounted for about 47.6 percent of the worldwide turnover in 2010. Despite having a large number of companies listed on its exchanges, India accounted for a meager 1.65 percent of the total world turnover in 2010.
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The market capitalization of all the listed companies taken together across all the markets stood at US $ 54.54 trillion in 2010 (US $ 48.71 trillion in 2009). The share of the US in worldwide market capitalization increased from 30.95 percent at the end of 2009 to 31.42 percent at the end of 2010, while the Indian listed companies accounted for 2.96 percent of the total market capitalization at the end of 2010. Equity markets have expanded significantly in a large number of countries across the world. The market capitalization of worlds leading stock The growth of market capitalization is exchanges rose from about USD 11 trillion in 1991 to USD 35 trillion in 1999 to about USD 51 trillion in 2006. evidence across regions. Market capitalization in Asia nearly doubled from USD 6.8 trillion in 1999 to USD 11.8 trillion in 2006, whereas in America it grew from USD 17.9 trillion and in Europe/Africa/Middle East, it rose from USD 10.2 trillion to USD 16.1 trillion. Market Capitalization as a percentage of GDP witnessed steep growth in several countries during this period. After liberalization of cross border financial flaws, companies in several countries is seeking listing in international exchanges to garner benefit from international investors has also widened their investor base. There is a keen competition across the worlds leading stock exchanges to promote international listing and gain greater influence. The US is now examining in greater detail measures to gain the prominence once it enjoyed in the international listings. Liberalization of Capital flows led to surge in the international investment into emerging economies finding value on back of huge prospects for growth. The flow of net FDI into developing countries increased and net portfolio equity flows increase recent period. Emerging markets showed significant growth in the stock price making them attractive investments destination through issues of valuation are beginning to become a concern now. Greater harmonization of stock markets mature and emerging markets is in evidence by the increasing correlation in market returns across different markets. The higher correlation in the stock price movements gain momentum in the late 1990s due to growing foreign institutional investors in the several
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markets, and growth of the technology sector that pervaded many markets and has driven stock price momentum in the late 1990s. Emerging markets also become very active in the new issuance market in 2006; all the 10 largest cross border new capital issues were from the emerging markets. These 10 issues were from China, Russia, Mexico, Thailand & Kazakhstan. Of these 10 issues for each were listed in London & Hong Kong and only one in the US.

2.2 Indian Capital market

2.2.1 Overview of Indian capital market Indian Capital Markets have shown tremendous growth in the post Liberalization era. It remains one of the most resilient globally and poised to be one of the Top destinations for domestic and global businesses to expand and invest into. As global economy moves for imminent recovery, India has shown extraordinary strength to bounce back with greater stability and sustainability. Raising capital is a strategic priority across India and role of Capital Markets has assumed far greater importance and urgency. The Debt market still needs to be developed to invite capital inflows needed for massive infrastructure development. The frontiers of global markets are not only increasing but also moving towards process of convergence. FIIs inflows into the Indian equity markets have touched US$ 17 billion during 2009 and the steep rise in number of retail investors has brought into focus further issues of corporate governance and investors protection more prominently. The efforts of the Regulators and the Government to protect the interests of investors in securities and to promote the development of,
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and to regulate the securities market towards enlightened Governance, has bee lauded by all stake holders. There is huge potential for the capital markets growth as at present just 2% of the population, account for retail investors and the lowest strata of the pyramid still remains untapped. The real inclusive growth also needs penetration of capital market to the last mile.

2.2.1 Evolution of Indian capital market Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are meager and obscure. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century. By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850. The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60. In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87).
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At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. In 1887, they formally established in Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known as " The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.

2.2.3 Trading Pattern of the Indian Stock Market Trading in Indian stock exchanges is limited to listed securities of public limited companies. They are broadly divided into two categories, namely, specified securities (forward list) and non-specified securities (cash list). Equity shares of dividend paying, growth-oriented companies with a paid-up capital of at least Rs.50 million and a market capitalization of at least Rs.100 million and having more than 20,000 shareholders are, normally, put in the specified group and the balance in non-specified group. Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery transactions "for delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract and (b) forward transactions "delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract". The latter is permitted only in the case of specified shares. The brokers who carry over the outstanding pay carry over charges which are usually determined by the rates of interest prevailing. A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his own account and
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risk, in contrast with the practice prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a broker only. The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times.

2.2.4 Reforms in Indian Capital Markets Ever since the Indian economy was liberalized in the early 90s, India has seen a tremendous growth of its capital markets with close to 5,000 Initial Public Offerings (IPOs), second only to the United States. Although the amount of capital raised during the period may have been lower as compared to that of the developed world and other BRIC nations, Indian companies have still managed to attract capital from the world over. In the financial year of 2008, India saw the greatest year in Indian capital markets when the total capital raised went northwards of US$9 billion. However, the following years have not been very promising. Notwithstanding the impact of the global financial crisis, Indian capital markets have not been able to match the growth story witnessed ever since the liberalization of the economy till 2008. In the preceding financial year 2010, while India ranked 4th with respect to the amount of capital raised, contributing to 3.7% of global IPO share, China (which also includes Hong Kong) contributed to almost 47% of the global capital raised in IPOs. The above statistics provide an interesting insight into the growth trajectory of the Indian capital markets and its future role in the financial world. From 2008 to 2010, the amount raised by IPOs in China increased by 250%, but in India, there was no substantial increase. (Source: Global IPO Trends
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2011, published by Ernst and Young). The writing on the wall seems to indicate that the Indian capital markets is losing its growth momentum in the post-crisis financial world and that China is increasingly becoming popular with respect to attracting foreign capital.

2.3 PESTEL analysis

POLITICAL FACTORS: The capital market of India is very vulnerable. India has been politically instable in the past but it is a little politically stable now-a-days.the political instability of the country has a very strong impact on the capital market. The share market of India changes as the political changes took place. The BSE Index, SENSEX goes up and down with any kind of small and big political news, like, if there is news that a particular political party has withdrawn its support from the ruling party, and then the capital market will go down with a bang. The capital market of India is too weak and is based on speculations. The political stability of the country is very important for the stability and growth of capital market in India. The political imbalance or balance of the country is the major factor in deciding the capital market of India. The political factors include: employment laws tax policy trade restrictions and tariffs political stability ECONOMICAL FACTORS:
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The economical measures taken by the government of India has a very strong relationship with the capital market. Whenever the annual budget is announced the capital market goes up and down with the economical policies of the government .If the policies are supportive to the companies then the capital market takes it positively and if there is any other policy that is not supportive and it is not welcomed then the capital market goes down. Like, in the case of allocation of 3-G spectrum, those companies that got the license for 3-G, they witnessed sharp growth in their share values so the economic policies play a major part in the growth and decline of the capital market and again if there is relaxation on any kind of taxes on items of automobile industry then the share of automobile sector goes up and virtually strengthen the capital market .The economical factors include:

Inflation rate Economic growth Exchange rates Interest rates

SOCIAL FACTORS: India is a country of unity in diversity .India is socially rich but the capital market is not very attached with the social factors .Yes, there is some relation between the social factors with the capital market. If there is any big social factor then to some extent it affects the capital market but small social factors dont impact at all. Like, there was opposition of reliance fresh in many cities and many stores were closed. The share prices of the reliance fresh went down but the impact was on and individual firm there was not much impact on the capital market on a whole the social factors have not much of impact on the capital market in India. The social factors include:

Emphasis on safety Career attitudes Population growth rate

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Age distribution Health consciousness

TECHNOLOGICAL FACTORS: The technological factors have not that much effect on the capital market. India is technological backward country. Same as social factors, technological factor can have an effect on an individual form but it cannot have a big impact on a whole of capital market. The Bajaj got a patent on its dts-i technology, and launched it in its new bike but it does not effect on capital market. The technological change in India is always on a lower basis and it doesnt effect on country as a whole. The technological factors include:

R&D activity Technology incentives Rate of technological change Automation

ENVIORNMENTAL FACTORS: Initially, the environmental factors dont play a vital role in the capital market. But the time has changed and people are more eco-friendly. This is really bothering them that if any firm or industry is environment friendly or not. An increasing number of people, investors, corporate executives are paying importance to these facts, the capital markets still see the environment as a liability. They belie that it is of no use for their strategy. The environmental performance is even under-valued by the markets. LEGAL FACTORS: Legal factors play an important role in the development and sustain the capital market. Legal issues relating to any industry or firm decides the fate of the capital market. If the govt. of India or the parliament introduces a new law that can affect the running of the industry then the industry will be demotivated and
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this demonization will lead to the demonization of the investors and will result in the fall of capital market. Like after the Hardhat Mehta scam, new rules and regulations were introduced like PAN card was made necessary for trading, if any investor was investing too much money in a small firm, then the investors were questioned, etc. These regulations were meant to maintain transparency in the capital market, but at that time, investment was discouraged. Legal factors are necessary for the improvement and stability of the capital market.

2.4 Current trends in Indian capital market

Currently, Indias economic growth is second only to China but unfortunately the phenomenal growth rate has not reflected in the performance of its capital market. Performance of Indian capital market is not merely reflected by the performance of its secondary market and indices of stock exchanges, but also by the positioning of the market in the global financial circle in terms of reputation and presence of foreign companies. If we take the example of developed nations, all of them have a robust capital market with the presence of international companies and a high reputation. Indian economy has been growing at a rate higher than most of the other economies, India still has a long way to go before attaining the status of an attractive financial hub in the world. This poses one of the major hurdles for India to progress from a developing economy to a developed economy. China has developed its markets to make them more accessible to foreign capital. As per current news reports, global conglomerates like Coca Cola, HSBC, Unilever and Standard Chartered are eyeing the Shanghai Stock Exchange. On the other hand, Indian exchanges are way behind to join this bandwagon. The question that begs asking is whether we would like these companies to come to India for listing? And if the answer is yes, are we providing a platform for international listings in India?

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The current legal framework in India with respect to listing of foreign companies in India is rather onerous and since the introduction of Indian Depositary Receipts (IDRs) in 2000, there has been only one foreign company i.e. Standard Chartered Plc, which got listed in India. It was almost 11 years back that the concept of IDR was floated in India by way of insertion of Section 605A of the Companies Act, 1956. But even after several rounds of amendments to liberalized and lay down a detailed framework of rules to govern the issue of IDRs, Indian exchanges have not been able to attract foreign companies.

There are onerous restrictions on foreign companies requiring them to have minimum pre-issue paid-up capital and free reserves of USD 50 million and a minimum average market capitalization (during the preceding 3 years) in its parent country of USD 100 million, for them to be eligible to list their IDRs in India. In addition, the regulations require such foreign companies to be listed in their home jurisdictions for a minimum period of three preceding years and a track record of profitability in at least 3 years out of the preceding 5 years. These restrictions would allow only large listed foreign companies to be able to list in India, for which India has not yet evolved into an attractive dual-listing venue. India should either relax these rather onerous restrictions for listing of IDRs or set-up an alternate exchange on lines of the Alternate Investment Market of the London Stock Exchange and the Growth Enterprise Market of the Hong Kong Stock Exchange, which allows for smaller foreign companies to get listed on their exchanges with no requirement of prior listing on home exchanges. India should also provide a forum for listing of common shares of foreign companies in India. Currently, only common shares of Indian companies can be listed on Indian exchanges. In an increasingly globalized world where most multinational foreign companies have business presence in India, they should also have the
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opportunity to be listed on Indian exchanges and thereby assist in increasing Indias competitiveness in the global securities market. There are two major schools of thought with respect to increasing the competitiveness of a securities market, the proponents of the issuer choice approach and advocates of the existing legal regime where foreign issuers would be subject to the local laws.

TABLE-1 Trends in Indian Capital Market

Year
Percent

Turnover (Rs. crore) Cash Segment F&O Segment Index Return Annualized Volatility

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

8,15,413 9,35,642 15,94,016 16,59,684 23,32,913 28,96,279 50,98,774 38,49,524 55,08,023 46,70,402 17,40,591

1,03,851 4,42,344 21,42,521 25,63,165 48,24,260 74,15,276 1,33,32,786 1,10,22,257 1,76,63,899 2,92,48,375 1,57,60,028

-1.62 -13.40 81.14 14.89 67.15 12.31 23.89 -36.19 73.76 11.14 -15.26

22.22 15.72 22.84 26.11 16.43 28.03 32.09 41.54 29.40 17.83 13.76

(Source: SEBI BULLETIN 2012)

2.4.1 Trends in Primary Market

28

During February 2012, Rs. 791.8 crore was mobilised in the primary market through five issues as compared to Rs.12,126.6 crore mobilised through four issues in January 2012, showing a decrease of 93.5 percent over the previous month. During February 2012, all the issues were equity issues which came to the market after the gap of four months. Of the five equity issues, two issues worth Rs.672.2 crore were mobilised through IPO channel and three issues amounting to Rs.119.6 crore were rights issues. The cumulative amount mobilised for the financial year 2011-12 so far, stood at Rs. 44,603.8 crore through 61 issues as against Rs. 61,094.0 crore raised through 77 issues during the corresponding period in 2010-11. Figure-2: Primary Market (Equity Issues) Trends through Public and Rights Issues (Rs. crore)

(Source: SEBI BULLETIN 2012)

2.4.2 Trends in the Secondary Market BSE Sensex closed at 17,752.7 on February 29, 2012, as against 17,193.6 on January 31, 2012, registering an increase of 559.1 points (3.3 percent). During February 2012, Sensex recorded an intraday high of 18,523.8 on February 22, 2012 and an intraday low of 17,061.6 on February 1, 2012. The P/E ratio of BSE Sensex was 18.3 as on February 29, 2012 as against 17.7 on January 31, 2012. The P/E ratio of S&P CNX Nifty was 19.1 as on February 29, 2012 as against 18.5 on January 31, 2012.

29

Figure-3: Movement of Sensex and Nifty

(Source: SEBI BULLETIN 2012)

2.4.3 Trends in Equity Derivatives Segment

The monthly total turnover in equity derivative market at NSE increased by 17.3 percent from Rs. 22,51,487 crore in January 2012 to Rs. 26,41,778 crore in February 2012. The monthly turnover of index futures also increased by 16.1 percent from Rs. 2,50,738 crore in January 2012 to Rs. 2,91,138 crore in February 2012. Further, the monthly turnover of stock futures increased by

30

28.8 percent from Rs. 3,50,848 crore in January 2012 to Rs. 4,51,869 crore in February 2012.

Figure-4: Trends of Equity Derivatives Segment at NSE (Rs. crore)

(Source: SEBI BULLETIN 2012)

31

2.6 Major Participants in Indian capital market

Fund Raisers: Fund raisers are Companies that raise funds from domestic and foreign sources, both public and private. Fund Providers: It includes the entities that invest in the capital markets. These can be categorized as domestic and foreign investors, institutional and retail investors. The list includes subscribers to primary market issues, investors who buy in the secondary market, traders, speculators, FIIs/ sub accounts, mutual funds, venture capital funds, NRIs, ADR/GDR investors, etc. Intermediaries: Service providers in the market, including stock brokers, sub-brokers, financiers, merchant bankers, underwriters, depository participants, registrar and transfer agents, FIIs/ sub accounts, mutual Funds, venture capital funds, portfolio managers, custodians, etc. Organizations:

32

It includes various entities such as BSE, NSE, other regional stock exchanges, and the two depositories National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CSDL). Market Regulators: It includes the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Department of Company Affairs (DCA).

Market intermediaries: Some of the Market intermediaries are:

Lead managers Bankers to the issue (Merchant bankers) Registrar and share transfer agents Depositories Clearing corporations Underwriters Custodians Portfolio managers Mutual funds Investment companies

Broking Firms:
33

Brokerage firms are the business entities that deal with stock trading. India, with an increasing capital market and a growing number of investors, has a number of brokerage firms. In Indian retail brokerage industry, the brokerage firms primarily work as agents for buying and selling of securities like shares, stocks and other financial instruments and earn commission for each of the transactions. There are plenty of brokerage firms in India. Indian retail brokerage market, which is going through a wonderful phase with high growth rate. The total trading volume of the Indian brokerage companies stood at US$ 1239.1 billion in the year 2004, which increased to US$ 1492.1 billion in 2005. It is further expected to reach US$ 6535.7 billion by the year 2015. Among all the Indian brokerage companies, the top 10 Brokerage Firms in India can be listed as below:

TABLE-2: List of Top 10 Brokerage Firms in India (As per Trading Volume) Name of Broking Firm Kotak Securities Limited Karvy Stock Broking Limited Indiabulls IL&FS Investmart Limited Motilal Oswal Securities Reliance Money India Infoline Angel Broking Limited Terminals 4320 1700 2876 1644 7923 2428 173 5715 Subbrokers 910 19000 NA NA 890 1494 NA NA 320
34

No of Employees 4008 3910 5873 1900 2193 2037 173 284 4566

No of Branches 350 581 522 294 63 142 605 NA 220

Anand Rathi Securities 1527

Limited Geojit 627 247 343 314

Source: http://www.dnb.co.in/equitybroking/Global%20Scenario.asp

2.7 Types of Securities in Indian capital market

A capital market is a market for securities (debt or equity), where business enterprises and government can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market is characterized by a large variety of financial instruments: equity and preference shares, fully convertible debentures (FCDs), non-convertible debentures (NCDs) and partly convertible debentures (PCDs) currently dominate the capital market, however new instruments are being introduced such as debentures bundled with warrants, participating preference shares, zero-coupon bonds, secured premium notes, etc. Followings are the capital market offering (instruments): 1. Secured premium notes 2. Deep discount bonds 3. Equity shares with detachable warrants
35

4. Fully convertible debentures with interest 5. Tracking stocks 6. Disaster bonds 7. Mortgage backed securities (MBS) 8. Global Depository Receipts/ American Depository Receipts 9. Foreign currency convertible bonds (FCCBs) 10. Derivatives 11. Participatory notes 12. Fund of funds 13. Exchange traded funds 14. Gold ETF

Company Profile Name of the Organization: Location: Frontline Securities. A-4, Sultanabad, Causeway Road, Rander, Surat. Pin: 395005 Year of Establishment: Phone No.: Vision: Be competitive and successful in the broking sector. Mission:
36

2007. (0261) 2772944 & 9727137861.

To provide unique solutions to meet client specific needs, given time and resource parameters. History and Development Frontline Securities started in the year 2007 by taking the franchisee of KIFS Ltd Ahmedabad under the Surat Branch Office located at 1004, World Trade Center, Udhana Darwaja, Surat. With a starting client base of 17 clients mostly new comers to the capital market. It started trading on NSE terminal shortly started trading in BSE and NSE F&O later; trading in commodities was introduced by trading on MCX & NCDEX which had 12 clients with regular trading. Within a year, the client base developed to 84 clients and still developing. Regular client feedback and services have made our firm popular among the investors in the area. Capital market being at the base of everything else was among the first few sectors taken up for liberalization and alignment with global benchmarks. Frontline Securities had very early on seen that the future lay in the ability to network and use technology to its fullest possible extent. Frontline securities used technology extensively which resulted in efficient client servicing. It also saw the synergy that lay in providing a bouquet of services under one roof. About the Franchiser (Kifs) Kifs though having commenced operations in Feb 1993 has a group expertise in financial services dating back all the way to 1934. Today, the organization continue to demonstrate value and expertise of several decades and are today ranked as one of the most reputed brokerage house in the country. The organization has an inherited tradition. A tradition built on relationship, performance and trust. These values and principles of the Group are primarily responsible for achieving excellence in market intermediation and financial advisory services and takes pride in doing this consistently, year after year,

37

decade after decade.

Kifs top management has combined wealth of experience of several decades in the Indian financial markets, led by eminent Board of Directors, with impeccable credentials. Product & services offered by Frontline securities: Frontline Securities provide the following products & Services: Demat Account. Trading of Mutual Funds. Commodities. Subscribing to the new issues IPO. Trading Tips. SMS alerts for their margins. Trading in ETFs. PMS Advised broking: Frontline Securities provides its clients the following facility to call and trade: Frontline Securities assists the client by efficiently handling his call and providing him with market related news and company specific research views so that the client is able to take a well-informed investment decision. Frontline Securities also provides its clients intraday tips by way of SMS and access to SMS and access to sector and company reports rounds the clock for its clients through mails.

38

 A frontline Securities service is open for Resident Indians, Non Resident Indians (after complying regulatory norms), and HUFS corporate bodies. Trusts, none trading concerns.

3.1 Organization Structure

Figure-5: Organization Structure of Frontline Securities

3.3 Divisions/ Departments

There are mainly 4 departments in Frontline Securities: I. Proprietor/Manager:
39

The manager of the organization does the research work of analyzing the market trends and find out the best investment scripts which will be profitable to their clients in medium to long terms depending on the nature of their clients. After completing the research on the trends and particular scripts final scripts which are good for investment purpose are sending to the dealers which again send this as a tip to their clients.

II.

Relationship Manager: Relationship Manager has to perform the following tasks which include: Brought new clients, All the documentation work for opening of the Demat account for the new clients, Helps the clients in solving their problems which arise during the opening of their Demat accounts.

III.

Dealers (Both NSE & BSE): Dealers include both trading at BSE & NSE terminals. These two terminals BSE & NSE are separately traded. The personnel operating this division send tips to their customers via mails, sms and do trade on their behalf. They also inform their clients about their positions, margins, short sales, auction, etc and give proper guidance for trading.

IV.

Back Office

40

Back Office Handler do the work of issuing contracts to their clients on a daily basis about their intraday trades, positions, debit &credit of their Demat accounts.

3.4 SWOT Analysis of Frontline Securities

STRENGTHS Strong Client base. Clients are financially strong. Franchise of KIFS. Expertise & Vast Experience in Capital Market.

WEAKNESS Does not have slab rate brokerage which is provided by competitors. Unawareness among investors. Insufficient infrastructure for operation (lack of space).

OPPORTUNITIES Booming financial services sector. Wealth management. To spread awareness of its brand name.

THREATS Conservative nature of clients. Severe competition. Competition from big broking house. High volatility in the market. New Entrants.

41

REVIEW OF LITERATURE
Credit ratings are intended to reduce information asymmetries between firms and investors and improve the functioning of financial markets. They are an opinion about the measure of investment quality and default probability. These, in turn, help marketplace investors form valuations of investments value and risks. Many institutional investors, such as pension funds or university endowments, do not have the resources to evaluate all of the securities they purchase, which in any case would be duplicative of the agencies work. In addition, these investors do not have access to the same information that the ratings agencies do. Consequently, they use credit ratings as a substitute for the more granular information they would otherwise have to gather. One way to describe the role of credit ratings is in terms of how information, or the lack of it, affects the actions of participants in financial markets. The essential subject matter of this information asymmetry is a borrower's creditworthiness. A borrower knows its own creditworthiness better than a lender does. And because creditworthiness is not a directly observable attribute, a lender generally has to estimate it from attributes that are observable, using various approaches. One is to perform its own analysis; another is to use credit ratings from independent rating agencies; and another is to use information and analysis provided by third parties or other analysts. By combining credit ratings with its own analysis, a lender can potentially better distinguish among borrowers of different creditworthiness. By using ratings as an independent, unbiased "second opinion," the lender may be able to more accurately map the interest rates it charges to the true risky ness of the borrowers. The overall result should be a superior allocation of limited capital to productive uses.
42

Every investor invests the money in different investment alternatives. Some prefer debt instrument, some in equity, some in commodity and some in real estate too. Recently in the year of 2011 approximately 46000 crore was going to raise through IPO from the market but due to bad market scenario only 6700 crore rupees has been submitted in the market. This shows that investors are losing money in IPO. But big players have made the money, names like book running lead managers and issue managers and merchant bankers have made the money and investors have loose the money. Some of the recent listed stocks are trading at 90% discounted price from their issue price and the analysts named S P Tulsian have seen the IPO from close eye they come to know that there is unethically going on in the IPO. Even SEBI has banned and made an official inquiry on 7 companies listed in 2008 and many more names are also going to open. While investing in IPO, investors also look for rank assign by the credit rating. Most of the investors trust on rank given by different rating company like CRISIL, ICRA, CARE, FITCH etc. This research paper is based on the subject that whether there is any relationship between credit rating allocated by rating agencies and the stock prices or not? Generally individual investors and corporations lack foresight in measuring the fundamentals of the stock, because of these many investors rely on rate given by the credit rating agencies, that is why credit rating agencies come under significant pressure and strain due to their integral part in both aiding the boom, and also in failing to see the implications of their actions in advance. Fundamentally agency issues are at the heart of these issues, driven by problems of asymmetric information. The systematic risk, frequently measured by beta, is an important consideration for both investors and corporations. Andreas Ostlund, Mikael Hyleen [2009] studied the relationship between systematic risk and credit ratings. They intend to establish a relationship between market risk (Beta) and credit ratings for firms in the Nordic countries with the hypotheses to explain the relationship between credit ratings and either systematic risk or stock price. The actual sample was consisted of the 58 credit rated companies on
43

the Nordic stock market. These companies were rated by Moodys and/or Standard & Poors, the two largest credit rating agencies in the world. As a measure of the systematic risk, betas for each of the companies were calculated. To investigate the relationship between these variables, they use a regression analysis, as well as one sample T-test, and the software SPSS. The result revealed a moderate relationship between beta and credit risk, a relationship which was not statistically significant on the five percent level. Their results suggest that credit ratings contain some information about companies systematic risk, a finding that might be useful for market participants. An early research by Pinches and Singleton (1978) examines the behavior of stock prices based on rating changes. They analyze 207 firms using monthly stock returns and find abnormally high (low) common stock returns for rating increases (decreases) before the rating change, but not after the announcement suggesting that rating agencies reacted to the changing financial and operating conditions of firms after investors had already discounted these changes. A study by Holthausen and Leftwich (1986), using daily stock return data surrounding the rating announcement date provide support that downgrades are associated with negative abnormal stock returns of -2.66% after the announcement, but no support for abnormal performance on the announcement of upgrades. Another study by Norden and Weber (2004) using the three major rating agencies Standard and Poor's (S&P), Moody's Investors Service and Fitch. In this study they finds that markets not only anticipate rating downgrades, but also reviews for downgrades as they exhibit significantly negative abnormal return on the day of the announcement.

44

5.1 Problem Statement: There are many credit rating agencies like ICRA, CARE, FITCH etc. They rate the issuing instrument to show the credit worthiness of the borrower for investors of corporate body. But the instrument listed on stock exchange may also be affected by such rating in terms of the market price of same. This research study is intended to find out the relationship between the rating of equity share and its impact on the performance of the stock. 5.2 Research Objectives: The study includes the following objectives: 5.2.1 Primary Objective: To study the relationship between the credit rating and performance of the stock. 5.2.2 Secondary Objectives: To analyze and assess performance of stock before and after the rating. To study the impact of rating on the volume of transaction of the stock. To study the average volatility of stock prior to rating and post rating. To study the perception of investor towards credit rating while taking investment decision. 5.3 Research Design: Research design is a conceptual structure within which the research would be conducted. The function of research design is to provide for the collection of the relevant information with minimal expenditure of effort, time and money.
45

5.3.1 Type of Design: The research design considered for this study is Descriptive Co-relational research. The purpose of the co-relational research is to examine the type (positive or negative) and strength (strong, moderate or high) of relationship among study variables.co-relational research is descriptive in nature as there is no manipulation of variables or experimental treatments. Also there is no presumption of a cause and effect relationship, all that can be established is that there is or not any association between two or more study variables. 5.3.2 Sampling: Sample population: The target population for the study includes all those equity shares listed on the NSE & BSE and rated by rating agencies. Investors who invest in IPO. Sample size: The study includes last 50 rated equity shares listed on NSE & BSE and rated by the rating agencies. 125 respondents who invest in IPO Sampling method: The study conducted by taking Non-probability convenience sampling method. Scope of the study: The study is limited to only equity shares listed on both NSE & BSE.
46

5.3.3 Data Collection Method: The study includes the data collected from the secondary source of information as well as primary data. The sources of data include the historical stock index prices, respective rating agency database, search engine etc with Questionnaires. Information related to theoretical framework includes the reference books, published abstracts, internet, and official website of SEBI and Credit Rating Agencies official website. 5.3.4 Tools for Analysis: The statistical tools used for data analysis are: Regression analysis Percentage analysis Graphical presentation and Cross tabulation Chi-square test. 5.3.5 Limitations of the Study: The scope of the study: The study is limited to only equity share listed on both BSE & NSE and not all other stock exchanges. So the result obtained represents only the securities listed on NSE index. Sample size:

47

The sample selected for the study is 50 equity shares which are rated and listed on NSE and BSE. The study conducted with sample of equity share and limited to it. So the sample selected represents only equity share and not all instruments. Secondary Data: The study is based on the secondary data source. So all limitation of secondary data source like non-sophistication and obsolescence can be applied over here.

48

Data Analysis and Interpretation

TABLE 3: Last 50 IPO Rated companies Closing Opening Price Issue Price on on price Listing Listing
220 135 50 230 55 150 120 80 106 30 1032 74 155 150 110 186 60 79 138 210 256
58

Sr.No Issuer Company

1 Bharti Infratel Limited 2 PC Jeweller Ltd. 3 Veto Switchgears and Cables Ltd 4 Tara Jewels Limited 5 VKS Projects Ltd 6 Specialty Restaurants 7 Tribhovandas Bhimji Zaveri Ltd 8 MT Educare Limited

Listing Date
28-Dec12 27-Dec12 13-Dec12 6-Dec-12 18-Jul-12 30-May12 9-May-12 12-Apr12 12-Apr12 28-Mar12 9-Mar-12 2-Nov-11 19-Oct11 19-Oct11 17-Oct11 20-Oct11 14-Oct11 7-Oct-11 4-Oct-11 26-Sep11 8-Sep-11
16-Sep-11

200 135.5 58 242 55.8 153 115 86.05 100 29.95 1387 75 155 157.4 115 18 62 85 14.5 200 251.6 55

191.20 149.00 50.45 229.95 55.05 160.65 111.20 90.35 97.05 28.50 1297.05 23.00 166.40 55.85 145.90 31.76 18.10 26.50 22.95 411.65 274.80 33.65

National Buildings Construction

9 Corporation Ltd 10 Olympics Card Ltd. Multi Commodity Exchange of India 11 Ltd (MCX) 12 Indo Thai Securities Limited 13 Flexituff International Ltd 14 Taksheel Solutions Ltd 15 Onelife Capital Advisors Ltd 16 M AND B SWITCHGEARS LIMITED 17 Tijaria Polypipes Ltd 18 RDB Rasayans Ltd 19 Prakash Constrowell Ltd 20 PG Electroplast Limited 21 TD Power Systems Ltd 22 SRS Limited 49

23 Brooks Laborataries Ltd 24 L&T Finance Holdings Ltd 25 Inventure Growth & Securities Ltd 26 Bharatiya Global Infomedia Ltd 27 Readymade Steel India Ltd 28 Rushil Dcor Ltd 29 Birla Pecific Medspa Ltd 30 VMS Industries Ltd 31 Timbor Home Ltd 32 Aanjaneya Lifecare Ltd 33 Sanghvi Forging & Engineering Ltd 34 Servalashmi Paper Ltd 35 Innoventive Industries Ltd 36 Future Ventures India Ltd 37 Paramount Printpackaging Ltd 38 Muthoot Finance Ltd 39 Shilpi Cable Technologies Ltd 40 PTC India Financial Services Ltd 41 Lovable Lingeries Ltd 42 Acropetal Technologies Ltd 43 Fineotex Chemical Ltd 44 Sudar Garments Ltd 45 Omkar Speciality Chemicals Ltd 46 Midvalley Entertainment Ltd 47 C Mahendra Exports Ltd 48 Shekhavati Poly-Yarn Ltd 50

5-Sep-11

100 52 117 82 108 72 10 40 63 234 85 29 117 10 35 175 69 28 205 90 70 77 98 70 110 30

110 51 29.75 84 115 81.25 10.1 43.95 72 229.45 85 30 110 9.5 35 180 78.35 28 261.5 130 163 72.4 95 73 111 32.5

60.20 49.95 51.99 27.15 66.45 119.85 25.35 28.50 91.20 311.25 111.75 19.00 93.60 8.30 26.65 176.25 47.60 24.90 249.20 98.45 162.70 70.15 46.20 58.05 110.85 47.50

12-Aug11 4-Aug-11 28-Jul-11 13-Jul-11 7-Jul-11 7-Jul-11 14-Jun11 22-Jun11 27-May11 23-May11 12-May11 13-May11 10-May11 9-May-11 6-May-11 8-Apr-11 30-Mar11 24-Mar11 10-Mar11 11-Mar11 11-Mar11 10-Feb11 27-Jan11 20-Jan11 12-Jan11

49 Punjab & Sind Bank

A2Z Maintenance &Engineering 50 Services Ltd

30-Dec10 23-Dec10

120 400

146.1 390

127.05 328.90

The companies selected above are based on the last IPO rated stock up to December 2012 by rating agencies like ICRA, CARE, CRISIL, FITCH etc.

Table 4: IPO Rating V/s Price

51

Variable-Y (1st Day Return) -4.4 9.96 -13.02 -4.98 -1.34 5 -3.3 5 -2.95 -4.84 -6.49 -69.33 7.35 -64.52 26.87 76.44 -70.81 -68.82 58.28 105.83 9.22 -38.82 -45.27 -2.06 74.76 -67.68 -42.22

Variable-X (Grade) 4 3 4 3 1 4 3 4 4 1 5 2 3 2 1 2 2 2 2 3 4 3 2 5 2 2 2

X*Y -17.6 29.88 -52.08 -14.94 -1.34 20 -9.9 20 -11.8 -4.84 -32.45 -138.66 22.05 -129.04 26.87 152.88 -141.62 -137.64 116.56 317.49 36.88 -116.46 -90.54 -10.3 149.52 -135.36 -84.44 52

X*X 16 9 16 9 1 16 9 16 16 1 25 4 9 4 1 4 4 4 4 9 16 9 4 25 4 4 4

Y*Y 19.36 99.20 169.52 24.80 1.80 25.00 10.89 25.00 8.70 23.43 42.12 4806.65 54.02 4162.83 722.00 5843.07 5014.06 4736.19 3396.56 11199.9 9 85.01 1506.99 2049.37 4.24 5589.06 4580.58 1782.53

47.51 150.99 -35.15 26.67 35.65 31.47 -36.67 -14.91 -12.63 -23.86 -2.08 -39.25 -11.07 -4.7 -24.27 -0.18 -3.11 -51.37 -20.48 -0.14 46.15 -13.04 -15.67 -102.28 N*(X*Y)(X)*(Y) N*(X*X)(X)*(X)

2 2 1 1 2 3 2 3 3 2 4 1 4 3 3 2 1 3 1 2 2 4 4 130 -2.1 54.77

95.02 301.98 -35.15 26.67 71.3 94.41 -73.34 -44.73 -37.89 -47.72 -8.32 -39.25 -44.28 -14.1 -72.81 -0.36 -3.11 -154.11 -20.48 -0.28 92.3 -52.16 -62.68 -265.97

4 4 1 1 4 9 4 9 9 4 16 1 16 9 9 4 1 9 1 4 4 16 16 398

2257.20 22797.9 8 1235.52 711.29 1270.92 990.36 1344.69 222.31 159.52 569.30 4.33 1540.56 122.54 22.09 589.03 0.03 9.67 2638.88 419.43 0.02 2129.82 170.04 245.55 95434. 06

r= -0.0011

53

N*(Y*Y)(Y)*(Y)

2182.02

Interpretation: The above table shows the correlation between the performances of stock (Dependent variable) on 1st day of listing on stock exchange and grade assigned (Independent variable) by rating agencies. Generally it is believed that the stock having higher grade performs better than the one having lower grade but the negative/inverse relationship between the two variables above shows the realty. It shows that there is inverse relation between the grade assigned and the performance of stock in short period (1st day of listing).

Table 5: Rating V/s Volume

Variable-Y (1st Day volume)

Variable-X (Grade) X*Y 54 X*X Y*Y

14942452 28612722 954000 462215 1154884 766401 1157892 1600133 1212032 2134583 6018822 37361213 17528279 37657126 24441556 265211400 47475546 35009187 245464080 29249235 11672670 33245609 30347260 44347679 188264440 40725468 33980781 37143598 135859684 38524623

4 3 4 3 1 4 3 4 4 1 5 2 3 2 1 2 2 2 2 3 4 3 2 5 2 2 2 2 2 1

5976980 8 8583816 6 3816000 1386645 1154884 3065604 3473676 6400532 4848128 2134583 3009411 0 7472242 6 5258483 7 7531425 2 2444155 6 5304228 00 9495109 2 7001837 4 4909281 60 8774770 5 4669068 0 9973682 7 6069452 0 2217383 95 3765288 80 8145093 6 6796156 2 7428719 6 2717193 68 3852462 55

16 9 16 9 1 16 9 16 16 1 25 4 9 4 1 4 4 4 4 9 16 9 4 25 4 4 4 4 4 1

223276871772304 818687860249284 910116000000 213642706225 1333757053456 587370492801 1340713883664 2560425617689 1469021569024 4556444583889 36226218267684 139586023683137 0 307240564701841 141805913857988 0 597389659701136 703370866899600 00 225392746799812 0 122564317440097 0 602526145702464 00 855517748085225 136251224928900 110527051778088 0 920956189507600 196671663268704 0 354434993685136 00 165856374381902 0 115469347736996 0 137964687238560 0 184578537365799 00 148414657729213

35433351 23576895 35256759 121866404 27037744 76001845 39340050 22676312 38498254 22856130 17267081 45259871 2227 61135 22466160 33871723 19803827 105114237 25432253 21416822 2125764650 N*(X*Y)(X)*(Y) N*(X*X)(X)*(X) N*(Y*Y)(Y)*(Y)

1 2 3 2 3 3 2 4 1 4 3 3 2 1 3 1 2 2 4 4 130 3589377870 0 55 2125764593

3 3543335 1 4715379 0 1057702 77 2437328 08 8111323 2 2280055 35 7868010 0 9070524 8 3849825 4 9142452 0 5180124 3 1357796 13 4454 61135 6739848 0 3387172 3 3960765 4 2102284 74 1017290 12 8566728 8 4809112 516

1 4 9 4 9 9 4 16 1 16 9 9 4 1 9 1 4 4 16 16 398

0 125552236308920 0 555869977841025 124303905518408 0 148514204238912 00 731039600609536 577628044340402 0 154763953400250 0 514215125921344 148211556104852 0 522402678576900 298152086260561 204845592293664 0 4959529 3737488225 504728345145600 114729361898873 0 392191563845929 110490028200922 00 646799492656009 458680264579684 2484669526540 87000

r= 0.30829

Interpretation:
56

The above table shows the correlation between the volume of stock (Dependent variable) on 1st day of listing on stock exchange and grade assigned (Independent variable) by rating agencies. It shows positive/direct relationship between the two variables. It means, people tend to trade higher on stock with higher grade and lower with lower rated stock.

Data Analysis Using Primary Data

A) Demographic Information:

Gender: No of Response 111 14 125 % Response 89 11 100

Gender Male Female TOTAL

57

Interpretation: Out of the total respondents 89% i.e. 111 respondents are male and the remaining 11% i.e. 14 respondents are females.

Age: No of Response 22 44 43 14 2 125 % Response 18 35 34 11 2 100

Years 18-25 years 26-35 years 36-50 years 50-60 years Above 60 years TOTAL

58

Interpretation: From among the total 125 respondents, 35% i.e. 44 respondents are from the age group of 26-35 years, 34% i.e. 43 respondents are from the age group of 36-50 years, 18% i.e. 22 respondents are from the age group of 18-25 years, 11% i.e. 14 respondents are from the age group of 50-60 years and the remaining 2% i.e 2 respondents are from the age group of more than 60 years of age.

Occupation: No of Response 27 15 73 2 8 125 % Response 22 12 58 2 6 100

Occupation Profession Business Salaried Retired Housewife TOTAL

59

Interpretation: Out of the total respondents, 58% are salaried, 22% are from the specific profession, 12% are having their own business, 6% are housewife, and the remaining 2% respondents are retired.

Annual Income: No of Response 7 34 77 4 3 125 % Response 6 27 62 3 2 100

Annual Income Rs. 50000-100000 Rs. 100000-150000 Rs. 150000-300000 Rs. 300000-500000 Above 500000 TOTAL

60

Interpretation: From the total respondent 62% are from the annual income group of Rs. 150000-300000, 27% respondents are from the annual income group of Rs. 100000-150000, 6% are from the annual income group of Rs. 50000-100000, 3% are from the annual income group of Rs. 300000-500000 and the remaining 2% are from the annual income group of above 500000.

B) Other Information:

TABLE 6: Duration of trading in stock and IPOs Duration 0-2 years 2-4 years 4-6 years More than 6 years TOTAL No of Response 10 17 67 2 96 % of Response 11 18 69 2 100

61

Interpretation: From the above chart, it is concluded that the out of the total 125 respondent 69% i.e. 86 respondent are dealing in the stock market from 4-6 years, 18% respondent i.e. 22 respondent are dealing since 2-4 years, 11% i.e. 14 respondent from 0-2 years and the remaining 2% i.e. 3 is trading for more than 6 years.

IPOs grading will affects confidence level in New Issue Market Response YES NO TOTAL No of Response 11 85 96 % Response 11 89 100

62

Interpretation: Out of the total 125 respondent, 89% of the respondent i.e. 111 respondent believe that the IPOs grading does not influence their confidence level in the new issue market as they didnt bother about the ratings assign to the particular stock they just invest in the issue based on the expert opinions and fundamentals of the company and the remaining 11% i.e. 14 respondent said that their confidence level in the new issue market will get affected from the IPOs grading.

TABLE 7: IPO Grading helps to take informed decision in new issue market Response Agree Neutral Disagree TOTAL No of Response 14 29 53 96 % Response 15 30 65 100

63

Interpretation: Out of the 96 respondent who are in aware of IPOs grading, of which 11% get affects their confidence level in New Issue Market, 15% respondent agree that IPOs grading helps them to take informed decisions, 30% respondent are neutral on this question, and the remaining 65% respondent disagree as they didnt find IPO grading to be helpful in taking informed decision in the new issue market.

TABLE 8: Frequency of IPO Grade consideration while Invest Response Always Sometimes Never TOTAL No of Response 16 09 71 96 % Response 16 10 74 100

64

Interpretation: From the total sample of 125 respondents, 74% of the respondents i.e. 93 respondent said they never seen the grade assigned to the IPOs by the credit rating agencies when they are subscribing for IPO, 10% of the respondent i.e. 12 respondent said they see the grades attached to the IPO when subscribing for IPO, and the remaining 16% i.e. 20 respondents always looks at the grading before investing.

TABLE 9: There is relationship between the grade assigned and performance of the stock Response Agree Disagree Cant Say TOTAL No of Response 16 61 19 96 % Response 17 63 20 100

65

Interpretation: From the total respondents, 63% of the respondents i.e. 61 respondent disagree on the statement means this respondent doesnt find any relationship between the grade assigned and performance of the stock, 20% of the respondent i.e. 21 respondent are neutral on this statement, and the remaining 17% i.e. 16 agree on this.

TABLE 10: Investor should give priority to IPO having good grading than low grade Response Extremely Disagree Disagree Neutral Agree Extremely Agree TOTAL No of Response 18 12 42 12 12 96 % Response 19 13 43 12 13 100

66

Interpretation: Out of the total respondents, 43% of the respondents i.e. 42 respondents are neutral on giving priority to IPO as per their grades, 19% i.e. 18 of the respondents extremely disagree means they didnt give priority to the IPO as per the grades attached to it, 13% i.e. 12 respondents disagree and the other 12 respondents extremely agree on giving priority as per the grades attached to the IPO, while the remaining 12% i.e. 12 respondents agree on this statement.

TABLE 11: Experience with previous IPO investment (with reference to return) Response Extremely Good Good Average Bad Extremely Bad TOTAL No of Response 6 5 30 21 34 96 % Response 7 6 31 21 35 100

67

Interpretation: Out of the total respondent, 35% i.e. 34 respondents have a extremely bad experience from the previous investment in the IPO, 31% i.e. 30 respondents having an average experience pertaining to previous investment in the IPO, 21% i.e. 21 respondents have the bad experience, while the remaining 7% & 6% i.e. 6 respondents and 5 respondents, have an extremely good and good experience respectively from the previous investments in the IPO.

TABLE 12: percentages gained/Losses from IPO investment % Return Loss 10%-20% Up to 10% loss More than 20% loss Gain up to 10% Gain of 10%-20% Gain more than 20% TOTAL No of Response 16 15 47 5 3 10 96 % Response 17 16 48 5 3 11 100

68

Interpretation: From among the total 96 respondents, 48% i.e. 47 respondents have incurred more than 20% loss from IPO investment, 17% i.e. 16 respondent have 1020% of loss from the IPO investments, 16% i.e 15 respondents have up to 10% loss from the IPO investment, 11% i.e. 10 respondents have more than 20% gains from the IPO investments, and the remaining 5% and 3% i.e. 5 and 3 respondents have gain up to 10 to 20% respectively. TABLE 13: Investor should rely on the grade assigned to IPO or not? Response Agree Neutral Disagree TOTAL No of Response 14 12 70 96 % Response 16 13 71 100

69

Interpretation: Out of the total 96 respondents, 71% i.e. 70 respondents disagree on investing in the IPO based on the grades assigned to it, 16% i.e. 14 respondents agree on that an investor should rely on the grade assigned to IPO before investing, and the remaining 13% i.e. 12 respondents have neutral view on this statement.

TEST APPLICATION

A) Demographic Information:

GENDER:

Hypothesis:

70

H0: There is no significant correlation between Gender and Investment decision in IPO. H1: There is correlation between Gender and Investment decision in IPO.
Gender V/s Investment Decision Gender Response Male Female Total 92 4 96 19 10 29 111 14 125 Yes No Total

O 92 4 19 10

E 85.248 10.752 25.752 3.248

O-E 6.752 -6.752 6.752 -6.752

(O-E)*(O-E) 45.589504 45.589504 45.589504 45.589504 X2 Cal

(O-E)*(O-E)/E 0.534786787 0.534786787 0.534786787 0.534786787 2.139147147

Chi-Square Test (X2 Cal) = (O-E)*(O-E)/E Degree of Freedom (V) = (R-1)*(C-1) Level Of Significance= 5%

Where, O= Observed Frequency, R= No of Rows,

E= Expected Frequency, C= No of Columns

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (2-1) (2-1) =1

71

Table Value of X2 @ 5% significance and 1 NDF= 3.841

Conclusion: H0 is Accepted, as X2 Cal < X2 Tab. (2.136<3.841) Hence there is no correlation between the Gender and IPO investment decision.

AGE:
Age V/s Investment Decision Yes 8 18 17 6 1 50 No 14 26 26 8 1 75 Total

Age(Years) 18-25 26-35 36-50 51-60 Above 60 Total

22 44 43 14 2
125

Hypothesis: H0: There is no significant correlation between Age and Investment decision in IPO. H1: There is correlation between Age and Investment decision in IPO.

O 4 9 8 3 1 14

E 3.6 7 6.8 2.2 0.4 14.4

O-E 0.4 2 1.2 0.8 0.6 -0.4 72

(O-E)*(O-E) 0.16 4 1.44 0.64 0.36 0.16

(O-E)*(O-E)/E 0.044444444 0.571428571 0.211764706 0.290909091 0.9 0.011111111

26 26 8 1

28 27.2 8.8 1.6

-2 -1.2 -0.8 -0.6 X2 Cal

4 1.44 0.64 0.36

0.142857143 0.052941176 0.072727273 0.225 2.523183516

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (5-1) (2-1) =4

Table Value of X2 @ 5% significance and 4 NDF= 9.488

Conclusion: H0 is Accepted, as X2 Cal < X2 Tab. (2.523<9.488) Hence there is no correlation between the Age and IPO investment decision.

OCCUPATION:
Occupation v/s Investment Decision

Occupation Profession Business Salaried Retired Housewife Total

Yes 13 5 47 1 3 69

No 14 10 26 1 5 56

Total 27 15 73 2 8 125

Hypothesis: H0: There is no significant correlation between Occupation and Investment decision in IPO. H1: There is correlation between Occupation and Investment decision in IPO.
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O 13 5 47 1 3 14 10 26 1 5

E 14.904 8.28 40.296 1.104 4.416 12.096 6.72 32.704 0.896 3.584

O-E -1.904 -3.28 6.704 -0.104 -1.416 1.904 3.28 -6.704 0.104 1.416

(O-E)*(O-E) 3.63 10.76 44.94 0.01 2.01 3.63 10.76 44.94 0.01 2.01 X2 Cal

(O-E)*(O-E)/E 0.24 1.30 1.12 0.01 0.45 0.30 1.60 1.37 0.01 0.56 6.97

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (5-1) (2-1) =4

Table Value of X2 @ 5% significance and 4 NDF= 9.488

Conclusion: H0 is Accepted, as X2 Cal < X2 Tab. (6.97<9.488) Hence there is no correlation between the Occupation and IPO investment decision. ANNUAL INCOME:
Income v/s Investment Decision Income(In Rs)/Year Rs. 50000-1000000 Rs.100000-150000 Rs.150000-300000 Rs.300000-500000 Above Rs. 500000 Total Yes 3 21 39 1 1 65 No 4 13 28 3 2 60 Total 7 34 77 4 3 125

Hypothesis:

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H0: There is no significant correlation between Income and Investment decision in IPO. H1: There is correlation between Income and Investment decision in IPO.

O 3 21 39 1 1 4 13 28 3 2

E 3.64 17.68 40.04 2.08 1.56 3.36 16.32 36.96 1.92 1.44

O-E -0.64 3.32 -1.04 -1.08 -0.56 0.64 -3.32 -8.96 1.08 0.56

(O-E)*(O-E) (O-E)*(O-E)/E 0.41 0.11 11.02 0.62 1.08 0.03 1.17 0.56 0.31 0.20 0.41 0.12 11.02 0.68 80.28 2.17 1.17 0.61 0.31 0.22 X2 Cal 5.32

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (5-1) (2-1) =4

Table Value of X2 @ 5% significance and 4 NDF= 9.488

Conclusion: H0 is Accepted, as X2 Cal < X2 Tab. (5.32<9.488) Hence there is no correlation between the Income and IPO investment decision.

DURATION OF TRADING IN STOCK AND IPOS:

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Trading Duration V/s Return

Return/Trading Duration

0-2 years
2 0 1 2 2 3 10

2-4 years
5 4 6 1 1 0 17

4-6 years
9 10 39 2 0 7 67

More than 6 years

0 1 1 0 0 0 2

TOTAL
16 15 47 5 3 10 96

Up to 10% loss 10 - 20% loss More than 20% loss Up to 10% Gain 10%-20% Gain more than 20% Gain TOTAL Hypothesis:

H0: There is no significant correlation between trading Duration and IPO return. H1: There is correlation between trading duration and IPO return.
O 2 0 1 2 2 3 5 4 6 1 1 0 9 10 39 2 0 7 E 1.67 1.5625 4.895833 0.520833 0.3125 1.041667 2.833333 2.65625 8.322917 0.885417 0.53125 1.770833 11.16667 10.46875 32.80208 3.489583 2.09375 6.979167 O-E 0.33 -1.5625 -3.89583 1.479167 1.6875 1.958333 2.166667 1.34375 -2.32292 0.114583 0.46875 -1.77083 -2.16667 -0.46875 6.197917 -1.48958 -2.09375 0.020833 76 (O-E)*(O-E) 0.111 2.441 15.178 2.188 2.848 3.835 4.694 1.806 5.396 0.013 0.220 3.136 4.694 0.220 38.414 2.219 4.384 0.000 (O-E)*(O-E)/E 0.07 1.56 3.10 4.20 9.11 3.68 1.66 0.68 0.65 0.01 0.41 1.77 0.42 0.02 1.17 0.64 2.09 0.00

0 1 1 0 0 0

0.333333 0.3125 0.979167 0.104167 0.0625 0.208333

-0.33333 0.6875 0.020833 -0.10417 -0.0625 -0.20833 X2 Cal

0.111 0.473 0.000 0.011 0.004 0.043

0.33 1.51 0.00 0.10 0.06 0.21 33.47

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (6-1) (4-1) =15

Table Value of X2 @ 5% significance and 15 NDF= 24.996

Conclusion: H0 is Rejected, as X2 Cal > X2 Tab. (33.47>24.996) Hence there is correlation between the duration of trading and IPO investment return. IPO GRADING HELPS TO TAKE INFORMED DECISION IN NEW ISSUE MARKET: Informed Decision V/s Return
Return/Informed decision Agree 2 5 2 1 3 14 Neutral 7 11 2 2 3 29 Disagree 6 31 1 0 4 53 TOTAL 15 47 5 3 10 96

Up to 10% loss Loss 10%-20% Gain up to 10% Gain of 10%-20% Gain more than 20% TOTAL Hypothesis:

H0: There is no significant correlation between Informed Decision and IPO return. H1: There is correlation between Informed Decision and IPO return.
O 1 E 2.333333 O-E (O-E)*(O(O-E)*(O-E) E)/E -1.33333 1.777778 0.761905 77

2 5 2 1 3 4 7 11 2 2 3 11 6 31 1 0 4

2.1875 6.854167 0.729167 0.4375 1.458333 4.833333 4.53125 14.19792 1.510417 0.90625 3.020833 8.833333 8.28125 25.94792 2.760417 1.65625 5.520833

-0.1875 -1.85417 1.270833 0.5625 1.541667 -0.83333 2.46875 -3.19792 0.489583 1.09375 -0.02083 2.166667 -2.28125 5.052083 -1.76042 -1.65625 -1.52083

0.035156 3.437934 1.615017 0.316406 2.376736 0.694444 6.094727 10.22667 0.239692 1.196289 0.000434 4.694444 5.204102 25.52355 3.099067 2.743164 2.312934 X2 Cal

0.016071 0.501583 2.214881 0.723214 1.629762 0.143678 1.345043 0.720294 0.158693 1.320043 0.000144 0.531447 0.62842 0.983645 1.122681 1.65625 0.418947 14.8767

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (6-1) (3-1) =10

Table Value of X2 @ 5% significance and 10 NDF= 18.307

Conclusion: H0 is Accepted, as X2 Cal < X2 Tab. (14.8767<18.307) Hence there is no correlation between grading information and IPO return.

Frequency of Grade consideration V/s Return

Return/Frequency of Consideration Alway s 1 2 5 1 1 6 16 Sometim es 1 1 0 2 2 3 9 Never 13 13 42 2 0 1 71 TOTAL 15 16 47 5 3 10 96

Up to 10% loss
Loss 10%-20%

More than 20% loss Gain up to 10% Gain of 10%-20% Gain more than 20% TOTAL

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Hypothesis: H0: There is no significant correlation between frequency of grade consideration and IPO return. H1: There is correlation between frequency of grade consideration and IPO return.

O 2 1 5 1 1 6 1 1 0 2 2 3 13 13 42 2 0 1

E 2.666667 2.5 7.833333 0.833333 0.5 1.666667 1.5 1.40625 4.40625 0.46875 0.28125 0.9375 11.83333 11.09375 34.76042 3.697917 2.21875 7.395833

O-E

(O-E)*(O(O-E)*(O-E) E)/E -0.66667 0.444444 0.166667 -1.5 2.25 0.9 -2.83333 0.166667 0.5 4.333333 -0.5 -0.40625 -4.40625 1.53125 1.71875 2.0625 1.166667 1.90625 7.239583 -1.69792 -2.21875 -6.39583 8.027778 0.027778 0.25 18.77778 0.25 0.165039 19.41504 2.344727 2.954102 4.253906 1.361111 3.633789 52.41157 2.882921 4.922852 40.90668 X2 Cal 1.024823 0.033333 0.5 11.26667 0.166667 0.117361 4.40625 5.002083 10.50347 4.5375 0.115023 0.327553 1.507795 0.779607 2.21875 5.531045 49.10459

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (6-1) (3-1) =10

Table Value of X2 @ 5% significance and 10 NDF= 18.307

Conclusion: H0 is Rejected, as X2 Cal > X2 Tab. (49.104>18.307) Hence there is correlation between frequency of grade consideration and IPO return.

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Perception V/s Return

Return/Response Loss 10%-20% Agree 2 1 7 1 2 3 16 Disagre e 12 11 32 3 1 2 61 Neutral 2 3 8 1 0 5 19 TOTAL 16 15 47 5 3 10 96

Up to 10% loss More than 20% loss Gain up to 10% Gain of 10%-20% Gain more than 20% TOTAL Hypothesis:

H0: There is no significant correlation between Perception towards grade and IPO return. H1: There is correlation between Perception towards grade and IPO return.

O 2 1 7 1 2 3 12 11 32 3 1 2 2 3 8 1 0 5

E 2.666667 2.5 7.833333 0.833333 0.5 1.666667 10.16667 9.53125 29.86458 3.177083 1.90625 6.354167 3.166667 2.96875 9.302083 0.989583 0.59375 1.979167

O-E

(O-E)*(O-E) (O-E)*(O-E)/E -0.66667 0.444444 0.166667 -1.5 2.25 0.9 -0.83333 0.694444 0.088652 0.166667 1.5 1.333333 1.833333 1.46875 2.135417 -0.17708 -0.90625 -4.35417 -1.16667 0.03125 -1.30208 0.010417 -0.59375 3.020833 0.027778 2.25 1.777778 3.361111 2.157227 4.560004 0.031359 0.821289 18.95877 1.361111 0.000977 1.695421 0.000109 0.352539 9.125434 X2 Cal 0.033333 4.5 1.066667 0.330601 0.226332 0.152689 0.00987 0.43084 2.983675 0.429825 0.000329 0.182263 0.00011 0.59375 4.610746 16.70635

80

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (6-1) (3-1) =10

Table Value of X2 @ 5% significance and 10 NDF= 18.307

Conclusion: H0 is Accepted, as X2 Cal < X2 Tab. (16.706<18.307) Hence there is no correlation between perception towards grade and IPO return.

Experience V/s Return Return/Experienc e Loss 10%-20% Up to 10% loss More than 20% loss Gain up to 10% Gain of 10%-20% Gain more than 20% TOTAL Hypothesis: H0: There is no significant correlation between previous experience and IPO return. H1: There is correlation between previous experience and IPO return.
O 0 1 1 0 1 3 1 0 2 1 E 1 0.9375 2.9375 0.3125 0.1875 0.625 0.833333 0.78125 2.447917 0.260417 O-E -1 0.0625 -1.9375 -0.3125 0.8125 2.375 0.166667 -0.78125 -0.44792 0.739583 81 (O-E)*(O-E) 1 0.003906 3.753906 0.097656 0.660156 5.640625 0.027778 0.610352 0.200629 0.546984 (O-E)*(OE)/E 1 0.004167 1.277926 0.3125 3.520833 9.025 0.033333 0.78125 0.081959 2.100417

Extremely Good 0
1 1 0 1 3 6

Good 1
0 2 1 0 1 5

Average Bad 2
1 17 3 2 5 30

Extremely TOT AL Bad 4

5 10 0 0 1 21

9
8 17 1 0 0 34

16
15 47 5 3 10 96

0 1 2 1 17 3 2 5 4 5 10 0 0 1 9 8 17 1 0 0

0.15625 0.520833 5 4.6875 14.6875 1.5625 0.9375 3.125 3.5 3.28125 10.28125 1.09375 0.65625 2.1875 5.666667 5.3125 16.64583 1.770833 1.0625 3.541667

-0.15625 0.479167 -3 -3.6875 2.3125 1.4375 1.0625 1.875 0.5 1.71875 -0.28125 -1.09375 -0.65625 -1.1875 3.333333 2.6875 0.354167 -0.77083 -1.0625 -3.54167

0.024414 0.229601 9 13.59766 5.347656 2.066406 1.128906 3.515625 0.25 2.954102 0.079102 1.196289 0.430664 1.410156 11.11111 7.222656 0.125434 0.594184 1.128906 12.5434 X2 Cal

0.15625 0.440833 1.8 2.900833 0.364096 1.3225 1.204167 1.125 0.071429 0.900298 0.007694 1.09375 0.65625 0.644643 1.960784 1.359559 0.007535 0.335539 1.0625 3.541667 39.09271

No of Degree of Freedom(NDF)

= (R-1)*(C-1) = (6-1) (5-1) =20

Table Value of X2 @ 5% significance and 20 NDF= 31.410

Conclusion: H0 is Rejected, as X2 Cal > X2 Tab. (39.09>31.410) Hence there is correlation between experience with previous IPO and Current IPO investment return.

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SUMMARY
X2 Cal Ho Accepted/Rej ected Correlatio n?

Sr.No

Particulars

X2 Tab

A) Demographic Information: Gender V/s Investment 1 Decision 2 Age V/s Investment Decision Occupation v/s Investment 3 Decision Income v/s Investment Decision 4 B) Other Information: Trading Duration V/s Return 5 Informed Decision V/s Return 6 Frequency of Grade consideration V/s Return 7 Perception V/s Return 8 Experience V/s Return 9

2.13 9 2.52 3 6.97 5.32 33.4 7 14.8 7 49.1 0 16.7 1 39.0 9

3.841 Accepted 9.488 Accepted 9.488 Accepted 9.488 Accepted

No No No No

24.99 18.31 18.31 18.31 31.41

Rejected Accepted Rejected Accepted Rejected

Yes No Yes No Yes

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FINDINGS
As per secondary data research, there is inverse correlation between the rate assigned to the stock and its performance. There is direct correlation between rate assigned and volume of trading on the 1st day of stock listing on stock exchange. As per primary data research following findings arrived: There is no correlation between the Gender, Age, Occupation and Income (Demographic factors) on the IPO investment decision. There is correlation between the duration (time since trading in IPO) and the return from the IPO investment. There is no correlation between information available regarding the grading assigned to the stock and return from the IPO investment. There is correlation between number of time (frequency) grade considered while investment and the return from the investment. Generally, it is believed that, the stock having higher assigned grade performs better but it is false over here because there is no correlation between the grade assigned and performance of stock. There is correlation between the experience with previous IPO and return in current IPO investment. As per percentage analysis: Out of total 125 respondents, 96 respondents (92 male and 4 women) i.e. 76.8% known about the IPO grading. Majority (35% i.e. 18) respondents of Age range from 26 to 35 years invest in the IPO. Majority (58%) respondents are salaried of which 47 respondents invest in IPO.
84

 62% respondents are from income group Rs. 150000 to 300000 p.a. of which 39 respondents invests in IPO. 69% of the respondents invest in IPO having experience of trading since 4 to 6 years. 89% respondents who invest in IPO believe that the grade assigned to stock does not affects their confidence level in new issue market. 65% respondents who invest in IPO believe that the grade assigned does not help in taking informed decision regarding investment in IPO. 63% respondents who invest in IPO believe that there is no correlation between the grade assigned to stock and its performance. 19% respondents believe that investor should not give priority to the grade assigned while taking investment decision.

85

CONCLUSION
From above analysis and findings it can be conclude that there is inverse/negative correlation between price of the stock and grade assigned by the credit rating agencies. Investors losing their money in IPO investment when they consider the grade assigned to stock while taking the investment decision. This so because the grade assigned may show wrong information about the company. There are companies which perform better instead of assignment of low grade. It is not advisable to rely solely on the grade assigned to stock. The reason behind inverse correlation between the IPO return and the credit rating may be the inefficiency of the investment banker in doing proper due diligence about the IPO, which in turn hampered the investments of many genuine IPO investors. As Speculators are very well known for the market making, so because of this there may be a positive correlation between the credit rating and the volume of the new issue.

86

RECOMMENDATION
According to a Sebi analysis, there were 117 issues between 2008-09 and 2011-12 out of which 72 issues are trading not only below the issue price but also below the price after adjusting for market decline. "Two-thirds of issues are trading below issue price after adjusting for general decline in the broader index," Sinha said. "The retail investor is thoroughly confused about what to expect from the primary market. This is a question of credibility for SEBI and they have to take serious steps to restore that. Some amount of introspection is required and if SEBI fail then despite all their efforts, it will not be able to draw retail investors and even domestic institutional investors. It seems that the bankers highlight only the good qualities of a firm while choosing to ignore the risk factors . "What does the Indian match maker do? He goes out and tries to sell all the good qualities of the bride groom. There should be some amount of introspection by the investment banks so that the investors confidence in the primary market could be sustained, otherwise along with the retail investors, an institutional investors will lose interests in the new issues and it will become difficult for the genuine companies to raise the capital from the public.

87

ANNEXURE
Dear Madam/Sir, We (Sandip Dankhara and Saiyed Salahuddin) are the student of S.R.LUTHRA INSTITUTE OF MANAGEMENT, SURAT pursuing Comprehensive Project on Correlation between Credit Rating and Performance of the Stock Q: Since how long are you trading in stock and IPOs? a) 0-2 years b) 2-4 years c) 4-6 years d) More than 6 years Q: Do you think that, IPOs grading affects your confidence level in New Issue Market? (a) (b) Yes No

Q: If yes, does it help you to take informed decision in new issue market. (a) (b) (c) Agree Neutral Disagree

Q: How often do you invest in IPO by considering grade attached to it? (a) Always (b) Sometimes (c) Never Q: Do you think there is any relationship between the grade assigned and performance of the stock? a) Extremely Disagree b) Disagree
88

c) Neutral d) Agree e) Extremely Agree Q: Investor should give priority to IPO having good grading than low grade IPO? f) Extremely Disagree g) Disagree h) Neutral i) Agree j) Extremely Agree Q: How was your experience with previous IPO investment with reference to return? a) Very Good b) Good c) Average d) Bad e) Very Bad Q: How much percentages have you gained/Losses from IPO investment? a) Up to 10% loss b) 10-20% Loss c) More than 20% loss d) up to 10% Gain e) 10-20% Gain f) More than 20% Gain
89

Demographic Information:

Name: Gender: (a) (b) (c) (d) (e) Age: 18-25 years 26-35 years 36-50 years 50-60 year Above 60 years

a) Male b) Female

(a) (b) (c) (d) (e)

Occupation: Profession Business Salaried Retired Housewife

(a) (b) (c) (d) (e)

Annual Income: Rs. 50000-100000 Rs. 100000-150000 Rs. 150000-300000 Rs. 300000-500000 More than 500000

90

BIBLIOGRAPHY
Capital Market: http://en.wikipedia.org/wiki/Capital_market http://www.ftkmc.com/equities.html http://www.nseindia.com/content/us/ismr2011 Reforms in Capital Market: http://www.legalera.in/reforms-in-indian-capital-markets.html http://www.ftkmc.com/equities.html Capital Market Trends: http://www.sebi.gov.in http://www.dnb.co.in/equitybroking/Global%20Scenario.asp Company Profile: http://www.KIFS.org.in//
Reference Book:

Capital Market Structure:

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By Mathews Financial service and system - McGraw-hill publication- capital marketinstitutional framework -page no. 65 Research Design Type: By Donald R cooper & Pamela S Schindler Business Research Method - The McGraw Hill publication- special Indian edition no. 9- Research Design- page no. 138 to 142, 151

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