A

SYNOPSIS

on

"A Study on Valuation of issue prices of Indian IPOs and the

impact of mis-valuation on its performance", Is it beneficial to
deal in primary market (IPO) or Secondary market

Submitted in partial fulfillment of the requirement

For the award of degree of

Master of Business Administration (MBA)

To

Maharshi Dayanand University, Rohtak

SUBMITTED TO:- SUBMITTED BY:-

Mr. Kapil Madan PardeepYadav

Faculty Roll No:-2934
Amity Business School, Manesar MBA(4th Semester)

AMITY BUSINESS SCHOOL, MANESAR

(2009-2011)
 PROFORMA FOR APPROVAL OF PROJECT PROPOSAL

Name of the Student Pardeep Yadav

Institute Roll No. 2934

Institue’s Name Amity Business School, Manesar

Title of the project "A Study on Valuation of issue prices of

Indian IPOs and the impact of mis-
valuation on its performance", Is it
beneficial to deal in primary market
(IPO) of Secondary market.

Subject Area Finance

Name & Designation Mr. Kapil Madan

of the Supervisor Faculty
Amity Business School, Manesar

Signature of the Supervisor Signature of the Student

Signature of the Director

Date:-
SYNOPSIS APPROVED NOT APPROVED

Comment/Suggestions for reformulating the project.

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Authorized Signatory

Date:
 TABLE OF CONTENTS

S. No. Particulars Page No.

1. Introduction

2. Significance of the Study

3. Conceptualization

4. Review of Existing Literature

5. Focus of the Study

6. Objectives of the study

7. Research Methodology

8. Limitations of the study

9. Organization of the Study

10. Bibliography
 INTRODUCTION

When a business entity needs money the general course of action that it follows is that it goes to
the bank. However banks may not be ready to provide huge finance for a long time especially if
the returns are not fixed. The best way to raise money is through offer of shares.
The securities which the companies issue for the first time to the public and other
financial institutions either after incorporation or on conversion from private to public company
is called "INITIAL PUBLIC OFFERING" or "IPO". Raising equity gives boost to
economical development of the country.

Raising money through IPO is a very complex process. It requires analysis and
implementation of various commercial laws applicable to IPO-Prospectus. These laws are
Companies Act, Income Tax Act, FEMA, Securities Contract Act and SEBI Guidelines on
"Disclosure and Investor Protection". It is also necessary to implement circulars
from time to time by SEBI. The introduction of SEBI attracted Foreign Institutional Investors to
invest money in stock market in India. It has also helped Indian Companies to offer securities
in most scientific method to Indian and Foreign investors Therefore to understand this complex
subject, I decided to undertake studies by this Project Report.

The Indian primary market has come a long way particularly in the last decade
after deregulation of the Indian economy in 1991-92. Both the primary and secondary markets
have had their fair share of reforms, structural cum policy changes time to time. The
most commendable being the dismantling of the Controller of Capital Issues (CCI) and
introduction of the free pricing mechanism. This changed the whole facet of Initial Public
Offering (IPO) market. But in last ten years or so, the scenario has changed for the better.
Online trading is a reality with much better transparency than the previous system. We have
SEBI which has a better grip over the market nuisance that was there in the past.
 SIGNIFICANCE OF THE STUDY

Investing in IPO has its own set of advantages and disadvantages. Where on one hand,
high element of risk is involved, if successful, it can even result in a higher rate of return. The
rule is: Higher the risk, higher the returns. The company issues an IPO with its own set
of management objectives and the investor looks for investment keeping in mind his own
objectives. Both have a lot of risk involved. But then investment also comes with an
advantage for both the company and the investors.
The significance of investing in IPO can be studied from 2 viewpoints - for the company and
for the investors. This is discussed in detail as follows:

SIGNIFICANCE TO THE COMPANY:

When a privately held corporation needs additional capital, it can borrow cash or sell stock to
raise needed funds. Or else, it may decide to "go public". "Going Public" is the best choice for
a growing business for the following reasons:

 The costs of an initial public offering are small as compared to the costs of borrowing
large sums of money for ten years or more,

 The capital raised never has to be repaid.

 When a company sells its stock publicly, there is also the possibility for appreciation of
the share price due to market factors not directly related to the company.
 It allows a company to tap a wide pool of investors to provide it with large volumes of

capital for future growth.

SIGNIFICANCE TO THE SHAREHOLDERS:

The investors often see IPO as an easy way to make money. One of the most
attractive features of an IPO is that the shares offered are usually priced very low and
the company's stock prices can increase significantly during the day the shares are offered. This
is seen as a good opportunity by 'speculative investors' looking to notch out some short-term
profit. The 'speculative investors' are interested only in the short-term potential rather
than long-term gains.
 CONCEPTUALIZATION

Initial pubic Offering

The first public offering of equity shares or convertible securities by a company, which
is followed by the listing of a company's shares on a stock exchange, is known as an
'Initial Public Offering'. In other words, it refers to the first sale of a company's common shares
to investors on a public stock exchange, with an intention to raise new capital. The most
important objective of an IPO is to raise capital for the company. It helps a company to
tap a wide range of investors who would provide large volumes of capital to the company for
future growth and development. A company going for an IPO stands to make a lot of money
from the sale of its shares which it tries to anticipate how to use for further expansion
and development. The company is not required to repay the capital and the new
shareholders get a right to future profits distributed by the company.

Companies fall into two broad categories: Private and Public .

A privately held company has fewer shareholders and its owners don't have to disclose
much information about the company. When a privately held corporation needs additional
capital, it can borrow cash or sell stock to raise needed funds. Often "going public" is the best
choice for a growing business. Compared to the costs of borrowing large sums of money for ten
years or more, the costs of an initial public offering are small. The capital raised never has to be
repaid. When a company sells its stock publicly, there is also he possibility for appreciation of
the share price due to market factors not directly related to the company. Anybody can go out
and incorporate a company: just put in some money, file the right legal documents and
follow the reporting rules of jurisdiction such as Indian Companies Act 1956. It usually isn't
possible to buy shares in a private company. One can approach the owners about investing, but
they're not obligated to sell you anything. Public companies, on the other hand, have sold at least
a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is
also referred to as "going public."
Different Kinds of Issue

Issues

Public Rights Preferential

Initial Public Further Public

Offering Offering

Fresh Offer For Fresh Offer For

Issue Sale Issue Sale

INITIAL PUBLIC OFFERING (IPO)

It is when an unlisted company makes either a fresh issue ofsecurities or an offer for sale
of its existing securities or both for thefirst time to the public. This paves way for listing and
trading of the issuer's securities.

FURTHER PUBLIC OFFERING (FPO)

It is when an already listed company makes either a fresh issue ofsecurities to the public or an
offer for sale to the public, through anoffer document. An offer for sale in such scenario is
allowed only if itis made to satisfy listing or continuous listing obligations.
RIGHTS ISSUE (RI)
It is when a listed company which proposes to issue fresh securities to its existing shareholders
as on a record date. The rights are normally offered in a particular ratio to the number of
securities held prior to the issue. This route is best suited for companies who
would like to raise capital without diluting stake of its existing shareholders unless they
do not intend to subscribe to their entitlements.

OFFER DOCUMENT
Means Prospectus in case of a public issue or offer for sale and Letter of Offer in case
of a rights issue which is filed Registrar of Companies (ROC) and Stock Exchanges. An
offer document covers all the relevant information to help an investor to make his/her
investment decision.

DRAFT OFFER DOCUMENT

Means the offer document in draft stage. The draft offer documents are filed with SEBI, at
least 21 days prior to the filing of the Offer Document with ROC/ SEs. SEBI may specifies
changes, if any, in the draft Offer Document and the issuer or the Lead Merchant banker shall
carry out such changes in the draft offer document before filing the Offer Document with
ROC/SEs. The Draft Offer document is available on the SEBI website for public comments
for a period of 21 days from the filing of the Draft Offer Document with SEBI.
 REVIEW OF EXISTING LITERATURE

1. "INITIAL PUBLIC OFFERINGS" BY RICHARD P. KLEEBURG 3rd EDITION IN

YEAR 2005, WHICH PUBLISHED BY SOUTH WESTERN EDUCATIONAL
PUBLISHING."

This valuable resource is for the executives and advisers of any firm considering making the
transition from a private to public company. An IPO is not just a short-term financial transaction.
It often marks the turning point in the life of a company, enabling it to launch new
products, enter new markets, accelerate its growth, and attract valuable employees. If an
IPO is the way to grow, then a "balanced scorecard" approach needs to be used - an honest
evaluation of the process and consideration of whether an IPO, despite its glamour, will or
will not produce the desired results. Initial Public Offerings
uncovers many of the successful approaches and common pitfalls to going public. It helps
officials decide whether an IPO or other financing alternatives is the right strategy,
determine which stock market to use, plan and execute the IPO, and stay on track following
the IPO - helping companies reach their true potential for success.

2. "DALAL STREET JOURNAL'S "STOCK MARKET BOOK" -PUBLISHED BY RAMDEO

MEDIA LTD DALALSTREETJORNAL.COM"

This book provides an insight into some of the aspects of secondary market and provides
with concept clearing on some of the fundamental aspects of IPO.

3. "IPO: CONCEPTS AND EXPERIENCES - BY ARINDAM BANERJEE PUBLISHED; BY-

ICFAI UNIVERSITY PRESS"

One of the striking features that makes any capital market an attractive investment
avenue is its liquidity. In this regard, the importance and relevance of Initial Public Offers
(IPOs) go beyond explanation. Simply speaking, IPOs serve the purpose of companies
going public; the process by which the business owned by one or several individuals is
converted into a business owned by many. Several experts are of the opinion that, IPOs
strengthen the financial architecture of the entire capital market by enhancing liquidity, while
others say, that they bring along with it an array of fraudulent practices that have a
strong potential of eroding the investors' confidence.

FOCUS OF THE STUDY

The focus of the study entitled "Valuation of issue prices of Indian IPOs and the impact of
mis-valuation on its performance",Is it beneficial to deal in primary market (IPO) of
Secondary market is to analyze the IPO issue price valuation and impact of mis-valuation on
its performance.
Another focus is to study and incorporate the legal requirements of an IPO and also the pricing
of the issue through the book building process.
 OBJECTIVES OF THE STUDY

To study in detail about -

• To know the process of Valuation of IPOs

• To understand the Impact of mis-valuation on its performance

• To understand how IPO trends move with Economy cycle.

 To understand the Benefits to investor from IPOs or dealing in secondary market

• To know regulatory consideration with IPO

• Methods of IPO process

• To conduct detailed study of IPO ratings, documents, performance tracker and basis
of allotment.
 RESEARCH METHODOLOGY

 Research Design
The study is exploratory and Descriptive in nature.

 Sources of data
Secondary sources will be collected from

1. Newspapers
2. Magazines
3. Journals
4. Websites
5. Books
6. Reports etc.
 LIMITATIONS OF THE STUDY

 Shortage of time:-
Time is short for research, so that it is difficult to get knowledge about everything.

 Information not sufficiently available.

 The study will be based on the secondary data therefore it may incorporate all the
limitations of the secondary data.
 ORGANIZATION OF THE STUDY

The structure of present study is as follows:

 Chapter 1 of this study covers the introduction of the study, significance of the study,
objectives of the study, focus of the study, conceptualization and plan of the study. The
chapter also includes research methodology containing the nature of research.
 Chapter 2 explores the significant literature published on the present study reflecting
understanding of the relevant theoretical and empirical background of the problem.
 Chapter 3 consists of Industry Profile.
 Chapter 4 consists of Analysis part.
 Chapter 5 of this study contains recommendations and conclusions providing the end
result of the study. The last part gives the limitation of the study.
 BIBLIOGRAPHY

BOOKS AND MAGAZINE:-

 Dalal Street Journal's "Stock Market Book” by Ramdeo Media Ltd.
• Financial Management -Prasanna Chandra
• Indian Capital Markets
• Initial Public Offerings- Richard p. Kleeburg 3 rd edition in 2005
• Ipo-Conepts and Experience-Arindam Banerjee Published by ICFAI University
press
• Ipo Markets-Prospectives and Experience-Vandana Shajan
• Ncfm Module: Financial Market's

WEBSITES:-
• www.business.mapsofindia.com/ipo-india/
• www.moneycontrol.com
• www.domain-b.com
• www.sebi.gov.in
• www.investopedia.com
• www.chittorgarh.com/ipo/