CHAPTER-I

INTRODUCTION
 INTRODUCTION OF STOCK MARKET & IPOS

WHAT IS MEANT BY A STOCK EXCHANGE?

The Securities Contract (Regulation) Act, 1956 [SCRA] defines ‘Stock Exchange’ as any
body of individuals, whether incorporated or not, constituted for the purpose of assisting,
regulating or controlling the business of buying, selling or dealing in securities. Stock
exchange could be a regional stock exchange whose area of operation/jurisdiction is
specified at the time of its recognition or national exchanges, which are permitted to have
nationwide trading since inception. NSE was incorporated as a national stock exchange.

BRIEF HISTORY OF STOCK EXCHANGES

Do you know that the world's foremost marketplace New York Stock Exchange (NYSE),
started its trading under a tree (now known as 68 Wall Street) over 200 years ago?
Similarly, India's premier stock exchange Bombay Stock Exchange (BSE) can also trace
back its origin to as far as 125 years when it started as a voluntary non-profit making
association.

News on the stock market appears in different media every day. You hear about it any
time it reaches a new high or a new low, and you also hear about it daily in statements
like 'The BSE Sensitive Index rose 5% today'. Obviously, stocks and stock markets are
important. Stocks of public limited companies are bought and sold at a stock exchange.
But what really are stock exchanges? Known also as the stock market or bourse, a stock
exchange is an organized marketplace for securities (like stocks, bonds, options) featured
by the centralization of supply and demand for the transaction of orders by member
brokers, for institutional and individual investors.

The exchange makes buying and selling easy. For example, you don't have to actually go
to a stock exchange, say, BSE - you can contact a broker, who does business with the
BSE, and he or she will buy or sell your stock on your behalf.

Stock exchanges are the most perfect type of market for securities, whether of govt. and
semi-govt. bodies and also for shares and debentures issued by the joint stock companies
in the stock market, purchases and sale of shares are made in conditions of free
competition. Govt. securities are traded outside the trading ring in the form of over the
counter sale or purchase. The bargains that are stuck in the trading ring by the members

2
of the stock exchanges are at the fairest prices determined by the basis laws of demand
and supply.

The only stock exchanges operating in the 19th century were those of Bombay, set up in
1875 and Ahmadabad set up in 1894. These were organized as voluntary non-profit
making association of brokers to regulate and protect their interests before the control on
securities, trading became a central subject and the Bombay securities. Under this act, the
Bombay stock exchange was recognized in 1927 and Ahmadabad and other centre’s, but
they were not recognized. Soon after they become a central subject, central legislation
was proposed and a committee, headed by A.D GORWALA went into the bill of
securities contract, which became law in 1956.

GROWTH OF STOCK EXCHANGES IN INDIA

The stock market activities in India were relatively on a low key during the beginning of
the decade of 80’s mainly because of the allies regime till 947. Afterwards, the
government of India concentrated more on administration and less on development and
pursuit of the philosophy of public sector dominating the economy Stock exchanges were
placed under the exclusive regulation of the government through proclamation in 1930 of
the constitution of India.

During the 1950’s & 1960’s Indian economy was dominated by the public sector, which
was considerate as the major vehicle for economic and industrial development. This trend
has changed since mid 80’s with liberalization of government polices and greater freedom
given to private sector.

This policy of progressively deregulating the economy led to the emergence of stock
markets as a major instrument of finance for industry and trade. India can boast of being
one of the oldest stock market in Asia. The Bombay stock exchange (BSE) as founded in
1875, while the London stock exchange was established in 1773.

3
INTRODUCTION TO IPO’S

DEFINITION
Initial Public Offering : The first sale of stock by a company to the public. Companies
offering an IPO are sometimes new, young companies, or sometimes companies which
have been around for many years but are finally deciding to go public. IPOs are
often risky investments, but often have the potential for significant gains. IPOs are often
used as a way for a young company to gain necessary market capital.

The term "IPO" slipped into everyday speech during the tech bull market of the late
1990s. Back then, it seemed you couldn't go a day without hearing about a dozen new
dot-com millionaires in Silicon Valley cashing in on their latest IPO. The phenomenon
spawned the term "siliconaire," which described the dot-com entrepreneurs in their early
20s and 30s who suddenly found themselves living large due to IPOs from their Internet
companies. So, what is an IPO anyway? How did everybody get so rich so fast? And,
most importantly, is it possible for mere mortals like us to get in on an IPO? All these
questions and more will be answered in this tutorial. Before we continue, we suggest you
check out our stock basics tutorial as well as brokers and online trading if you don't have
a solid understanding of stocks and how they trade.

What is an IPO?
Selling Stock IPO is an acronym for Initial Public Offering. This is the first sale of stock
by a company to the public. A company can raise money by issuing either debt (bonds) or
equity. If the company has never issued equity to the public, it's known as an IPO.
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. Anybody can go out and incorporate a company:
just put in some money, file the right legal documents, and follow the reporting rules of
your jurisdiction. Most small businesses are privately held. But large companies can be
private too. Did you know that IKEA, Domino's Pizza, and Hallmark Cards are all
privately held?

It usually isn't possible to buy shares in a private company. You can approach the owners
about investing, but they're not obligated to sell you anything. Public companies, on the

4
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."

Public companies have thousands of shareholders and are subject to strict rules and
regulations. They must have a board of directors and they must report financial
information every quarter. In the United States, public companies report to the SEC. In
other countries, public companies are overseen by governing bodies similar to the SEC.
From an investor's standpoint, the most exciting thing about a public company is that the
stock is traded in the open market, like any other commodity. If you have the cash, you
can invest. The CEO could hate your guts, but there's nothing he or she could do to stop
you from buying stock. Why Go Public? Going public raises cash, and usually a lot of it.
Being publicly traded also opens many financial doors:

Because of the increased scrutiny, public companies can usually get better rates when
they issue debt.

As long as there is market demand, a public company can always issue more stock. Thus,
mergers and acquisitions are easier to do because stock can be issued as part of the deal.
Trading in the open markets means liquidity. This makes it possible to implement things
like employee stock ownership plans, which help to attract top talent.

Being on a major stock exchange carries a considerable amount of prestige. In the past,
only private companies with strong fundamentals could qualify for an IPO and it wasn't
easy to get listed. The Internet boom changed all this. Firms no longer needed strong
financials and a solid history to go public. Instead, IPOs were done by smaller startups
seeking to expand their business. There's nothing wrong with wanting to expand, but most
of these firms had never made a profit and didn't plan on being profitable any time soon.
Founded on venture capital funding, they spent like Texans trying to generate enough
excitement to make it to the market before burning through all their cash. In cases like
this, companies might be suspected of doing an IPO just to make the founders rich. In VC
talk, this is known as an exit strategy, implying that there's no desire to stick around and
create value for shareholders. The IPO then becomes the end of the road rather than the
beginning. How can this happen? Remember: an IPO is just selling stock. It's all about the
sales job. If you can convince people to buy stock in your company, you can raise a lot of
money. In our opinion, IPOs like this are extremely risky and should be avoided.

5
 RESEARCH METHODOLOGY

RESEARCH:-
Research in common refers to a search for knowledge. We can also define
research as a scientific and systematic search for pertinent information on a specific topic.

D.Slesinger and M.Stephenson define research as the ‘manipulation Of things,

concepts or symbols for the purpose of generalizing to extend, Correct or verify
knowledge, whether that the practice of an art”.

Research methodology is a way to systematically solve the research Problem. The

steps adopted by the researcher to solve the research problem.

1. Descriptive Research
Descriptive research is used to obtain information concerning the current status of the
phenomena to describe “what exists” with respect to variables or conditions in a situation.
Descriptive research, also known as statistical research, describes data and characteristics
about the population or phenomenon being studied. Descriptive research answers the
questions who, what, where, when and how. Although the data description is factual,
accurate and systematic, the research cannot describe what caused a situation.

2. Analytical Research
Analytical research takes descriptive research one stage further by seeking to explain
the reasons behind a particular occurrence by discovering causal relationships. Once
causal relationships have been discovered, the search then shifts to factors that can be
changed (variables) in order to influence the chain of causality.

TYPE OF RESEARCH DESIGN:

The research design is pre planned which is designed for analysis. And also the data was
collected from structured and well thought – out instruments.

NATURE OF STUDY:
The study was totally a fact-finding study. The main aim of this is to identify and evaluate
the IPO’s and its effects on stock market.
6
DATA:
Data’s are the useful information or any forms of document designed in a systematic and
standardize manner which are used for some further proceedings. One of the important
tools for conducting marketing research is the availability of necessary and useful data.
Some time the data are available readily in one form or the other and some time the data
are collected afresh.

The sources of Data fall under two categories;

Source of Data

Primary Data Secondary Data

1) Primary Data: The Primary data are those, which are collected afresh for the first
Time, and thus happens to be original in character. With reference to This study, data is
collected through Interview method the study also includes obtaining information from
Knowledgeable persons. This interview is an informal or unstructured one with
competent and articulate individuals, programmers and professionals of the organization.
This interviews helps me to analyze the information in effective way. Collected from
personal interview, collected under the guidance of Mr. Ramesh Babu, Manager in
Emkay Global Financial Services Ltd., Mahabubnagar Branch.

7
2) Secondary Data: The Secondary data has been collected from
1. Annual reports of organization.
2. Internet
3. Broachers.
4. House magazines of the units.
5. Other reports of the units.
6. Books

8
 RESEARCH OBJECTIVES

Before embarking on actual research objectives of study, we have to know the main
objective of this study is as fallows:

The ultimate objective of the study is to determine the IPO’s and its effect on
Stock Market.

This is assessed on the basis of the following criteria:

Secondary Objectives:

 To find out the reasons behind fluctuating the stock market when IPO’s issued.
 To know the objectives how IPO’s issued by companies.
 To know the how investors minds will change.
 To understands the basic things of IPO’s and stock market.
 To know about the reasons for issuing the IPO’s.

9
IMPORTANCE OF THE STUDY

The prospectus includes very important information like the historical

performance of the company in the previous years, the current performance of the
company, the amount of shares that they are offering to the public, what they intend to do
with the money after the IPO amongst other things. Any prudent investor will take his/her
time to go through this information in order to make an informed decision on the amount
of shares to take up or even if to participate in the offer. As an investor this are the things
to look out for in the prospectus and Stock Markets concepts and how the indices of stock
markets will effected by an IPO’s.

It consists with Companies IPO’s performance in the pre-ceding years. This is

important for you, to develop performance trends and therefore be able to predict its
future performance- all factors held constant. This is mainly done by looking at the
fluctuations in stock markets.

NEED OF THE STUDY:

This study is needed because now days every companies wants to extent their business
and they wants to go for public. Every investor also looking towards different IPO’s to
invest in large amount in beginning to retain the more earnings in future. As a citizen or
investor also, if any body wants to know about the economic position of companies as
well as countries, every body must be have some basic knowledge about stock market and
other related information.
This study is needed because;
 To know the facts of stock market fluctuations during IPO’s issues.
 To understand the IPO’s and Stock market basics.
 To know about the stock market indices.
 To know about investors mindset during IPO’s issues.
 To know why companies wants to go for public.

This project is needed because; all of the above options are never ended. As a financial
student, as a investor, as a citizen and everybody must be having some knowledge to
understand the things. So researcher’s project will cover the all things.

10
SCOPE OF THE STUDY:

The study with the prime objectives of IPOs and its effect on stock market. What are
the main reasons behind stock market fluctuations during IPOs issues? This study advices
the investor for future expectations towards market indices.
 Researcher’s project will help full, to further study related to IPOs.
 Researcher’s project will help full, to all financial students to gain some
information and knowledge related to IPOs.
 Researcher’s project will help full, to broking companies and other related
consultancies to understand the market situations during IPOs issued.
 Researcher’s project will help full, to Investors to gain the knowledge of Stock
Market and fluctuations during IPOs issued. It will be helpful to take decision
towards investments.
 Researcher’s project will help full, to every citizen to understand Stock Market
fluctuations and IPO details and its effect on Stock Market.
 Researcher’s project will help full, every body to Know about the how stock
market works.

LIMITATIONS OF STUDY
1. The study was to be completed in a short time; the time factor put a considerable
limit on the scope and the extensiveness of the study.
2. The unsupportive attitude of the respondents while responding to the questions,
requiring the qualitative information may have affected the final findings and
outcomes.
3. Because of the diversity of nature of respondents as well as due to conduction of
the study on very small scale, the findings of the survey could not be generalized.
4. It was tried very harder to include the best of information from published and
unpublished sources available on internet, books and magazines but some of the
data required for the detailed study was not available free.

11
 CHAPTER-II
REVIEW OF LITERATURE

12
 REVIEW OF RELATED LITERATURE
The study is concerned with the ‘IPOs and its effect on Stock Market. Literature
related to the basic theoretical and practical aspects of these variables is reviewed in this
chapter. Review of related literature has been done particularly with a view to locate the
possible correlates of the variables studied. The two key concepts namely ‘IPOs’ and
‘IPOs effect on Stock Market’ are first explained and then the literature reviewed is
presented in the following sections.

THEORETICAL PERSPECTIVES OF THE VARIABLES

An overview of the literature in the field of Initial Public Offers and Educational
research concerned with the variables selected for the study is presented in this section
with a view to draw out the conceptual, theoretical and empirical development of the
variables and their assessment.

 Journal of Emerging Market Finance, December, 2011

- By Nader Naifar
Explaining IPOs Under pricing in the Tunisian Market
This article tests four hypotheses (signaling, market tendency, market characteristics and
the ex ante uncertainty and information asymmetry) to explain the initial public offerings
(IPOs) under pricing in the Tunisian market. Most of the empirical studies focus mainly
on developed markets and only a few studies analyze the climates of IPOs in emerging
markets. The Tunisian business environment is motivating because of the institutional
reforms that have been successfully implemented since 1994. The study analyses all the
Tunisian IPOs from March 1992 to April 2008 in order to explain underpricing in IPOs.
The findings show that IPOs underpricing is mainly explained by the signalling and the
market characteristics hypotheses. The phenomenon of underpricing in IPOs is important
for portfolio managers who are expected to make optimal (value-maximising) financing
choices. Also, results of this study provide insight into the business environment in the
case of the Tunisian market.

13
  Kanika Guptha (Feb’ 2011, INDIAN JOURNAL OF FINANCE) the study
concerned made on the level of under pricing of Indian IPOs for two time periods.
Representing opposite market conditions. The level of under pricing has been
tested from four parameters.

Such as;

 Level of under pricing

 To see the effect of the market conditions on the level of under pricing.

 To see the efficiency of the market.

 To see the effects over subscription on under pricing.

One of the Researches was done on IPOs of Reliance Power. The main objectives of the
study are as follows;

Primary Objective
 Understand the Reliance Power IPOs fall in price.

Secondary Objective
 Factors responsible for the fall in price of Reliance Power equity
 Perception of a retail investor toward Reliance Power before listing of IPO.

In the above study, the researcher taken only one company IPOs means Reliance
Power IPOs. In his/her research the researcher’s consider only the objective Reliance
IPOs fall in price and factors for fall in price.
My research is different from above research, in my research. I try to find the
IPOs effects over stock market. How stock market will fluctuate when newly IPOs issued
in stock market. This research don by taking case study of CIL IPOs. But this research
applicable for all new issues to understand the IPOs over Stock Market.

Some other researches were also done by the researcher’s such as…
INTIAL PUBLIC OFFER AND DUE DELIGANCE, the objectives of this study are as
follows;
 To study and understands the concepts and procedures involved in IPO’s.
 To study understand the process of Due Diligence and its significance in IPO’s.

14
  To analyze the effect of Initial Public Offers on the issuing company, investors
and stock market.
 To understand the role of an Investment banker in managing IPO’s.

The issue of an IPO by a company involved number of stages, each calling for great
deal verification. The relevant update information on the company has to cauterize
precisely in the prospectus. The decision by the investor on whether to invest in a
company influenced significantly by information contained in the prospectus. My
research also covers the factors which influencing the investors mindset to invest
money.

Some other researcher’s also done the so many researches. In their researches the
given objectives are available.

 The study the concept of Initial Public Offer (IPO).

 To study the procedure for IPOs.
 To study the IPO’s of in infrastructure sector the DLF Limited, Housing
 Development and Infrastructure Limited and Omaxe Limited on the basis of issue,
allotment and performance.

In this research we can observe that, Concept of IPOs and procedure of IPOs only.
My research also covers the procedure of IPOs with different methods of IPOs pricing
calculations,

Another Research also done on IPO’s, the objectives of study are as follows..

 To get the knowledge of IPO.

 To analyze the returns of IPOs which were issued in the 1st quarter of 2007.
 To know the return of those IPOs for 1 month, 3 months, 6 months, and 1 year.
 To know the market rate of return for the same period.
 To know the procedure for calculating the Standard Deviation, calculating
Sharpe’s Ratio & the abnormal return.

In above research study we can know about the concept of IPOs and returns on IPOs.
My research covers the information related to returns and this research gives the

15
 knowledge to every investor about the market conditions and how are the expected
returns in particular scenario.

But, my research is different from all the other researches and this research in new
research. In this research the researcher’s main aim is to find out the concepts IPOs as
well as how the stock market effected by an IPOs. In this research, researcher’s done
a case study on IPOs of COAL INDIA LIMITED. How the CIL IPOs affect the
Stock Markets.

 The literature review on IPOs can be divided in the following main heads-
a) Reason and timing of going public

  Going public marks a watershed in the life cycle of the firm. While increased
equity can support the firm’s future plans of growth, the trade off for the firm is that of
increased public scrutiny.
    

 Brealy and Myers (2005) state that in the context of USA the firms may seek
private equity in their initial years and only later go for public issues.
 

 Pagano, Panetta and Zingales (1998) in their study of Italian firms, find that
firms going public are not seeking money for growth but are rebalancing their
accounts after high investment and growth.
 

 Lerner (1994) found that there are times (windows of opportunity) when the
markets could be extremely optimistic about a particular industry and it may be a
good time for the firms in that industry to go public.
 

The post IPO period sees a reduction in leverage as well as investment. They state
that going public is a conscious choice that some firms make while some others prefer to
remain private. Thus going public is not a natural element in the life cycle of a firm.

b) Valuation of IPO’s

 Benveniste and Spindt (1989) find that under writers try to resolve the
information asymmetry problem between the firm and the investors by providing
an incentive to the investors to reveal their private information about the firm.
 

16
  Kim and Ritter (1999) in their study of 190 firms find that under writers forecast
the next years earnings numbers and multiply them with PE ratios of comparable
firms in the industry to get the approximate price of the IPO. However they also
found that PE ratios using historical earnings numbers do not give accurate results
whereas when forecasted earnings numbers are used then the valuation is much
more accurate.

 Purnanandam and Swaminathan (2002) say that IPOs are priced 50% higher
than industry peers. Also they find that more the IPO is overpriced with respect to
its peers, worse is its long term performance.  

c) Allocation mechanism

The allocation mechanisms are specified by the regulators in different countries.

Loughran, Ritter and Rydqvist (1994) find 3 main categories across countries-
Auctions, Fixed price offers and Book Building. Sherman (2005) finds that Book
building is a superior mechanism for selling IPOs rather than auctions.

17
 INITIAL PUBLIC OFFERING
(IPO) Initial public offering (IPO), also
referred to simply as a "public offering",
is when a company issues common stock or
shares to the public for the first time. Tey
are often issued by smaller, younger
companies seeking capital to expand, but
can also be done by large privately-
owned companies looking to become publicly traded. In an IPO, the issuer may obtain the
assistance of an underwriting firm, which helps it determine what type of security to issue
(common or preferred), best offering price and time to bring it to market. Initial Public
Offering (IPO) in India means the selling of the shares of a company, for the first time, to
the public in the country's capital markets. This is done by giving to the public, shares
that are either owned by the promoters of the company or by issuing new shares. During
an Initial Public Offer (IPO) the shares are given to the public at a discount on the
intrinsic value of the shares and this is the reason that the investors buy shares during the
Initial Public Offering (IPO) in order to make profits for themselves.

IPO in India is done through various methods like book building method, fixed
price method, or a mixture of both. The method of book building has been introduced in
the country in 1999 and it helps the company to find out the demand and price of its
shares. A merchant banker is nominated as a book runner by the Issuer of the IPO. The
company that is issuing the Initial Public Offering (IPO) decides the number of shares
that it will issue and also fixes the price band of the shares. All these information are
mentioned in the company's red herring prospectus. During the company's Initial Public
Offering (IPO) in India, an electronic book is opened for at least five days. During this
period of time, bidding takes place which means that people who are interested in buying
the shares of the Company makes an offer within the fixed price band. Once the book
building is closed then the issuer as well as the book runner of the Initial Public Offering
(IPO) evaluate the offers and then determine a fixed price. The offers for shares that fall
below the fixed price are rejected. The successful bidders are then allotted the shares
IPO’s can be a risky investment. For the individual investor, it is tough to predict what the
stock or shares will do on its initial day of trading and in the near future since there is
18
often little historical data with which to analyze the company. Also, most IPO’s are of
companies going through a transitory growth period, and they are therefore subject to
additional uncertainty regarding their future value

KINDS OF ISSUES
Primarily, issues can be classified as a Public, Rights or preferential issues (also known as
private placements). While public and rights issues involve a detailed procedure, private
placements or preferential issues are relatively simpler. The classification of issues is
illustrated below:

19
Public issues can be further classified into Initial Public offerings and further public
offerings. In a public offering, the issuer makes an offer for new investors to enter its
shareholding family. The issuer company makes detailed disclosures as per the DIP
guidelines in its offer document and offers it for subscription. The significant features are
illustrated below:

Initial Public Offering (IPO)

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

Further public offering (FPO)

It is when an already listed company makes either a fresh issue of securities to the public
or an offer for sale to the public, through an offer document. An offer for sale in such
scenario is allowed only if it is 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.

Private placement
It is an issue of shares or of convertible securities by a company to a select group of
persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a
public issue. This is a faster way for a company to raise equity capital. A private
placement of shares or of convertible securities by a listed company is generally known
by name of preferential allotment. A listed company going for preferential allotment has
to comply with the requirements contained in Chapter XIII of SEBI (DIP) Guidelines
pertaining to preferential allotment in SEBI (DIP) guidelines include pricing, disclosures
in notice etc, in addition to the requirements specified in the Companies Act.

20
Major Reason for Listing IPO
 The increase in the capital: An IPO allows a company to raise funds for
utilizing in various corporate operational purposes like acquisitions, mergers,
working capital, research and development, expanding plant and equipment and
marketing.

 Liquidity: The shares once traded have an assigned market value and can be
resold. This is extremely helpful as the company provides the employees with
stock incentive packages and the investors are provided with the option of trading
their shares for a price.
 Valuation: The public trading of the shares determines a value for the company
and sets a standard. This works in favor of the company as it is helpful in case the
company is looking for acquisition or merger. It also provides the share holders
of the company with the present value of the shares.
 Increased wealth: The founders of the companies have an affinity towards IPO
as it can increase the wealth of the company, without dividing the authority as in
case of partnership.

REGULATORY FRAMEWORK FOR IPOS

Eligibility Conditions for Companies Issuing Securities
The companies issuing securities offered through an offer document shall satisfy the
following at the time of filing the draft offer document with SEBI and also at the time of
filing the final offer document with the Registrar of Companies/ Designated Stock
Exchange:
Filing of offer document
No issuer company shall make any public issue of securities, unless a draft
Prospectus has been filed with the Board through a Merchant Banker, at least 30 days
prior to the filing of the Prospectus with the Registrar of Companies (ROC):

Provided that if the Board specifies changes or issues observations on the draft
Prospectus (without being under any obligation to do so), the issuer company or the Lead
Manager to the Issue shall carry out such changes in the draft Prospectus or comply with
the observation issued by the Board before filing the Prospectus with ROC.
21
 Companies barred not to issue security
No company shall make an issue of securities if the company has been
prohibited from accessing the capital market under any order or direction passed
by the Board.

 Application for listing

No company shall make any public issue of securities unless it has made
an application for listing of those securities in the stock exchange

 Issue of securities in dematerialized form

No company shall make public or rights issue or an offer for sale of
securities, unless:
The company enters into an agreement with a depository for
dematerialization of securities already issued or proposed to be issued to the
public or existing shareholders; and
a. The company gives an option to subscribers/ shareholders/
investors to receive the security certificates or hold securities in
dematerialized form with a depository.
 IPO Grading
No unlisted company shall make an IPO of equity shares unless the
following conditions are satisfied as on the date of filing of Prospectus with ROC:
a. the unlisted company has obtained grading for the IPO from at
least one credit rating agency
b. Disclosures of all the grades obtained, along with the rationale/
description furnished by the credit rating agency(ies) for each of
the grades obtained.

Eligibility Norms for IPO

An unlisted company may make an initial public offering (IPO) of equity shares
only if :-
 The company has net tangible assets of at least Rs. 3 crores in each of the
preceding 3 full years (of 12 months each), of which not more than 50% is held in
monetary assets.
22
  The company has a track record of distributable profits in terms of Section 205 of
the Companies Act, 1956, for at least three (3) out of immediately preceding five
(5) years.
 The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full
years (of 12 months each).
 In case the company has changed its name within the last one year, at least 50% of
the revenue for the preceding 1 full year is earned by the company from the
activity suggested by the new name.

PROCEDURE FOR IPOS

Fixed Pricing versus True Pricing (Book- Building)

The traditional method of doing IPOs is the fixed price offering. Here, the issuer and the
merchant banker agree on an “issue price”. Then the investor has a choice of filling in an
application form at this price and subscribing to the issue. Extensive research has revealed
that the fixed price offering is a poor way of doing IPOs. Fixed price offerings, all over
the world, suffer from `IPO underpricing'. In India, on average, the fixed-price seems to
be around 50% below the price at first listing; i.e. the issuer obtains 50% lower issue
proceeds as compared to what might have been the case. This average masks a steady
stream of dubious IPOs who get an issue price which is much higher than the price at first
listing. Hence fixed price offerings are weak in two directions:
 dubious issues get overpriced and
 Good issues get under priced.

BOOK-BUILDING
A mechanism where, during period for which the IPO is open, bids are collected from
investors at various prices which are above or equal to the floor price (the minimum
price). The final price of the share is determined after the bid closing date, based on
certain evaluation criteria.

23
The SEBI (Disclosure and Investor Protection) Guidelines, 2000, define the term
`book-building' in a rather complex language as "a process undertaken by which a
demand for the securities proposed to be issued by a body corporate is elicited and built-
up and the price for such securities is assessed for determination of the quantum of such
securities to be issued by means of a notice, circular, advertisement, document or
information memoranda or offer document.''
Book building process is a common practice used in most developed countries for
marketing a public offer of equity shares of a company. However, Book building acts as
scientific as well as flexible price discovery method through which a consensus price of
IPO’s may be determined by the issuer company along with the Book Running Lead
Manager (i.e. merchant banker) on the basis of feedback received from individual
investors as well as most informed investors (who are institutional and corporate investors
like, UTI, LICI, GICI, FIIs, and SFCI etc). The method helps to make a correct evaluation
of a company’s potential and the price of its shares.
In simple terms, book-building is a mechanism by which the issue price is discovered on
the basis of bids received from syndicate members/brokers and not by the
issuers/merchant bankers.

TYPES OF BOOKBUILDING
The issue of securities through Book building can be done in either of the following two
ways.
 75% Book building

 100% Book building

75% Book Building process:-

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

 Placement portion category

 Net offer to the public

The option of 75% Book Building is available to all body corporate that are
otherwise eligible to make an issue of capital to the public. The securities issued through

24
the book building process are indicated as 'placement portion category' and securities
available to public are identified as 'net offer to public'. In this option, underwriting is
mandatory to the extent of the net offer to the public. The issue price for the placement
portion and offers to public are required to be same

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

The 100% of the net offer to the public, entire issue is made through Book
Building process. However, there can be a reservation or firm allotment to a maximum of
5% of the issue size for the permanent employees, shareholders of the company or group
companies, persons who, on the date of filing of the draft offer document with the Board,
have business association, as depositors, bondholders and subscribers to services, with the
issuer making an initial public offering.

The number of bidding centres, in case of 75% book building process should not
be less than the number of mandatory collection centres specified by SEBI. In case of
100% book building process, the bidding centres should be at all the places where the
recognised stock exchanges are situated.

PROCESS OF BOOK-BUILDING
The Book building is basically an auction of share. Book building essentially means that
the ‘book is being built.’ During the process on both the NSE & BSE, investors can watch
the book being built a chart shown indicates the bid price & the number of shares being
bid for. This helps the investors to know the market price. Following mentioned are the
main steps of Book building Process.

 The company first appoints a book runner, i.e. merchant banker.

 The book runner prepares & submits the draft documents to the SEBI &
obtains an acknowledgement card.

 The issuer & book runner decide to offer shares at a price within a specified
price band (range).

25
 Offer regarding the demand for securities at different price levels are invited
from syndicate members consisting of eligible brokers, merchant bankers,
underwriters, financial institutions, the bids. The advertisement should mention
the opening & closing dates for the bids. A bid is usually open for minimum 5
working days.

 Based on the bids received, the issuer arrives at a final cut-off rate & the
allocation in consultation with BRLM.

 The issuer & the book runner may impose restrictions on the number of shares
that can be allotted to each client so as to avoid any future takeover threats.

 The final prospectus is filed with the registrar of companies along with the
procurement agreement.

 The placement portion opens for subscription only after the prospectus is filed
with the ROC.

 The placement portion closes a day before the opening of the public issue portion.

 The public portion opens & the allotment & listing of puts is done. The price
determined in the Book building process is applicable to the public portion as
well. If the public portion stands oversubscribed, then the allotment is made on a
proportionate basis.

26
Book Building Process in India
The steps which are usually followed in the book building process can be summarized
below:

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

BRLM.

2. Initially, the issuer company consults with the BRLM in drawing up a draft
prospectus (i.e. offer document) which does not mention the price of the issues,
but includes other details about the size of the issue, past history of the company,
and a price band. The securities available to the public are separately identified as
“net offer to the public”.

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

4. A definite period is fixed as the bid period and BRLM conducts awareness
campaigns like advertisement, road shows etc.

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

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

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

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

8. The syndicate members create demand and ask each investor for the number of
shares and the offer price.

9. The BRLM receives the feedback about the investor’s bids through syndicate
members.

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

11. The BRLM on receipts of the feedback from the syndicate members about the bid
price and the quantity of shares applied has to build up an order book showing the
demand for the shares of the company at various prices. The syndicate members
must also maintain a record book for orders received from institutional investors
for subscribing to the issue out of the placement portion.

12. On receipts of the above information, the BRLM and the issuer company
determine the issue price.  This is known as the market-clearing price.

27
13. The BRLM then closes the book in consultation with the issuer company and
determine the issue size of (a) placement portion and (b) public offer portion.

14. Once the final price is determined, the allocation of securities should be made by
the BRLM based on prior commitment, investor’s quality, price aggression,
earliness of bids etc. The bid of an institutional bidder, even if he has paid full
amount may be rejected without being assigned any reason as the Book Building
portion of institutional investors is left entirely at the discretion of the issuer
company and the BRLM.

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

16. Two different accounts for collection of application money, one for the private
placement portion and the other for the public subscription should be opened by
the issuer company.

17. The placement portion is closed a day before the opening of the public issue
through fixed price method. The BRLM is required to have the application forms
along with the application money from the institutional buyers and the
underwriters to the private placement portion.

18. The allotment for the private placement portion shall be made on the 2nd day from
the closure of the issue and the private placement portion is ready to be listed.

19. The allotment and listing of issues under the public portion (i.e. fixed price
portion) must be as per the existing statutory requirements.

20. Finally, the SEBI has the right to inspect such records and books which are
maintained by the BRLM and other intermediaries involved in the Book Building
process.

28
Pricing

Before establishment of SEBI in 1992, the quality of disclosures in the offer documents
was very poor.

The main drawback of free pricing was the process of pricing of issues. The issue price
was determined around 60-70 days before the opening of the issue and the issuer had no
clear idea about the market perception of the price determined.

In Book Building the price is determined on the basis of demand received or at price
above or equal to the floor price.

The Allotment Process through Book-building:

Step1-The Company will 'discover' its price

Earlier, the company determined a fixed price for the stock issue. The issue was marketed
to the general public through advertisements and a media campaign.

Today, companies prefer a book building process. Book building is the process of price
discovery. That means there is no fixed price for the share. Instead, the company issuing
the shares comes up with a price band. The lowest price is referred to as the floor and the
highest, the cap.  Bids are then invited for the shares. Each investor states how many
shares s/he wants and what s/he is willing to pay for those shares (depending on the price
band). The actual price is then discovered based on these bids.

Step2-Players of the game

Three classes of investors can bid for the shares:

 Qualified Institutional Buyers: QIBs include mutual funds and Foreign

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

 Retail investors: Anyone who bids for shares under Rs 50,000 is a retail investor.
At least 25% is reserved for this category.

 The balance bids are offered to high net worth individuals and employees of the
company.

29
OBJECTS OF THE OFFERING NEW IPO

 Funds Requirement

 Funding Plan (Means of Finance)

 Appraisal

 Schedule of Implementation

 Funds Deployed

 Sources of Financing of Funds already deployed

 Details of Balance Fund Requirement

 Interim Use of Funds

 Basic Terms of Issue

 Basis for issue price

 Tax Benefits

ADVANTAGES & DRAWBACKS OF IPO

The Advantages of IPO are numerous. The companies are launching more and more
IPO’s to raise funds which are utilized for undertakings various projects including
expansion plans. The Advantages of IPO is the primary factor for the immense growth of
the same in the last few years. The IPO or the initial public offering is a term used to
describe the first sale of the shares to the public by any company. All types of companies
with the idea of enhancing growth launch IPOs to generate funds to cater the
requirements of capital for expansion, acquiring of capital instruments, undertaking new
projects.

Major Advantages of IPO

IPO has a number of advantages. IPO helps the company to create a public awareness
about the company as these public offerings generate publicity by inducing their products
to various investors.

30
 The increase in the capital: An IPO allows a company to raise funds for utilizing in
various corporate operational purposes like acquisitions, mergers, working capital,
research and development, expanding plant and
equipment and marketing.

 Liquidity: The shares once traded have an assigned market value and can be resold.
This is extremely helpful as the company provides the employees with stock incentive
packages and the investors are provided with the option of trading their shares for a price.

 Valuation: The public trading of the shares determines a value for the company and
sets a standard. This works in favor of the company as it is helpful in case the company is
looking for acquisition or merger. It also provides the share holders of the company with
the present value of the shares.

 Increased wealth: The founders of the companies have an affinity towards IPO as it
can increase the wealth of the company, without dividing the authority as in case of
partnership.

Drawbacks of IPO’s
It is true that IPO raises huge capital for the issuing company. But, in order to launch an
Initial Public Offering (IPO), it is also necessary to make certain investments. Setting up
an IPO does not always lead to an improvement in the economic performance of the
company. A continuing expenditure has to be incurred after the setting up of an IPO by
the parent company. A lot of expenses have to be incurred in the form of legal fees,
printing costs and accounting fees, which are connected to the registering of an IPO. Such
expenses might cost hundreds of US dollars. Apart from such enormous costs, there are
other factors as well that should be taken into consideration by the company while
introducing an IPO.

Such factors include the rules and regulations involved to set up public offerings and this
entire process on the other hand involve a number of complexities which sometime
require the services of experts in relevant fields. Some companies hire experts to do the
needful to ensure a hassle-free execution of the task. After the IPO is introduced, the
expenses become a routine in every activity involved. Besides, the CEO of the company
31
would have to spend a lot of time in handling the SEC regulations or sometimes he hires
experts to do the same. All these aspects, if not handled with efficiency, prove to be some
major drawbacks related to the launch of IPOs.

The launch of IPO also brings about shareholders of the company. Shareholders have
ownership in the company. The primary owners of the company or the people holding
maximum authority in the company cannot take decisions all by themselves once an IPO
has been launched and shareholders have been formed. The shareholders have an active
participation in every decision that is being taken even if they do not hold 50 percent
share of the company. They have their individual demands to be met as they own a
certain percentage of stakes in the company. The SEC regulations require notifications
from the shareholders of the company, meetings, and also approvals from them while
making important business decisions.

A major risk with shareholders is that, they can sell off their stocks any time they want, in
case they see the price band of the stakes of that company is going down. This will lead to
a further drop of the value of shares in the market which in turn will decrease the overall
value of the company.

IPO Grading

IPO grading (initial public offering grading) is a service aimed at facilitating the
assessment of equity issues offered to public. The grade assigned to any individual issue
represents a relative assessment of the ‘fundamentals’ of that issue in relation to the other
listed equity securities in India. IPO grading is positioned as a service that provides ‘an
independent assessment of fundamentals’ to aid comparative assessment that would prove
useful as an information and investment tool for investors. Moreover, such a service
would be particularly useful for assessing the offerings of companies accessing the equity
markets for the first time where there is no track record of their market performance.

IPO grade assigned to any issue represents a relative assessment of the ‘fundamentals’ of
that issue in relation to the universe of other listed equity securities in India. This grading
can be used by the investor as tool to make investment decision. The IPO grading will
help the investor better appreciate the meaning of the disclosures in the issue documents

32
to the extent that they affect the issue’s fundamentals. Thus, IPO grading is an additional
investor information and investment guidance tool.

Credit Rating agencies (CRAs) like ICRA, CRISIL, CARE and Fitch Ratings who are
registered with SEBI will carry out IPO grading. SEBI does not play any role in the
assessment made by the grading agency. The grading is intended to be an independent
and unbiased opinion of that agency. IPO grading is not mandatory but is optional and the
assigned grade would be a one time assessment done at the time of the IPO and meant to
aid investors who are interested in investing in the IPO. The grade will not have any
ongoing validity.

SEBI GUIDELINES ON IPO GRADING

 No unlisted company shall make an IPO of equity shares or any other security
which may be converted into or exchanged with equity shares at a later date,
unless the following conditions are satisfied as on the date of filing of Prospectus
(in case of fixed price issue) or Red Herring Prospectus (in case of book built
issue) with ROC:
 The unlisted company has obtained grading for the IPO from at least one
credit rating agency;
 Disclosures of all the grades obtained, along with the rationale/description
furnished by the credit rating agency(ies) for each of the grades obtained,
have been made in the Prospectus (in case of fixed price issue) or Red
Herring Prospectus (in case of book built issue); and
 The expenses incurred for grading IPO have been borne by the unlisted
company obtaining grading for IPO.
Most of the market analysts have welcomed this move of SEBI as it will help the
investors in a volatile market to know whether the merchant banker has carried the
exercise in determining the price of an issue in a proper manner or not. It will also help
the investors in knowing whether the price of the issue is justified or not. They even said
that management of a good company will never get afraid of getting graded of their IPOs
if they are good. The only demerit of this step by the SEBI as said by many experts is that
there will be a slowdown in the number of IPOs coming out as grading will be a bit
lengthy process and there will be a cost-factor attached to it also.

33
LOGO

ABOUT NSE:

About the National Stock Exchange of India :

In the fast growing Indian financial market, there are 23 stock exchanges trading
securities. The National Stock Exchange of India (NSE) situated in Mumbai - is the
largest and most advanced exchange with 1016 companies listed and 726 trading
members.

The NSE is owned by the group of leading financial institutions such as Indian Bank or
Life Insurance Corporation of India. However, in the totally de-mutualised Exchange, the
ownership as well as the management does not have a right to trade on the Exchange.
Only qualified traders can be involved in the securities trading.

The NSE is one of the few exchanges in the world trading all types of securities on a
single platform, which is divided into three segments: Wholesale Debt Market (WDM),
Capital Market (CM), and Futures & Options (F&O) Market. Each segment has
experienced a significant growth throughout a few years of their launch. While the WDM
segment has accumulated the annual growth of over 36% since its opening in 1994, the
CM segment has increased by even 61% during the same period.

The National Stock Exchange of India has stringent requirements and criteria for the
companies listed on the Exchange. Minimum capital requirements, project appraisal, and
company's track record are just a few of the criteria. In addition, listed companies pay
variable listing fees based on their corporate capital size.

34
The National Stock Exchange of India Ltd. provides its clients with a single, fully
electronic trading platform that is operated through a VSAT network. Unlike most world
exchanges, the NSE uses the satellite communication system that connects traders from
345 Indian cities. The advanced technologies enable up to 6 million trades to be operated
daily on the NSE trading platform.

NSE HISTORY

The National Stock Exchange (NSE) is India's leading stock exchange covering various
cities and towns across the country. NSE was set up by leading institutions to provide a
modern, fully automated screen-based trading system with national reach. The Exchange
has brought about unparalleled transparency, speed & efficiency, safety and market
integrity. It has set up facilities that serve as a model for the securities industry in terms of
systems, practices and procedures.

NSE has played a catalytic role in reforming the Indian securities market in terms of
microstructure, market practices and trading volumes. The market today uses state-of-art
information technology to provide an efficient and transparent trading, clearing and
settlement mechanism, and has witnessed several innovations in products & services viz.
demutualization of stock exchange governance, screen based trading, compression of
settlement cycles, dematerialization and electronic transfer of securities, securities
lending and borrowing, professionalisation of trading members, fine-tuned risk
management systems, emergence of clearing corporations to assume counterparty risks,
market of debt and derivative instruments and intensive use of information technology.

NSE’S MISSION

NSE's mission is setting the agenda for change in the securities markets in India. The
NSE was set-up with the main objectives of:

 Establishing a nation-wide trading facility for equities, debt instruments and hybrids,
 Ensuring equal access to investors all over the country through an appropriate
communication network,
 Providing a fair, efficient and transparent securities market to investors using
electronic trading systems,

35
 Enabling shorter settlement cycles and book entry settlements systems, and
 Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology have become
industry benchmarks and are being emulated by other market participants. NSE is more
than a mere market facilitator. It's that force which is guiding the industry towards new
horizons and greater opportunities.

36
LOGO

The logo of the NSE symbolizes a single nationwide securities trading facility ensuring
equal and fair access to investors, trading members and issuers all over the country. The
initials of the Exchange viz., N, S and E have been etched on the logo and are distinctly
visible. The logo symbolizes use of state of the art information technology and satellite
connectivity to bring about the change within the securities industry. The logo symbolizes
vibrancy and unleashing of creative energy to constantly bring about change through
innovation.

INDEX IN SHARE MARKET

Index consists of group of shares. Index denotes the direction of the entire market. Like
when people say market is going up or down then that means Index is going up or down.
Index consists of high market capitalization and high liquidity shares.

High Market capitalization shares - Companies having highest number of shares and
highest price of each share.

Market capitalization is calculated by multiplying current share price and number of

shares in the market.

High Liquidity shares - Shares in the market with high volumes.

Two types of Indices

1. Nifty and
2. Sensex
Nifty - Nifty consist of a group of 50 shares.
Sensex - Sensex consist of a group of 30 shares.

37
Stock exchanges mainly there are two exchanges in India.
1. NSE (National stock exchange) - Nifty is listed with NSE.
2. BSE (Bombay stock exchange) - Sensex is listed with BSE.
NSE and BSE are countries economic barometer.
Stock exchanges like NSE and BSE are the places where the trading of shares takes place.

ABOUT BULLS AND BEARS:

What are Bear?

Bear : An operator who expects the share price to fall

Bear Market : A weak and falling market where buyers are absent

What are Bulls?

Bull : An operator who expects the share price to rise and takes position in the
market to sell at a later date.

Bull Market : A rising market where buyers far outnumber the sellers

A bull market is one where prices are rising, whereas a bear market is one where
prices are falling. The two terms are also used to describe types of investors.

A stock market bull is someone who has a very optimistic view of the market; they may
be stock-holders or maybe investors who aggressively buy and sell stocks quickly. A bear
investor, on the other hand, is pessimistic about the market and may make more
conservative stock choices. Sometimes, the terms are used to refer to specific funds or
stocks. Bear market funds, for example, are those that are falling and faring poorly.
Investors sometimes refer to bull stocks to describe securities that are aggressively rising
and making their investors money.

Knowing what is meant by the bear and bull market can help you understand whether the
market is currently rising or falling. There is no need to get frightened by a bear market
indicator; however, as experts agree that the market is cyclical. When prices start falling,
they will eventually rise too.

38
WHAT DRIVES BEAR AND BULL MARKETS?

The stock market is affected by many economic factors. High employment levels, strong
economy, and stable social and economic conditions generally build investor confidence
and encourage investors to put their money in the stock market. Often, this can bolster
bull markets. Also, new technologies and companies that encourage investors to put their
money in stocks can create bull markets. For example, in the 1990s, the dot com craze
encouraged many investors to put their money in stocks that they felt would keep
increasing. In some cases, a bullish market is simply self-perpetuating. Since the market
is doing well, it only encourages investors to invest more money or to start investing.

On the other hand, discouraging economic or social political changes in a society can
push the market down. Sudden instability or unemployment -- or even fears of
unemployment caused by wars and other problems -- can start to make investors more
conservative and therefore lead to bear markets. Of course, again this becomes a self-
perpetuating trend. As the economy slows down, companies begin downsizing. Increased
unemployment makes people far less willing to gamble on the stock market. Sometimes,
a panic caused by dire predictions about the market can also create bearish conditions.

WHAT DOES BULL AND BEAR MEAN IN STOCK MARKET?

1. In the simplest terms, a bear market is a downward trend that is long term, usually
measured in months. The term is generally applied to the stock market and may
include some variations, but the low points are not historically low and the high
points are not historically high.
2. A bull market, in contrast, is a trend of similar duration but in an upward
direction. Again, the high points are not at historic levels and the low points are
not the lowest in market history. For both a bear and a bull market, other

39
 definitions may be more general or more specific, depending on the economist or
study issuing the statement.
3. The animal names assigned to these trends are accepted as accurate, for the most
part, because a positive market in which people are more aggressive is compared
to the traits of a healthy, active bull. Bears, on the other hand, are sometimes seen
as moving more slowly, especially in certain weather situations.
4. Yet another explanation has to do with the trading of real bear skins, with traders
in the middle betting on the price dropping as they sold skins they didn’t possess
at the time. These men were sometimes called bears. Others have explained the
two terms as coming from the classic battles of earlier times that pitted a bull
against a bear.
5. Just about everyone who reads a newspaper or watches television news is familiar
with bull markets and bear markets. Most people don’t concern themselves with
the origins of the words and their application to trading in company stock.
Investors act on the belief (or faith) that the market will continue to improve,
giving them incentive to become active.

6. On the other side of the coin, when investors feel that prices are going to drop or
see that they are in a downward trend, they do not hold the same positive outlook
and lose faith in the market temporarily. Reliable investment counselors and
financial advisers are quick to explain that bear and bull market assessments don’t
adhere to any hard-and-fast rules. As with many financial and economic actions,
there is psychology of the individual to consider.

7. In other words, a person or group might act as if they are in a bear or bull market
based on their own assessment. If a significant number of investors act, the
combined weight of the action might push the market in a particular direction.
This could enhance a bear trend or bull trend, if not actually create the momentum
to start such a market. This could only be determined over a longer period of time
however, so hindsight is always better when assigning these terms.

8. The Great Depression was certainly an extreme example of a bear market because
the average price of stocks dropped almost out of sight over a three-year period.

40
 Economists consider the period from the early 1990s to 2000 the longest bull
market. Numerous techniques are used to soften the blows of a bear market or to
take advantage of a bull market.

HOW TO PREDICT BEAR AND BULL MARKETS?

The easiest way to predict both types of markets is to realize that what goes up must come
down. That is, if the market is rising, then you know that at some point it will start to fall
again. Similarly, if the market is currently falling, you can be certain that eventually it
will pick up again. There are no precise ways to predict either bull or bear markets,
although general social economic situations can help you to determine what will happen.
A country which wages a war will experience bullish market conditions as government
contracts create more jobs and boost investor confidence if their expectation is to win.
Sudden international crises push the market downward and create bearish conditions.
News is very often a good indicator of where investors are headed. The reports will
inform about loss of investor confidence as well as sudden economic downturns that may
affect the market. If you notice from stock market research that several indexes have
changed by 15% to 20%, you can be sure that market direction is changing. When you
notice such changes, it is time to sit up and take notice. You may be headed for a bullish
or bearish market.

MARKET CONDITIONS IN BOTH CASES

While referring to markets is either bull or bear is very general, there are certain types of
specific markets conditions that exist in both markets. For example, a bullish market is
often accompanied by a sudden increase demand for securities and smaller supplies of the
same securities. This is because more investors are willing to buy securities while fewer
wish to sell. This, of course, only pushes prices higher. The very opposite is true in a
bearish market.

The investor's behavior is another condition prevalent in both markets. In bullish markets,
there's a sudden increase interest in the stock market. More people are hopeful about
possible profits on the stock market and most people are optimistic about economic
conditions. In a bearish market, investors are not very confident and therefore invest less.

41
INVESTING DURING BEAR AND BULL MARKETS

New investors often assume that they need to avoid investing during bear markets, and
invest heavily during bull markets. This is not the case. Experienced investors know that
you need to be able to invest in any sort of market condition, provided that you do so
wisely. Each investor has a different strategy for dealing with a bull market or bearish
markets. Many investors try to take advantage of bull markets by buying stocks as soon as
the market gets bullish, and then starting to sell when prices seem to have reached their
peak. The difficulty, of course, is that it is almost impossible to tell when the trend is
beginning and when it will peak. In general, investors can take more chances with the
market during a bullish phase. Since overall prices will rise, the chances of making a
profit are good.

In bearish market conditions, prices are falling and the possibility of loss is pretty good.
What is worse, it is not always possible to tell when bearish conditions will end.
Therefore, if you invest during such market conditions, you may have to suffer some
losses before bullish times return and you're able to realize a profit. For this reason, many
investors decide on short selling or fixed income securities and other more conservative
types of investment. Defensive stocks are another good option that remain stable during
bearish conditions. On the other hand, some investors see bearish market conditions as an
ideal time to invest in more stocks. Since many people are selling off their stocks --
including valuable blue-chip stocks -- at low prices, it is possible to set up long-term
investments that will prove valuable during bullish times.

While every investor loves to see the upswing in prices during a bull market, the wise
investor will be able to handle a bear market as well. Whether you are just beginning to
invest or are an experienced investor, learning to deal with various market conditions you
need not panic but decide patiently on investment.

ABOUT SEBI:

WHAT IS SEBI ?
Securities and Exchange Board of India (SEBI) is an apex body for overall development
and regulation of the securities market. It was set up on April 12, 1988. To start with,

42
SEBI was set up as a non-statutory body. Later on it became a statutory body under the
Securities Exchange Board of India Act, 1992. The Act entrusted SEBI with
comprehensive powers over practically all the aspects of capital market operations.

ROLE / FUNCTIONS OF SEBI

1. To protect the interests of investors through proper education and guidance as
regards their investment in securities. For this, SEBI has made rules and
regulation to be followed by the financial intermediaries such as brokers, etc.
SEBI looks after the complaints received from investors for fair settlement. It also
issues booklets for the guidance and protection of small investors.
2. To regulate and control the business on stock exchanges and other security
markets. For this, SEBI keeps supervision on brokers. Registration of brokers and
sub-brokers is made compulsory and they are expected to follow certain rules and
regulations. Effective control is also maintained by SEBI on the working of stock
exchanges.
3. To make registration and to regulate the functioning of intermediaries such as
stock brokers, sub-brokers, share transfer agents, merchant bankers and other
intermediaries operating on the securities market. In addition, to provide suitable
training to intermediaries. This function is useful for healthy atmosphere on the
stock exchange and for the protection of small investors.
4. To register and regulate the working of mutual funds including UTI (Unit Trust of
India). SEBI has made rules and regulations to be followed by mutual funds. The
purpose is to maintain effective supervision on their operations & avoid their
unfair & anti-investor activities.
5. To promote self-regulatory organization of intermediaries. SEBI is given wide
statutory powers. However, self-regulation is better than external regulation. Here,
the function of SEBI is to encourage intermediaries to form their professional
associations and control undesirable activities of their members. SEBI can also
use its powers when required for protection of small investors.
6. To regulate mergers, takeovers and acquisitions of companies in order to protect
the interest of investors. For this, SEBI has issued suitable guidelines so that such
mergers and takeovers will not be at the cost of small investors.
7. To prohibit fraudulent and unfair practices of intermediaries operating on
securities markets. SEBI is not for interfering in the normal working of these
43
 intermediaries. Its function is to regulate and control their objectional practices
which may harm the investors and healthy growth of capital market.
8. To issue guidelines to companies regarding capital issues. Separate guidelines are
prepared for first public issue of new companies, for public issue by existing listed
companies and for first public issue by existing private companies. SEBI is
expected to conduct research and publish information useful to all market players
(i.e all buyers and sellers).
9. To conduct inspection, inquiries & audits of stock exchanges, intermediaries and
self-regulating organizations & to take suitable remedial measures wherever
necessary. This function is undertaken for orderly working of stock exchanges &
intermediaries.
10. To restrict insider trading activity through suitable measures. This function is
useful for avoiding undesirable activities of brokers and securities scams.

44
STOCK & EXCHANGE BOARD OF INDIA

Regulation Of Business In The Stock Exchanges

Under the SEBI Act, 1992, the SEBI has been empowered to conduct inspection of stock
exchanges. The SEBI has been inspecting the stock exchanges once every year since
1995-96. During these inspections, a review of the market operations, organizational
structure and administrative control of the exchange is made to ascertain whether:

 the exchange provides a fair, equitable and growing market to investors

 the exchange's organization, systems and practices are in accordance with the
Securities Contracts (Regulation) Act (SC(R) Act), 1956 and rules framed there
under
 the exchange has implemented the directions, guidelines and instructions issued
by the SEBI from time to time
 The exchange has complied with the conditions, if any, imposed on it at the time
of renewal/ grant of its recognition under section 4 of the SC(R) Act, 1956.

During the year 1997-98, inspection of stock exchanges was carried out with a special
focus on the measures taken by the stock exchanges for investor's protection. Stock
exchanges were, through inspection reports, advised to effectively follow-up and redress
the investors' complaints against members/listed companies. The stock exchanges were
also advised to expedite the disposal of arbitration cases within four months from the date
of filing.

During the earlier years' inspections, common deficiencies observed in the functioning of
the exchanges were delays in post trading settlement, frequent clubbing of settlements,
delay in conducting auctions, inadequate monitoring of payment of margins by brokers,
non-adherence to Capital Adequacy Norms etc. It was observed during the inspections
conducted in 1997-98 that there has been considerable improvement in most of the areas,
especially in trading, settlement, collection of margins etc

45
Standard & Poor’s Relation with Stock Market

The company traces its history back to 1860, with the publication by Henry Varnum
Poor of History of Railroads and Canals in the United States. This book was an attempt to
compile comprehensive information about the financial and operational state of U.S.
railroad companies. Henry Varnum went on to establish H.V. and H.W. Poor Co. with his
son, Henry William, and published annually updated versions of this book.

In 1906, Luther Lee Blake founded the Standard Statistics Bureau, with the view to
providing financial information on non-railroad companies. Instead of an annually
published book, Standard Statistics would use 5" x 7" cards, allowing for more frequent
updates.

In 1941, Poor and Standard Statistics merged to become Standard & Poor's Corp. In 1966,
the company was acquired by The McGraw-Hill Companies, and now encompasses the
Financial Services division.

Credit ratings
As a credit-rating agency (CRA), the company issues credit ratings for the debt of public
and private corporations. It is one of several CRAs that have been designated a nationally
recognized statistical rating organization by the U.S. Securities and Exchange
Commission.
It issues both short-term and long-term credit ratings.
Long-term credit ratings

46
Sovereigns listings by Standard & Poor's as of August 2011.

Green - AAA Lighter blue - A Purple - BB

Turquoise - AA Darker blue - BBB Red – B
Grey - not rated

The company rates borrowers on a scale from AAA to D. Intermediate ratings are offered
at each level between AA and CCC (e.g., BBB+, BBB and BBB-). For some borrowers,
the company may also offer guidance (termed a "credit watch") as to whether it is likely
to be upgraded (positive), downgraded (negative) or uncertain (neutral).

Investment Grade
 AAA: An obligor rated 'AAA' has extremely strong capacity to meet its financial
commitments. 'AAA' is the highest issuer credit rating assigned by Standard &
Poor's.
 AA: An obligor rated 'AA' has very strong capacity to meet its financial
commitments. It differs from the highest-rated obligors only to a small degree.
Includes:
 AA+: equivalent to Moody's Aa1 (high quality, with very low credit risk, but
susceptibility to long-term risks appears somewhat greater)
 AA: equivalent to Aa2
 AA-: equivalent to Aa3
 A: An obligor rated 'A' has strong capacity to meet its financial commitments but
is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than obligors in higher-rated categories.
 A+: equivalent to A1
 A: equivalent to A2
 BBB: An obligor rated 'BBB' has adequate capacity to meet its financial
commitments. However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to meet its financial
commitments.

47
Non-Investment Grade (also known as junk bonds)

 BB: An obligor rated 'BB' is less vulnerable in the near term than other lower-
rated obligors. However, it faces major ongoing uncertainties and exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitments.
 B: An obligor rated 'B' is more vulnerable than the obligors rated 'BB', but the
obligor currently has the capacity to meet its financial commitments. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitments.
 CCC: An obligor rated 'CCC' is currently vulnerable, and is dependent upon
favorable business, financial, and economic conditions to meet its financial
commitments.
 CC: An obligor rated 'CC' is currently highly vulnerable.
 C: highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to
pay out on obligations
 CI: past due on interest
 R: An obligor rated 'R' is under regulatory supervision owing to its financial
condition. During the pendency of the regulatory supervision, the regulators may
have the power to favor one class of obligations over others or pay some
obligations and not others.
 SD: has selectively defaulted on some obligations
 D: has defaulted on obligations and S&P believes that it will generally default on
most or all obligations
 NR: not rated

Short-term issue credit ratings

The company rates specific issues on a scale from A-1 to D. Within the A-1 category it
can be designated with a plus sign (+). This indicates that the issuer's commitment to
meet its obligation is very strong. Country risk and currency of repayment of the obligor
to meet the issue obligation are factored into the credit analysis and reflected in the issue
rating.

48
 A-1: obligor's capacity to meet its financial commitment on the obligation is
strong
 A-2: is susceptible to adverse economic conditions however the obligor's capacity
to meet its financial commitment on the obligation is satisfactory
 A-3: adverse economic conditions are likely to weaken the obligor's capacity to
meet its financial commitment on the obligation
 B: has significant speculative characteristics. The obligor currently has the
capacity to meet its financial obligation but faces major ongoing uncertainties that
could impact its financial commitment on the obligation
 C: currently vulnerable to nonpayment and is dependent upon favorable business,
financial and economic conditions for the obligor to meet its financial
commitment on the obligation
 D: is in payment default. Obligation not made on due date and grace period may
not have expired. The rating is also used upon the filing of a bankruptcy petition.

49
 CHAPTER-III
COMPANY & INDUSTRY
PROFILE

50
THE COMPANY PROFILE

The birth of Karvy was on a modest scale in 1981. It began with the vision and

enterprise of a small group of practicing Chartered Accountants who founded

the flagship company …Karvy Consultants Limited. We started with consulting

and financial accounting automation, and carved inroads into the field of registry

and share accounting by 1985. Since then, we have utilized our experience and

superlative expertise to go from strength to strength…to better our services, to

provide new ones, to innovate, diversify and in the process, evolved Karvy as

one of India’s premier integrated financial service enterprise.

Thus over the last 20 years Karvy has traveled the success route,

towards building a reputation as an integrated financial services provider, offering a

wide spectrum of services. And we have made this journey by taking the route of quality

service, path breaking innovations in service, versatility in service and finally totality in

service.

KARVY is a premier integrated financial services provider and ranked among

the top five in the country in all its business segments, services over 16 million

individual investors in various capacities, and provides investor services to over

300 corporate, comprising the who is who of Corporate India. KARVY covers the

entire spectrum of financial services such as Stock broking, Depository

Participants, Distribution of financial products like mutual funds, bonds, fixed

deposit, Merchant Banking & Corporate Finance, Insurance Broking,

Commodities Broking, Personal Finance Advisory Services, placement of equity,

IPOs, among others. Karvy has a professional management team and ranks

51
among the best in technology, operations, and more importantly, in research of

various industrial segments.

Quality Policy
To achieve and retain leadership, Karvy shall aim for complete customer

satisfaction, by combining its human and technological resources, to provide

superior quality financial services. In the process, Karvy will strive to

exceed Customer's expectations. 

Quality Objectives  

As per the Quality Policy, Karvy will: 

 Build in-house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of services.

 Establish a partner relationship with its investor service agents and

vendors that will help in keeping up its commitments to the customers.

 Provide high quality of work life for all its employees and equip them

with adequate knowledge & skills so as to respond to customer's needs.

 Continue to uphold the values of honesty & integrity and strive to

establish unparalleled standards in business ethics.

SECTOR OF KARVY:

1. KARVY CONSULTANTANTS LIMITED: Deals in Registrar and Transfer

Agent.

We have traversed wide spaces to tie up with the world’s largest transfer agent,

the leading Australian company, ComputershareLimited. The company that

services more than 75 million shareholders across 7000 corporate clients and

makes its presence felt in over 12 countries across 5 continents has entered into a

50-50 joint venture with us.

52
 With our management team completely transferred to this new entity, we

will aim to enrich the financial services industry than before. The future holds

new arenas of client servicing and contemporary and relevant technologies as we

are geared to deliver better value and foster bigger investments in the business.

The worldwide network of Computer share will hold us in good stead as we

expect to adopt international standards in addition to leveraging the best of

technologies from

around the world.

2. KARVY SECURITIES LIMITED: Deals in distribution of various investment

products, viz., equities, mutual funds, bonds and debentures, fixed deposits,

insurance policies for the investor.

3. KARVY INVESTOR SERVICE LIMITED: Deals in issue management,

investment banking and merchant banking.

4.KARVY STOCK BROKING LIMITED: Deals in buying and selling equity

shares and debentures on the National Stock Exchange(NSE), the Hyderabad

Stock Exchange(HSE) and the over The Counter Exchange of India(OTCEI).

PRODUCTS & SERVICES

With greater choices comes greater value. KARVY offers you more choices by
providing a wide array of products and personalized services, so you can take
charge of your financial future with confidence.

So whether you are a new investor or a seasoned one, we have the resources and
advice you would need to make smart, well-researched investments. You have
the option to choose the level support you would like from us:

Invest Independently – If you are an independent investor and prefer calling

your own shots, you can access our extensive Market Research section for
relevant, in-depth resources and support.

SERVICES
 Take our advice – If you are new to the world of investing, or are unable to
do your own research due to time constraints, our highly experienced team of

53
 advisors will help you
get started and meet your financial goals.

 Day Trading – If you thrive on the thrill of riding the market wave on a daily
basis, we offer our Day Traders the resources you would need to strategize,
buy and sell conveniently.

KARVY’s products and services are geared towards meeting your individual
financial requirements. To find out more about a product / service, click on it
from the menu on the left.

DEPOSITORY SERVICES :

We offer Depository facilities to facilitate a seamless transaction platform as a

part of our value-added services for our clients. KARVY is a depository
participant with the Central Depository Services (India) Ltd. (CDSL) and
National Securities Depository Ltd. (NSDL) for trading and settlement of
dematerialized shares

WEALTH MANAGEMENT SERVICES

It is our aim to empower clients by helping them to diversify their investments.
To this end, KARVY has added a range of products such as Mutual Funds,
Insurance and online facilities to its offerings.

We meet our clients on an individual basis and analyse important factors such as
your risk appetite, investment horizon and your existing investments before
making our recommendations as to what clients should invest in. The fund and
scheme selection is then done after conducting in- depth research on parameters
like risk adjusted returns, rolling returns, volatility and portfolio churn. We are
also in close contact with fund houses as well as insurance agencies and are
therefore always cognisant with new offerings and occurrences in the market and
like to keep our clients updated on the same.

Our clients can pick from Mutual Funds, IPOs, and Insurance products.

Our Wealth Management Services include Portfolio Management Services

(PMS)

54
PRODUCTS

EQUITIES :

Our experienced trading consultants and advanced trading tools will provide the
support you need to achieve your long-term goals via the stock markets. We
trade on the BSE, NSE and CN and our website has facilities such as live stock
tickers, news updates, and more, to help our clients stay in the know. We also
provide NRI specific services to meet the needs of our clients who live abroad

COMMODITIES:
Indian markets have recently thrown open a new avenue for investors and
traders to participate: COMMODITY DERIVATIVES. For those who want to
diversify their portfolios beyond shares, bonds and real estate, commodities are
the best option.

Commodities actually offer immense potential to become a separate asset class

for market-savvy investors, arbitrageurs and speculators. They are also easy to
understand as far as fundamentals of demand and supply are concerned.
Historically, pricing in commodities futures has been less volatile compared with
equity and bonds, thus providing an efficient portfolio diversification option.
KARVY now offers to investors a platform to trade in COMMODITY FUTURES.
As a member of the Multi Commodity Exchange of India Ltd. and of the National
Commodity and Derivative Exchange, we offer futures trading in 10
commodities (gold, silver, castor, soya, canola/mustard oil, crude palm oil, RBD
palmolein and cotton) – NCDEX and in gold, silver and castor seed, rubber
through MCX.

MARKET RESEARCH:
Information is power. At KARVY, it is also at your fingertips!

KARVY is powered by a top-notch research team that penetrates and investigates

the market to provide you with reliable, relevant information that helps you
make intelligent investment decisions. Our commitment to keeping you updated
on the latest market conditions stems from our desire to give you the option to
invest in ways that are the most suitable to you.

To explore our research reports in the category of your interest, please select it
from the list on your right.

55
  Market Musing
 Company Reports
 Theme Based Reports
 Weekly Notes
 IPOs / FPO
 Sector Reports
 Stock Stance
 Pre-quarter/Updates
 Commodity
 Research Recommendation Card

Pivot Points

INVESTOR HANDBOOK:

Registrars and Transfer Agent

(Share transfers and communications regarding share certificates, dividends and

change of address)

Purva Sharegistry (India) Pvt. Ltd.

9, Shiv Shakti Industrial Estate,

Ground Floor, Sitaram Miill Compound,
J R Boricha Marg, Lower Parel,
Mumbai - 400 011.
Tel No.: 23016761,
Fax No.: 22626407
E-Mail: busicomp@vsnl.com

Listing of Equity Shares on Stock Exchange at:

Bombay Stock Exchange Limited,

Mumbai (BSE) Phiroze Jeejeebhoy Towers,
Dalal Street, Mumbai – 400 001

PORTFOLIO MANAGEMENT SERVICES

KARVY PMS will help you achieve your objective of preserving and
growing capital by conducting a thorough analysis of your investment needs,
returns expected and risk taking ability. Our focus is to craft a basket of Stocks,
Bonds, and Mutual Funds through strong research and corporate interface,
keeping in mind your risk-profile in specific relation with the ever-changing
marketing dynamic.

56
 Investment Philosophy

We focus on a Bottom – Up approach to stock picking. The stock selection process

starts with fundamental analysis of companies and includes management
meeting and plant visits to get a first hand feel of the company, rather than
depending solely on quantitative analysis. The investment process is fairly
rigorous and includes qualitative as well as quantitative criteria and builds upon
the decade long experience of KARVY in Indian equity markets.

Who is it for?

Our offering is ideal for high net-worth customers -

 Who are investing in Indian equities

 Who desire to create wealth over longer period

 Who appreciate a high level of personalized service

Benefits of being with KARVY PMS

Portfolio Management with a difference Every investor, whether individual or

corporate, has unique needs based on their objectives and risk profiles. We
recognize the difference and design tailored investment advice to achieve specific
investment objectives.
 Professional Management- We offer professional management of your
equity portfolio with an aim to deliver consistent returns while controlling
risk.

 Continuous Monitoring- We recognize that portfolios need to be

constantly monitored and periodically churned to optimize the results.

 Risk Control- The portfolios are managed through a strong research

driven investment process with complete transparency and highest
standards of service.

 Transparency- You will get regular account statements and performance

reports on a monthly basis/ That's not all; web-enabled access ensure that
you are just a click away from all information relating to your investment.

57
  Hassle Free Operation- Our Portfolio Management Service relieves you
from all the administrative hassles of your investments. We provide
periodic reporting on the performance and other aspects of your portfolio.
 Dedicated Relationship Manager- Our Relationship Managers specialize
in providing personal investment management services to achieve your
investment objective.

Infrastructure

• A corporate office and 3 divisional offices in CBD of Mumbai which

houses state-of-the-art dealing room, research wing & management and
back offices.
• All of 107 branches and franchisees are fully wired and connected to hub
at Corporate office at Mumbai. Add on branches also will be wired and
connected to central hub
• Web enabled connectivity and software in place for net trading.
• 60 operative ID’s for dealing room
• State of the Art accounting and billing system, on line risk management
system in place with 100% redundancy back up.
In house technology back up team to ensure un-interrupted connectivity

58
Milestones of Karvy

59
 INDUSTRY PROFILE:

Following diagram gives the structure of Indian financial system:

60
FINANCIAL MARKET
Financial markets are helpful to provide liquidity in the system and for smooth
functioning of the system. These markets are the centers that provide facilities for buying
and selling of financial claims and services. The financial markets match the demands of
investment with the supply of capital from various sources.

According to functional basis financial markets are classified into two types.
They are:
 Money markets (short-term)
 Capital markets (long-term)
According to institutional basis again classified in to two types. They are
 Organized financial market
 Non-organized financial market.

The organized market comprises of official market represented by recognized

institutions, bank and government (SEBI) registered/controlled activities and
intermediaries. The unorganized market is composed of indigenous bankers,
moneylenders, individual professional and non-professionals.

MONEY MARKET:
Money market is a place where we can raise short-term capital.
Again the money market is classified in to
 Inter bank call money market
 Bill market and
 Bank loan market Etc.
 E.g.; treasury bills, commercial papers, CD's etc.

CAPITAL MARKET:
Capital market is a place where we can raise long-term capital.
Again the capital market is classified in to two types and they are
 Primary market and
 Secondary market.
E.g.: Shares, Debentures, and Loans etc.

61
PRIMARY MARKET:

Primary market is generally referred to the market of new issues or market for
mobilization of resources by the companies and government undertakings, for new
projects as also for expansion, modernization, addition, diversification and up
gradation. Primary market is also referred to as New Issue Market. Primary market
operations include new issues of shares by new and existing companies, further and
right issues to existing shareholders, public offers, and issue of debt instruments such
as debentures, bonds, etc.

The primary market is regulated by the Securities and Exchange Board of India (SEBI
a government regulated authority).

Function:
The main services of the primary market are origination, underwriting, and
distribution. Origination deals with the origin of the new issue. Underwriting contract
make the shares predictable and remove the element of uncertainty in the
subscription. Distribution refers to the sale of securities to the investors.
The following are the market intermediaries associated with the market:
1. Merchant banker/book building lead manager
2. Registrar and transfer agent
3. Underwriter/broker to the issue
4. Adviser to the issue
5. Banker to the issue
6. Depository
7. Depository participant

Investors’ protection in the primary market:

To ensure healthy growth of primary market, the investing public should be protected.
The term investor protection has a wider meaning in the primary market. The
principal ingredients of investors’ protection are:
 Provision of all the relevant information
 Provision of accurate information and
 Transparent allotment procedures without any bias.

62
SECONDARY MARKET:

The primary market deals with the new issues of securities. Outstanding securities
are traded in the secondary market, which is commonly known as stock market or stock
exchange. “The secondary market is a market where scrip’s are traded”. It is a
market place which provides liquidity to the scrip’s issued in the primary market. Thus,
the growth of secondary market depends on the primary market. More the number of
companies entering the primary market, the greater are the volume of trade at the
secondary market. Trading activities in the secondary market are done through the
recognized stock exchanges which are 23 in number including Over The Counter
Exchange of India (OTCE), National Stock Exchange of India and Interconnected Stock
Exchange of India.

Secondary market operations involve buying and selling of securities on the stock
exchange through its members. The companies hitting the primary market are mandatory
to list their shares on one or more stock exchanges in India. Listing of scrip’s provides
liquidity and offers an opportunity to the investors to buy or sell the scrip’s.

The following are the intermediaries in the secondary market:

1. Broker/member of stock exchange – buyers broker and sellers broker
2. Portfolio Manager
3. Investment advisor
4. Share transfer agent
5. Depository
6. Depository participants.

63
 CHAPTER-IV
DATA ANALYSIS AND
INTERPRETATION

64
 CASE STUDY ON COAL INDIA IPOS EFFECT ON STOCK MARKET

Coal India Limited is the largest coal producing company in the world, based on raw coal
production of 431.26 million tons in fiscal 2021. Coal India produce non-coking coal and
coking coal of various grades for diverse applications.

As of March 31, 2021, Coal India operated 471 mines in 21 major coalfields across eight
states in India, including 163 open cast mines, 273 underground mines and 35 mixed
mines (includes both open cast and underground mines). They also operated 17 coal
beneficiation facilities with an aggregate designed feedstock capacity of 39.40 million
tons per annum. Company intend to develop an additional 20 coal beneficiation facilities
with an aggregate additional proposed feedstock capacity of 111.10 million tons per
annum. Besides this, They provided 85 hospitals and 424 dispensaries.

The Indian Institute of Coal Management (IICM) operates under CIL and imparts multi
disciplinary management development programs executives.

Coal India's major consumers are the power and steel sectors. Others include cement,
fertilizer, brick kilns etc.

Objects of the Issue:

The objects of the Offer are to carry out the divestment of 631,636,440 Equity Shares by
the Selling Shareholder and to achieve the benefits of listing the Equity Shares on the
Stock Exchanges.

Coal India Ltd IPO Grading / Rating

CRISIL has assigned an IPO Grade 5 to Coal India Ltd IPO. This means as per CRISIL
company has 'Strong fundamentals'. CRISIL assigns IPO grading on a scale of 5 to 1,
with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals

65
Strengths

Coal India, a navratna public sector undertaking under the Ministry of Coal, Government
of India, is the largest raw coal producing company as well as largest coal reserve holder
in the world.

CIL operated 471 mines in 21 major coalfields across eight states in India as of March 31,
2021 producing non-coking coal and coking coal of various grades for diverse
applications. While non-coking coal is used in thermal power plants and the cement
industry, coking coal is largely used in metallurgical industry. In FY 2021, about 91.6%
of the total coal produced was of non-coking coal and the balance was coking coal.

CIL is largest coal producer in the country as well as in the world with its production for
FY 2013 at about 431.26 million tons, which represents 82% of India’s coal production.
Further the company is also the largest coal reserve holder in the world as of April 1,
2021, with about 18862.9 million tons of total reserves and 64218 million tons of total
resources. India is the world’s third largest producer and consumer of coal given strong
growth in economy. The demand for coal in the country is expected to grow to 715
million tons per annum in 2021-16 compared to 600 million tons per annum in FY 2014-
15 on the back strong demand from sectors such as power and other energy intensive
industries such as steel and cement. However the country’s coal production is expected to
grow to 630 million tons by 2014-15, thus leaving a shortage of about 83 million tons.
Thus, if there is any limitation for growth it is the inability of the company to pace its
production inline with the demand growth for coal in the country.

Valuation

Consolidated sales of the company for the fiscal ended March 2013 was higher by 14% to
Rs 46689.29 crore and the net profit was up by 142% to Rs 9833.70 crore, albeit on a
lower base. The EPS for the fiscal was Rs 15.2. The offer price band of Rs 225-245
discounts the FY2021 consolidated earning by 14.8-16.1 times, which is largely in line
with the P/Es at which other global coal majors (especially Asian) are trading. However,
while other global majors’ earnings are more sensitive to fluctuations and cyclicality in
66
coal prices, Coal India’s earnings are largely immune to global coal price fluctuations as
Indian coal prices as directly/indirectly determined/influenced by government and are
much lower than international prices and their trend does not bear any relationship with
global coal prices. In that sense Coal India may be treated as utility company rather than a
commodity company. Other such Indian utilities like NTPC, Power Grid Corporation and
Gail trades around FY 2021 P/E of 20.

It is expected that there will be strong post-listing interest in the scrip even at higher P/E
multiple due to strong institutional (especially FII) demand as it is the only Indian stock
which gives exposure to the Indian coal industry and the scrip’s likely inclusion in
leading Indian and global indices. Thus scarcity premium and index company premium
can spice up the scrip post listing.

Issue Highlights : Coal India

Sector Mining
Offer Size
Offer for Sale (no of shares) 631636440
Fresh Issue Nil
Price Band (in Rs) ** 225-245
Post- Issue Equity (Rs Crore) 6316.36
Post-Issue Promoter stake (%) 89.99
Issue Open date 18/10/2021
Issue Close date (for QIB bidders) 20/10/2021
Issue Close date (for non-QIB bidders) 21/10/2021
Listing BSE, NSE
** Eligible employees and retail investor will get 5% discount on offer price

Advertisement Issued on: 06/10/2021. (Before 10 working days of issues opening)

Allotment of IPOs on : 04/11/2021. (after 12 working days off issues closed)

LISTING DAY DATA

67
Open - 288.00
High - 345.00
Close - 342.00
Low - 287.00
Volume - Rs. 63241006728.00

Indian IPO sector has seen a lot of action since the Coal India Limited filed for an initial
public offering. The IPO was oversubscribed for 15 times signaling other government-
owned companies to jump into the IPO market and make history. Government-run
companies like Power Grid, ONGC, Steel Authority of India and India Oil Corporation
are planning to enter the markets very soon.

CIL IPO highlights

 
 Coal India IPO is the biggest IPO in India so far.
 Coal India IPO succeeded due to the ever-increasing trust of investors in the
Company –Coal India Ltd.
 Steady improvements in Coal India Ltd’s performance and quality have been two
major hallmarks of this IPO.
 Both foreign and domestic investors have shown robust confidence as far as the
company’s credibility is concerned.
 The CIL IPO has received maximum bids up till now.
 Indian Government has sold 631.6 million shares in the IPO so far.
 Investors has borrowed heavy money to subscribe for the Coal IPO shares, the
price band was kept between Rs. 225 to 245.

The Indian capital market and stock futures turned back into gold since the subscription
of CIL IPO began. The initial public offer mobilized 236,000 crore going far beyond the
estimated target of 15,500 crore.

68
Coal India IPO Analysis – Strong IPO – Must Invest
A big-bang initial public offer (IPO) of shares by Coal India Ltd closed on Thursday with
a thumping collection of Rs 236,148 crore, 15.2 times the targeted amount, but it fell
short of  a record set by Reliance Power Ltd set in January 2008. Reliance Power’s
collections had totalled Rs 254,472 crore CIL will get to keep only Rs 15,745 crore of the
money offered, while the rest will be returned. Foreign institutional investors have bet big
on the issue and the refund is expected by some market experts to be put in other shares in
the market.

Both institutional and retail investors jumped in to take advantage of the issue, betting on
what many said was an attractive price and vast coal reserves underlying the company,
which is the world’s largest coal mining firm. The exact price is yet to fixed, but the
upper limit of the band is Rs 245 per share. The shares will list in November.

“Institutional participation was on expected lines but retail  participation is encouraging

for this size of issue,” said Sanjay Sharma, head of equities at Deutsche Bank’s Indian
unit, one of the lead managers of the issue.

“Every issue has its challenge but a great issue at a great price makes it easier to sell,”
said S. Subramanian, managing director of Enam Investment Banking, another lead
manager.

The qualified institutional buyers (QIB) portion of the issue that closed for subscription
on Wednesday was subscribed 24.7 times and sources close to the issue said the retail
portion got subscribed over 2 times and the non-institutional subscription was covered 24
times.  The official, final break-up was expected later at night.

69
IPO experts said the issue showed market strength. “It shows that if the issue is good and
priced well retail investors will invest into the issue and they came to invest beginning the
first day of the issue,” said Prithvi Haldea, MD, Prime Database, which tracks IPO’s.

big bang
Rs 15,475 crore
Amount Coal India plans to raise at upper end of price band of
between Rs 225 and Rs 245

Rs 236,148 crore 
Amount collected by the IPO in offers made over four days —
15.2 times the targeted amount.

70
ANALYSIS OF CIL IPOs BEFORE PRESS ADVERTISEMENT

Sensex & Nifty Indices Before the Press Note Release of CIL IPOs
The below chart shows the fluctuations in stock markets, before the Press Note Release.
This chart shows the fluctuations between 01-09-2021 to 06-10-2021.
The below chart consists with both indices(NIFTY & SENSEX).

In this case study I found that from the above chart, the above chart clearly shows the
fluctuations in stock market indices. These indices show the fluctuations before the Press
Note Release of CIL. In this period investors don’t have any knowledge about CIL IPOs.
They don’t have any knowledge that CIL will issue IPO in the future.

In this period, the fluctuations of stock market indices are clearly shows that the market is
going in positive way. Sensex & Nifty both are showing in positive sign to stock market.
In this particular time period both indices are showing positive sign to investor to invest
money into the stock market. When both indices, are moving in positive way that time
countries economical position will be increased. And in this period all companies having
similar type of markets for there shares. We can conclude from the above chart, the stock
market is working normally and both indices are showing positive sign to invest money
into the market. In this particular time period there is no effect of CIL because CIL not
issued the press note at all in public.

71
ANALYSIS OF CIL IPOs AFTEER PRESS ADVERTISEMENT

Sensex & Nifty Indices After the Press Note Release of CIL IPOs

The below chart shows the fluctuations in stock markets, after the Press Note Release.
This chart shows the fluctuations between 07-10-2021 to 17-10-2021.

In these periods of time all investors are having the knowledge of CIL IPOs. They knows
about the CIL IPOs will be issued in the future and they know they knows the total
information related to CIL IPOs. Such as issues opening and closing date, date of
allotment of IPOs, refund of amount date, IPO price, premium, and etc..

In this time period the stock market fluctuations in starting days showing somewhat
negative sign but that negative sign in market is in common. When the date of issuing
will be coming soon those time in market the signs are falling down because investors
want to shift there investment from one companies to another. In this period investors are
selling there old securities to buy new securities (means CIL IPO’s) in future in primary
market, that’s why the indices are falling down more before two days of IPO’s issuing.

72
So we can conclude that CIL IPOs effect is their in Stock Market. That’s why all
investors withdraw the amount before 2 days to buy CIL IPOs. The main reasons to buy
CIL IPOs are as follows;
 Positive talk and news related to CIL IPOs.
 India is the 3rd largest Coal Producer Country in the world.
 Coal India Limited is Worlds Largest and Coal Producer Company.
 One of the Largest IPOs issue.
 CIL is undertaken by Government & etc..

There are so many other factors also influence the investors to buy the CIL IPOs.
That’s why all investors withdraws the amount. The all above factors influence the
stock markets in after press release. In this particular time period stock markets falling
down rapidly with the effect of CIL IPOs.

73
ANALYSIS OF CIL IPOs ISSUES OPEN AND CLOSE

Sensex & Nifty Indices between the periods of CIL IPOs issued –closed.

The below chart shows the fluctuations in stock markets, when CIL IPO’s issued in
markets. This chart shows the fluctuations between 18-10-2021 to 21-10-2021.

CIL IPOs issued on 18-10-2021. These IPOs opened for QIB bidders for 3 days means
18th Oct’ 2021 to 20th Oct’ 2021. For NON Bidders for issues closed on 20th Oct’ 2021.

In the above chart, you can clearly observe that the fluctuations in stock market are very
high. And Both indices are reached at the lowest point of the 4 days and this point only is
lowest point of past 2 months of market. The main reason to fall down the both indices
reaches at the very least point of the past 2 months.

You can understand that CIL IPOs affects the more on stock market because all investors
want to buy the IPOs of CIL.

74
Investors also expected these IPO’s will be gives good returns with in a short time period.
The actual PAR value means face value of each IPO is only Rs. 10/- but the premium
only contained before issuing of IPO’s is 235. This is also one of the positive sign to
invest money in CIL IPO’s.

So in this period all investors are withdraws their money from other securities and invest
that money into the CIL IPOs. That is the main reason to fall down the Stock Market to
least of the past 2 months.

75
ANALYSIS OF CIL IPOs AFTER CLOSING THE ISSUE OF AN IPOs

Sensex & Nifty Indices after closing the CIL IPOs.

The below chart shows the fluctuations in stock markets, when CIL IPO’s issues are
closed .This chart shows the fluctuations between 22-10-2021 to 3-11-2021.

The above chart clearly shows the effect of CIL IPOs on stock market. After closing the
IPOs date. Automatically market indices are rising slowly because all investors are
investing in other securities again. In the last day the indices are raised very high because
on that they CIL are refunding amount who are not allotted with the shares. So, who
didn’t get allotment in CIL IPO’s they are investing that money in other shares that’s why
market indices are showing more positive end of the chart means where investors getting
refund their amount back.

76
ANALYSIS OF CIL IPOs, WHEN IPOs ALLOTTED AND LISTED IN STOCK
EXCHANGE

Sensex & Nifty Indices after Allotting and Listing the CIL IPOs.

The below chart shows the fluctuations in stock markets, when CIL IPO’s allotted shares
to their investors and listed in stock exchange. This chart shows the fluctuations between
04th Nov’21 to 20th Nov’ 2021.

The above chart clearly explain that, the share market indices are playing consistent role
in starting because who didn’t allotted with shares of CIL they are interesting to buy the
shares but after some time automatically indices are falling down because the effect of
CIL has gone. That’s why indices are falling down slowly in that period.

77
ANALYSIS OF CIL IPOs PARTCUALR ONE MONTH PERIOD DURING IPOs
ISSUED

Sensex & Nifty Indices for one month when CIL IPOs are issued.

The below chart shows the fluctuations in stock markets, when CIL IPOs allotted shares
to their investors .

This chart shows the fluctuations between 04th Nov’21 to 20th Nov’ 2021.

The above chart clearly shows that particular month of indices when the CIL IPOs are
issued. From the above chart you can conclude that CIL IPOs are affecting the share
market. And during the CIL IPOs issued period only the both indices are fall down lowest
of the particular month means all investors are affected with CIL IPO’s and this effect is
shows with all another listed companies. That’s why the both indexes are fall down
lowest in that particular issued time on 19th Oct’2021.

78
OVER ALL COAL INDIA PERFORMANCE INDEX

The above hart shows the overall performance of CIL Share.

BSE : Oct 25, 2021 17:00

Open Price 325.00 Volume 424758
High Price 326.00 52 Wk High 422.30
Low Price 320.80 52 Wk Low 287.45
Prev. Close 324.65

NSE : Oct 25, 2021 17:00

Open Price 324.20 Volume 3614659
High Price 325.80 52 Wk High 422.35
Low Price 320.55 52 Wk Low 289.00
Prev. Close 324.55

These both indices are shown the one year growth of CIL Share. When CIL allotted the
share value is Rs. 245. With in the one year duration the CIL share value become Rs.
325. means it increases nearly Rs. 32% with in the year.

79
In this year only the share of CIL reaches the Rs.422. means it gives nearly 72% returns
in particular time period. These returns are very high returns with in year.

The above all factors are explain about how IPOs will effects the Stock Market.
So, we can conclude that IPOs effect the Stock Market.

Major Factors which influence the Stock Market when IPOs issued.
 Companies Image and Goodwill.
 Positive Talk and NEWS on Coal India Limited IPOs.
 World Largest Coal Producer Company.
 CIL undertaken by Govt, of India.
 India is the 3rd largest Coal Producer in the world.
 Biggest IPO issue from past few years.

And So many other factors influence the Stock Markets. These reasons only effect
the more on Stock Market fluctuations when IPOs issued.

80
 CHAPTER-V
 FINDINGS
 SUGGESTIONS
 CONCLUSIONS

81
Major Findings

 An IPO company is difficult to analyze since there isn't a lot of historical info.
 An IPO is the first sale of stock by a company to the public.
 It can be observed that CIL IPO’s affects the more on Stock Market.
 A strong IPO can effects the more on Stock Market.
 A Single strong IPO can effects the all other companies.
 A strong IPO can change the investors mind set to invest money.
 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.

 An IPO is a costly undertaking. A typical firm may spend about 15-25% of the
money raised on direct expenses. Even more resources are spent indirectly
(management time, disruption of business).

 Only few companies were able to perform positive returns at the end of 1 year.
 Only few companies can gain the excess capital with in the short time.
 Investors mind set attracted towards investment of an IPO on the basis of image,
popularity, positive talk & news & etc.. information related to IPOs.
 Only few investors will consider the technical factors of IPOs.
 The investor faces limited risk in the secondary market. He is adequately
protected from counter party risks by the stock exchange. But he needs much
more protection and safeguards in the primary market.
 According to my study the investment done in the securities by the investors is
mainly done only by the image of the company but not on the basis of the
fundamental analysis.
 A strong IPOs effect is also limited time in Stock Market,
 Investors evaluate an IPO maximum from Promoters of the company, prevailing
Market Trend & Recent IPO performance & Issue Size of the IPO and minimum
from Suppliers of the company, Listing in Well Known Stock exchanges &
Media Advertisements.

82
Suggestions
 The investment in IPO can prove too risky because the investor does not know
anything about the company because it is listed first time in the market so its per-
formance cannot be measure.

 Investors of the secondary market must take part in the primary markets as it
has been seen that IPO activity in Indian Stock Market has been tremendously
growing. And IPO is the safest stock market investment.
 On the other hand it can be said that the higher the risk higher the returns earned.
So we can say that the though risky if investment is done then it can give higher
returns as well. For example- we can take the example of Coal India Limited.
The Investors invested in huge amounts with the faith that they will get good
returns but nothing happened so when the IPO got listed. So one should think and
invest in IPO.
 Primary market is more volatile than the secondary market because all the
companies are listed for the first time in the market so nothing can be said about
its performance.
 If higher risk is taken, it is always rewarded with the higher returns. So higher the
risk the more the returns rewarded for it.
 “We can fairly predict the future, but can’t make it happen as it is.”
 Initial return given by the IPO should not be treated as indication of its success or
failure in the long run.
 Investors of the secondary market must take part in the primary markets as it has
been seen that IPO activity in Indian Stock Market has been tremendously
growing. And IPO is the safest stock market investment.
 Over subscription should be treated as indication of success of the issue.
 Investors must analyze all the sectors before investing in the IPO, in order to get
maximum returns.
 Investors should take into consideration the promoters of the business, the
prevailing market trend & Recent IPO performance before investing in an IPO.
 Though IPO is considered as a safe investment avenue but it is very important to
make thorough fundamental study of any IPO before taking the decision. As
sometimes a fundamentally strong company may not provide good returns due to
some reasons as in case of Cairn India Ltd.

83
Conclusions

 Broadly speaking, companies are either private or public. Going public means a
company is switching from private ownership to public ownership.
 Getting in on a hot IPO is very difficult, if not impossible.
 The process of underwriting involves raising money from investors by issuing
new securities.

 Thus we have studied about the organization and various forms of organizations.
How the funds can be raised is studied so as to know the effective way of
accessing capital for the organization.

 The study about IPO and its methods helped us to know the different ways of
going for an IPO.

 Analysis of financial markets helped to know about the various types of markets.

 The advantages and disadvantages of going for an IPO are studied.

 Thus the overall knowledge about IPO is gathered.

 An IPO company is difficult to analyze since there isn't a lot of historical info.

 IPO is used by a company to raise its funds. The extra amount obtained from
public may be invested in the development o f the company, although it costs a
little to a company but it gives a way to get more money for long term
investments.

84
BIBLIOGRAPHY

85
REFERENCES

BOOKS

 Khan M. Y .and Jain. P.K (2005). Financial management. Pearson publications

JOURNALS

 Indian Journal of Finance – Feb’ 2013.

 Journal of Emerging Market Finance, December, 2021

WEBSITES

 http://www.google.co.in
 http://www.crisil.com
 http://iporatings.in
 http://www.ipostatus.com
 http://www.moneycontrol.com
 http://www.besindia.com
 http://www.sebi.gov.in
 http://www.moneycontrol.com/nifty/nse/nifty-live
 http://www.nirmalbang.com/ipo/closed-issues.aspx
 http://money.rediff.com
 http://www.scribd.com
 http://www.nseindia.com

86