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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 member
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.
INTRODUCTION TO IPOs
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 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.
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.
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.
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.
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.
STUDY AREA:
The study has been conducted in Emkay Global Financial Services Pvt. Ltd.., Mahabubnagar.
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;
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.
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
SAMPLE DESIGN:
Sample unit: Sample unit is the organization the project was completed.
Time and place: Project completed within a period of 45 days. Emkay Global Financial Services Ltd., Mahabubnagar Branch.
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.
OBJECTIVES OF THE STUDY
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.
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.
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.
• 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.
• 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 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.
• 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.
[pic]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. They 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 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:
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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.
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.
▪ 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.
• 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.
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 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).
➢ 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.
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.
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.
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.
OBJECTS OF THE OFFERING NEW IPO
ϖ Funds Requirement
ϖ Funding Plan (Means of Finance)
ϖ Appraisal
ϖ Schedule of Implementation
ϖ Funds Deployed
ϖ Sources of Financing of Funds already deployed
ϖ Details of Balance Fund Requirement
ϖ Interim Use of Funds
ϖ Basic Terms of Issue
ϖ Basis for issue price
ϖ 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.
ϖ 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.
ϖ 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.
ϖ 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.
ϖ 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 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 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.
FEATURES OF IPO GRADING
IPO grading covers both internal and external aspects of a company seeking to make an IPO in general. The internal factors include competence and effectiveness of the management, profile of promoters, marketing strategies, size and growth of revenues, competitive edge, technology, operating efficiency, liquidity and financial flexibility, asset quality, accounting quality, profitability and hedging of risks. Among external factors, the key one is the industry and economic/business environment for the issuer. Here, it is important to note that internationally, the global rating agencies such as Standard & Poors and Moodys do not perform grading of IPOs at all. While Standard & Poors is the majority stakeholder in CRISIL Ltd, Moodys is the single biggest stakeholder in ICRA Ltd. Similarly, the third global player Fitch IBCA (which acquired another rating agency Dun & Bradstreet in 2000) also does not grade IPOs as yet. The IPO grading is indicated on a five point scale and a higher score indicating stronger fundamentals.
AN IPO GRADING SCALE
|IPO grade |Assessment |
|5/5 |Strong fundamentals |
|4/5 |Above average fundamentals |
|3/5 |Average fundamentals |
|2/5 |Below average fundamentals |
|1/5 |Poor fundamentals |
The process will ideally require 2-3 weeks for completion, so it may be a good idea for companies to initiate the grading process about 6-8 weeks before the targeted IPO date to provide sufficient time for any contingencies.
Cost Involved In IPO Grading
Though nothing has been declared officially but most of the credit rating has said that IPO-grading would not cost much to the issuers. They would be charging 10 basis points of the amount to be raised with a ceiling of about Rs 10-15 lakhs. Thus, even in the case of a mega IPO, there would be a cap on fees, he noted. Around 100 IPOs hit the market on an average every year. However, despite this seemingly big number, the total receipts for the entire rating industry on account of grading fees would be only about Rs 10-15 crore.
Benefits of IPO Grading
There are various positive sides of an IPO grading. The most significant factors that go in favor of IPO grading are:
(a) Professional and Independent Appraisal: IPO grading will create awareness about the fundamentals of the company’s IPO and will provide focused company information as a key input to prospective investors that will be helpful in taking an investment decision, in a manner similar to what a credit rating is for debt investors.
(b) Removal of Information Burden: Where disclosures of issues are large and complex, a service analyzing and interpreting these disclosures independently and quickly will be extremely useful in cutting through the clutter. Thus, the usefulness of IPO grading would be particularly high for small investors as it will serve as a guide about the company coming out with the issue.
c) Impediment for Weak Companies: While fundamentally sound companies will gain from the market, companies whose fundamentals are not very strong will be impeded in building up speculative demand among investors. Such weak companies will need to offer pricing, which will adequately compensate investors for the risks they take. Therefore, IPO grading provides disincentives for weak companies planning to come to the market to raise easy capital.
ROLE OF MERCHANT BANKERS IN IPO
Intermediary’s help corporations design securities that will be attractive to investors, buy these securities from the corporations, and then resell them to savers in the primary markets.
Merchant Bankers/ Lead Manager
Merchant bankers play an important role in issue management process. Lead managers have to ensure correctness of the information furnished in the offer document. They have to ensure compliance with SEBI rules and regulations as also Guidelines for Disclosures and Investor Protection. To this effect, they are required to submit to SEBI a due diligence certificate confirming that the disclosures made in the draft prospectus or letter of offer are true, fair and adequate to enable the prospective investors to make a well informed investment decision. The role of merchant bankers in performing their due diligence functions has become even more important with the strengthening of disclosure requirements and with SEBI giving up the vetting of prospectuses. Their functions are:
▪ To act as intermediaries between the company seeking to raise money and the investors. They must possess a valid registration from SEBI enabling them to do this job.
▪ They are responsible for complying with the formalities of an issue, like drawing up the prospectus and marketing the issue.
▪ If it is a book building process, the lead manager is also in charge of it. In such a case, they are also called Book Running Lead Managers.
Post issue activities, like intimation of allotments and refunds, are their responsibility as well.
ORIGIN OF INDIAN STOCK MARKET
The origin of the stock market in India goes back to the end of the eighteenth century when long-term negotiable securities were first issued. However, for all practical purposes, the real beginning occurred in the middle of the nineteenth century after the enactment of the companies Act in 1850, which introduced the features of limited liability and generated investor interest in corporate securities.
An important early event in the development of the stock market in India was the formation of the native share and stock brokers 'Association at Bombay in 1875, the precursor of the present day Bombay Stock Exchange. This was followed by the formation of associations/exchanges in Ahmadabad (1894), Calcutta (1908), and Madras (1937). In addition, a large number of ephemeral exchanges emerged mainly in buoyant periods to recede into oblivion during depressing times subsequently.
Stock exchanges are intricacy inter-woven in the fabric of a nation's economic life. Without a stock exchange, the saving of the community- the sinews of economic progress and productive efficiency- would remain underutilized. The task of mobilization and allocation of savings could be attempted in the old days by a much less specialized institution than the stock exchanges. But as business and industry expanded and the economy assumed more complex nature, the need for 'permanent finance' arose. Entrepreneurs needed money for long term whereas investors demanded liquidity – the facility to convert their investment into cash at any given time. The answer was a ready market for investments and this was how the stock exchange came into being.
Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying, selling or dealing in securities. These securities include:
(i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
(ii) Government securities; and
(iii) Rights or interest in securities.
The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April - August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9, 21,500 crore.
The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore. Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index.
Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) and NEAT (National Exchange Automated Trading) System.
It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency; the scrip's traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which are in the carry forward system (Badla). The 'F' group represents the debt market (fixed income securities) segment. The 'Z' group scrip's are the blacklisted companies. The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.
ABOUT BSE
BSE Limited is the oldest stock exchange in Asia What is now popularly known as the BSE was established as "The Native Share & Stock Brokers' Association" in 1875.
Over the past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient capital raising platform.
Today, BSE is the world's number 1 exchange in the world in terms of the number of listed companies (over 4900). It is the world's 5th most active in terms of number of transactions handled through its electronic trading system. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies (as of December 31, 2009). The companies listed on BSE command a total market capitalization of USD Trillion 1.28 as of Feb, 2010.
BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first Exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-Line trading System (BOLT). Presently, we are ISO 27001:2005 certified, which is a ISO version of BS 7799 for Information Security.
The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are also traded at BSE.
BSE CONTINUES TO INNOVATE:
• Became the first national exchange to launch its website in Gujarati and Hindi and now Marathi
• Purchased of Marketplace Technologies in 2009 to enhance the in-house technology development capabilities of the BSE and allow faster time-to-market for new products
• Launched a reporting platform for corporate bonds christened the ICDM or Indian Corporate Debt Market
• Acquired a 15% stake in United Stock Exchange (USE) to drive the development and growth of the currency and interest rate derivatives markets
• Launched 'BSE STAR MF' Mutual fund trading platform, which enables exchange members to use its existing infrastructure for transaction in MF schemes.
• BSE now offers AMFI Certification for Mutual Fund Advisors through BSE Training Institute (BTI)
• Co-location facilities for Algorithmic trading
• BSE also successfully launched the BSE IPO index and PSU website
• BSE revamped its website with wide range of new features like 'Live streaming quotes for SENSEX companies', 'Advanced Stock Reach', 'SENSEX View', 'Market Galaxy', and 'Members'
• Launched 'BSE SENSEX MOBILE STREAMER'
With its tradition of serving the community, BSE has been undertaking Corporate Social Responsibility (CSR) initiatives with a focus on Education, Health and Environment. BSE has been awarded by the World Council of Corporate Governance the Golden Peacock Global CSR Award for its initiatives in Corporate Social Responsibility (CSR).
For more details & information, please visit our website:
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.
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,
• 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.
LOGO
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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.
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.
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 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. 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.
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, 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 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.
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
.
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
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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.
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.
• 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.
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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 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.
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 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)
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.
• 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@
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.
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.
• 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
|Milestones of Karvy |
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INDUSTRY PROFILE:
Following diagram gives the structure of Indian financial system:
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.
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.
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 participants.
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 2010. Coal India produce non-coking coal and coking coal of various grades for diverse applications.
As of March 31, 2010, 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
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, 2010 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 2010, 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 2010 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, 2010, 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 713 million tons per annum in 2011-12 compared to 600 million tons per annum in FY 2009-10 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 2011-12, 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 2010 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 FY2010 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 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 2010 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 |18/10/2010 |
|Issue Close date (for QIB bidders) |20/10/2010 |
|Issue Close date (for non-QIB bidders) |21/10/2010 |
|Listing |BSE, NSE |
|** Eligible employees and retail investor will get 5% discount on offer price |
Advertisement Issued on: 06/10/2010. (Before 10 working days of issues opening)
Allotment of IPOs on : 04/11/2010. (after 12 working days off issues closed)
LISTING DAY DATA
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.
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.
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. |
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 01-09-2010 to 06-10-2010.
The below chart consists with both indices(NIFTY & SENSEX).
[pic]
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 publication
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 07-10-2010 to 17-10-2010.
[pic]
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.
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.
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 18-10-2010 to 21-10-2010.
CIL IPOs issued on 18-10-2010. These IPOs opened for QIB bidders for 3 days means 18th Oct’ 2010 to 20th Oct’ 2010. For NON Bidders for issues closed on 20th Oct’ 2010.
[pic]
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.
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.
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 22-10-2010 to 3-11-2010.
[pic]
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.
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’10 to 20th Nov’ 2010.
[pic]
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.
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’10 to 20th Nov’ 2010.
[pic]
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’2010.
OVER ALL COAL INDIA PERFORMANCE INDEX
[pic]
The above hart shows the overall performance of CIL Share.
BSE : Oct 25, 2011 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, 2011 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.
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.
FINDINGS
1. An IPO company is difficult to analyze since there isn't a lot of historical info.
2. An IPO is the first sale of stock by a company to the public.
3. It can be observed that CIL IPO’s affects the more on Stock Market.
4. A strong IPO can effects the more on Stock Market.
5. A Single strong IPO can effects the all other companies.
6. A strong IPO can change the investors mind set to invest money.
7. 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.
8. 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).
9. Only few companies were able to perform positive returns at the end of 1 year.
10. Only few companies can gain the excess capital with in the short time.
11. Investors mind set attracted towards investment of an IPO on the basis of image, popularity, positive talk & news & etc.. information related to IPOs.
12. Only few investors will consider the technical factors of IPOs.
13. 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.
14. 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.
15. A strong IPOs effect is also limited time in Stock Market,
16. 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.
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 performance 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.
← Before taking an IPO investment decision it is very necessary to study the stock market behavior at that time since it can have a vital bearing on the listing of IPO.
← It is very important to study the company individually irrespective of the growth potential of the sector. It is evident from the different IPO performances of Idea cellular Ltd. & Spice Communications Ltd. even when they both belong to the growing Telecom sector.
← Companies issue their shares information through newspapers prospectus. The is not reached to illiterate persons. Then illiterate person also become the investors in the company this is useful to be company as well as public.
← 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.
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 informantion
❖ 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.
IPO GLOSSARY
A
Allocation
This is the amount of stock in an initial public offering (IPO) granted by the underwriter to an investor.
Aftermarket
Trading in the IPO subsequent to its offering is called the aftermarket.
B
Board of Directors
The composition of the Board of Directors is particularly critical for an IPO. Typically, a board is composed of inside and outside directors.
Broken IPOs
If an IPO trades below its IPO price in the aftermarket, it is said to be a broken IPO.
C
Calendar
This refers to upcoming IPOs and secondary offerings. Brokerage houses have equity calendars, bond calendars and municipal calendars.
Clearing Price
The price at which all shares of an IPO can be sold to investors in a Dutch Auction. Sometimes referred to as the “market clearing price”.
F
First Day Close
The closing price at the end of the first day of trading reflects not only how well the lead manager priced and placed the deal, but what the near-term trading is likely to be.
Float
When a company is publicly traded, a distinction is made between the total number of shares outstanding and the number of shares in circulation, referred to as the float. The float consists of the company's shares held by the general public.
G
Green Shoe
A typical underwriting agreement allows the underwriters to buy up to an additional 15% of shares at the offering price for a period of several weeks after the offering. This option is also called the over allotment and is exercised when the IPO is oversubscribed and trading above its offer price. The term comes from the Green Shoe Company, which was the first to have this option.
H
Hot Issue
When there is significantly more demand than supply for an IPO it is said to be a hot issue.
I
Initial Public Offering
This is the event of a company first selling its shares to the public.
Insiders
Management, directors and significant stockholders are regarded as insiders because they are privy to information about the operations of a company not known to the general public.
IPO Price
Individual investors often ask why the price at which an IPO starts trading is different from its offer price. This occurs because the offer price is set by the underwriters before the stock starts trading. Once the stock starts trading, the price is determined by actual supply and demand and can be higher or lower.
IPO Research
Prior to the offering, the underwriters involved in the IPO are prohibited from issuing research or recommendations for forty days. Following the IPO, the underwriter is allowed to issue a research report
M-N
Market Capitalization
The total market value of a firm. It is defined as the product of the company's stock price per share and the total number of shares outstanding
Market Value
The market value of a company is determined by multiplying the number of shares outstanding by the current price of the stock.
O
Offering Price
This is the price at which the IPO is first sold to the public. It is set by the lead manager, usually after the close of stock market trading the night before the shares are distributed to IPO buyers. In the case of some foreign IPOs, the pricing occurs over the weekend.
Oversubscribed
When a deal has more orders than there are shares available it is said to be oversubscribed.
P
Preliminary Prospectus
This is the offering document printed by the company containing a description of the business, discussion of strategy, presentation of historical financial statements, explanation of recent financial results, management and their backgrounds and ownership.
Proceeds
Companies go public to raise money. The money raised is referred to as proceeds.
R
Red Herring
This is the term of art for the preliminary prospectus. It gets its name from the printed red disclaimer on the left side of the prospectus.
U-V
Underwriter
This is a brokerage firm that raises money for companies using public equity and debt markets. Underwriters are financial intermediaries that buy stock or bonds from an issuer and then sell these securities to the public.
Venture Capital
Funding acquired during the pre-IPO process of raising money for companies. It is done only by accredited investors.
BOOKS
➢ Khan M. Y and Jain. P.K (2005). Financial management. Pearson publications.
➢ IM Pandey, 2010,Financial Management. Vikas Publication.
➢ Ross Westerfield jaffe. Corporate Finance, 7th Ed, TMH Publishers.
➢ Dhanesh Khatri, 2010,Security Analysis. Macmillan Publishers.
Financial services
JOURNALS
➢ Indian Journal of Finance – Feb’ 2011.
➢ Journal of Emerging Market Finance- December’ 2011
➢ Journal of the American Mathematical Society’2007
➢ Journal of the Financial Econometrics’2010
REFERENCES
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