a study on ipo market

8/19/2019 A Study on Ipo Market

1/104

Initial Public Offers and its effect on Stock Market Page 0


2/104

INTRODUCTION OF STOCK MARKET & IPOs

WHAT IS MEANT BY A STOCK EXCHANGE?

The Securities Contract (Regulation) Act, 1956 [SCRA] deines !Stoc" #$change% as an&

'od& o indiiduals, hether incor*orated or not, constituted or the *ur*ose o assisting,

regulating or controlling the 'usiness o 'u&ing, selling or dealing in securities+ Stoc"

e$change could 'e a regional stoc" e$change hose area o o*eration-urisdiction is

s*eciied at the ti.e o its recognition or national e$changes, hich are *er.itted to hae

nationide trading since ince*tion+ /S# as incor*orated as a national stoc" e$change+

BRIEF HISTORY OF STOCK EXCHANGES

o &ou "no that the orlds ore.ost .ar"et*lace /e 2or" Stoc" #$change (/2S#),

started its trading under a tree (no "non as 63 4all Street) oer 00 &ears ago

Si.ilarl&, 7ndias *re.ier stoc" e$change 8o.'a& Stoc" #$change (8S#) can also trace

'ac" its origin to as ar as 15 &ears hen it started as a oluntar& non*roit .a"ing

association+

/es on the stoc" .ar"et a**ears in dierent .edia eer& da&+ 2ou hear a'out it an&

ti.e it reaches a ne high or a ne lo, and &ou also hear a'out it dail& in state.ents

li"e The 8S# Sensitie 7nde$ rose 5: toda&+ ;'iousl&, stoc"s and stoc" .ar"ets are

i.*ortant+ Stoc"s o *u'lic li.ited co.*anies are 'ought and sold at a stoc" e$change+

8ut hat reall& are stoc" e$changes


3/104

co.*etition+ ?ot+ securities are traded outside the trading ring in the or. o oer the

counter sale or *urchase+ The 'argains that are stuc" in the trading ring '& the .e.'er

o the stoc" e$changes are at the airest *rices deter.ined '& the 'asis las o de.and

and su**l&+

The onl& stoc" e$changes o*erating in the 19th centur& ere those o 8o.'a&, set u* in

13@5 and Ah.ada'ad set u* in 139+ These ere organi=ed as oluntar& non*roit

.a"ing association o 'ro"ers to regulate and *rotect their interests 'eore the control on

securities, trading 'eca.e a central su'-ect and the 8o.'a& securities+ Bnder this act, the

8o.'a& stoc" e$change as recogni=ed in 19@ and Ah.ada'ad and other centre%s, 'ut

the& ere not recogni=ed+ Soon ater the& 'eco.e a central su'-ect, central legislation

as *ro*osed and a co..ittee, headed '& A+ ?;R4AA ent into the 'ill o securities

contract, hich 'eca.e la in 1956+

GROWTH OF STOCK EXCHANGES IN INDIA

The stoc" .ar"et actiities in 7ndia ere relatiel& on a lo "e& during the 'eginning o

the decade o 30%s .ainl& 'ecause o the allies regi.e till 9@+ Aterards, the

goern.ent o 7ndia concentrated .ore on ad.inistration and less on deelo*.ent and

*ursuit o the *hiloso*h& o *u'lic sector do.inating the econo.& Stoc" e$changes ere

*laced under the e$clusie regulation o the goern.ent through *rocla.ation in 19D0 o

the constitution o 7ndia+

uring the 1950%s E 1960%s 7ndian econo.& as do.inated '& the *u'lic sector, hich

as considerate as the .a-or ehicle or econo.ic and industrial deelo*.ent+ This trend

has changed since .id 30%s ith li'erali=ation o goern.ent *olices and greater reedo.

gien to *riate sector+

This *olic& o *rogressiel& deregulating the econo.& led to the e.ergence o stoc"

.ar"ets as a .a-or instru.ent o inance or industr& and trade+ 7ndia can 'oast o 'eing

one o the oldest stoc" .ar"et in Asia+ The 8o.'a& stoc" e$change (8S#) as ounded in

13@5, hile the ondon stoc" e$change as esta'lished in 1@@D+

Initial Public Offers and its effect on Stock Market Page


4/104

INTRODUCTION TO IPOs

DEFINITION

Initial Public Offering: The irst sale o stoc" '& a co.*an& to the *u'lic+ Co.*anies

oering an 7P; are so.eti.es ne, &oung co.*anies, or so.eti.es co.*anies hich

hae 'een around or .an& &ears 'ut are inall& deciding to go *u'lic+ 7P;s are

oten ris"& inest.ents, 'ut oten hae the *otential or signiicant gains+ 7P;s are oten

used as a a& or a &oung co.*an& to gain necessar& .ar"et ca*ital+

The ter. F7P;F sli**ed into eer&da& s*eech during the tech 'ull .ar"et o the late

1990s+ 8ac" then, it see.ed &ou couldnt go a da& ithout hearing a'out a do=en ne

dotco. .illionaires in Silicon Galle& cashing in on their latest 7P;+ The *heno.enon

s*aned the ter. Fsiliconaire,F hich descri'ed the dotco. entre*reneurs in their earl&

0s and D0s ho suddenl& ound the.seles liing large due to 7P;s ro. their 7nternet

co.*anies+ So, hat is an 7P; an&a& Ho did eer&'od& get so rich so ast And,

.ost i.*ortantl&, is it *ossi'le or .ere .ortals li"e us to get in on an 7P; All these

Iuestions and .ore ill 'e ansered in this tutorial+ 8eore e continue, e suggest &ou

chec" out our stoc" 'asics tutorial as ell as 'ro"ers and online trading i &ou dont hae

a solid understanding o stoc"s and ho the& trade+

What is an IPO?

Selling Stoc" 7P; is an acron&. or 7nitial Pu'lic ;ering+ This is the irst sale o stoc"

'& a co.*an& to the *u'lic+ A co.*an& can raise .one& '& issuing either de't ('onds) or

eIuit&+ 7 the co.*an& has neer issued eIuit& to the *u'lic, its "non as an 7P;+

Co.*anies all into to 'road categoriesJ *riate and *u'lic+

A *riatel& held co.*an& has eer shareholders and its oners dont hae to disclose.uch inor.ation a'out the co.*an&+ An&'od& can go out and incor*orate a co.*an&J

-ust *ut in so.e .one&, ile the right legal docu.ents, and ollo the re*orting rules o

&our -urisdiction+ Kost s.all 'usinesses are *riatel& held+ 8ut large co.*anies can 'e

*riate too+ id &ou "no that 7


5/104

other hand, hae sold at least a *ortion o the.seles to the *u'lic and trade on a stoc"

e$change+ This is h& doing an 7P; is also reerred to as Fgoing *u'lic+F

Pu'lic co.*anies hae thousands o shareholders and are su'-ect to strict rules and

regulations+ The& .ust hae a 'oard o directors and the& .ust re*ort inancial

inor.ation eer& Iuarter+ 7n the Bnited States, *u'lic co.*anies re*ort to the S#C+ 7n

other countries, *u'lic co.*anies are oerseen '& goerning 'odies si.ilar to the S#C+

>ro. an inestors stand*oint, the .ost e$citing thing a'out a *u'lic co.*an& is that the

stoc" is traded in the o*en .ar"et, li"e an& other co..odit&+ 7 &ou hae the cash, &ou

can inest+ The C#; could hate &our guts, 'ut theres nothing he or she could do to sto*

&ou ro. 'u&ing stoc"+ 4h& ?o Pu'lic ?oing *u'lic raises cash, and usuall& a lot o it+

8eing *u'licl& traded also o*ens .an& inancial doorsJ

8ecause o the increased scrutin&, *u'lic co.*anies can usuall& get 'etter rates hen

the& issue de't+

As long as there is .ar"et de.and, a *u'lic co.*an& can ala&s issue .ore stoc"+ Thus,

.ergers and acIuisitions are easier to do 'ecause stoc" can 'e issued as *art o the deal+

Trading in the o*en .ar"ets .eans liIuidit&+ This .a"es it *ossi'le to i.*le.ent things

li"e e.*lo&ee stoc" onershi* *lans, hich hel* to attract to* talent+

8eing on a .a-or stoc" e$change carries a considera'le a.ount o *restige+ 7n the *ast,

onl& *riate co.*anies ith strong unda.entals could Iuali& or an 7P; and it asnt

eas& to get listed+ The 7nternet 'oo. changed all this+ >ir.s no longer needed strong

inancials and a solid histor& to go *u'lic+ 7nstead, 7P;s ere done '& s.aller startu*s

see"ing to e$*and their 'usiness+ Theres nothing rong ith anting to e$*and, 'ut .ost

o these ir.s had neer .ade a *roit and didnt *lan on 'eing *roita'le an& ti.e soon+

>ounded on enture ca*ital unding, the& s*ent li"e Te$ans tr&ing to generate enough

e$cite.ent to .a"e it to the .ar"et 'eore 'urning through all their cash+ 7n cases li"e

this, co.*anies .ight 'e sus*ected o doing an 7P; -ust to .a"e the ounders rich+ 7n GC

tal", this is "non as an e$it strateg&, i.*l&ing that theres no desire to stic" around and

create alue or shareholders+ The 7P; then 'eco.es the end o the road rather than the

'eginning+ Ho can this ha**en Re.e.'erJ an 7P; is -ust selling stoc"+ 7ts all a'out the

sales -o'+ 7 &ou can conince *eo*le to 'u& stoc" in &our co.*an&, &ou can raise a lot o

.one&+ 7n our o*inion, 7P;s li"e this are e$tre.el& ris"& and should 'e aoided+



6/104

NEED OF THE STUDY

This stud& is needed 'ecause no da&s eer& co.*anies ants to e$tent their 'usiness

and the& ants to go or *u'lic+ #er& inestor also loo"ing toards dierent 7P;%s to

inest in large a.ount in 'eginning to retain the .ore earnings in uture+ As a citi=en or

inestor also, i an& 'od& ants to "no a'out the econo.ic *osition o co.*anies as

ell as countries, eer& 'od& .ust 'e hae so.e 'asic "noledge a'out stoc" .ar"et and

other related inor.ation+

This study is needed because;

• To "no the acts o stoc" .ar"et luctuations during 7P;%s issues+

• To understand the 7P;%s and Stoc" .ar"et 'asics+

• To "no a'out the stoc" .ar"et indices+

• To "no a'out inestors .indset during 7P;%s issues+

• To "no h& co.*anies ants to go or *u'lic+

This *ro-ect is needed 'ecauseL all o the a'oe o*tions are neer ended+ As a inancial

student, as a inestor, as a citi=en and eer&'od& .ust 'e haing so.e "noledge to

understand the things+ So researcher%s *ro-ect ill coer the all things+

This *ro-ect is needed 'ecauseL all o the a'oe o*tions are neer ended+ As a inancial

student, as a inestor, as a citi=en and eer&'od& .ust 'e haing so.e "noledge to

understand the things+ So researcher%s *ro-ect ill coer the all things+



7/104

IMPORTANCE OF THE STUDY

The *ros*ectus includes er& i.*ortant inor.ation li"e the historical

*eror.ance o the co.*an& in the *reious &ears, the current *eror.ance o the

co.*an&, the a.ount o shares that the& are oering to the *u'lic, hat the& intend to do

ith the .one& ater the 7P; a.ongst other things+ An& *rudent inestor ill ta"e hisher

ti.e to go through this inor.ation in order to .a"e an inor.ed decision on the a.ount

o shares to ta"e u* or een i to *artici*ate in the oer+ As an inestor this are the thingsto loo" out or in the *ros*ectus and Stoc" Kar"ets conce*ts and ho the indices o stoc"

.ar"ets ill eected '& an 7P;%s+

7t consists ith Co.*anies 7P;%s *eror.ance in the *receding &ears+ This is i.*ortant

or &ou, to deelo* *eror.ance trends and thereore 'e a'le to *redict its uture

*eror.ance all actors held constant+ This is .ainl& done '& loo"ing at the luctuations

in stoc" .ar"ets+



8/104

RESEARCH METHODOLOGY

RESEARCH

Research in co..on reers to a search or "noledge+ 4e can also deine

research as a scientiic and s&ste.atic search or *ertinent inor.ation on a s*eciic to*ic+

+Slesinger and K+Ste*henson deine research as the !.ani*ulation ; things,

conce*ts or s&.'ols or the *ur*ose o generali=ing to e$tend, Correct or eri&

"noledge, hether that the *ractice o an artM+

Research .ethodolog& is a a& to s&ste.aticall& sole the research Pro'le.+ The

ste*s ado*ted '& the researcher to sole the research *ro'le.+

!" D#s$%iti'# R#s#a%$h

escri*tie research is used to o'tain inor.ation concerning the current status o the

*heno.ena to descri'e Nhat e$istsM ith res*ect to aria'les or conditions in a situation+

escri*tie research, also "non as statistical research, descri'es data and characteristics

a'out the *o*ulation or *heno.enon 'eing studied+ escri*tie research ansers the

Iuestions who, what , where, when and how+ Although the data descri*tion is actual,

accurate and s&ste.atic, the research cannot descri'e hat caused a situation+

(" Ana)*ti$a) R#s#a%$h

Anal&tical research ta"es descri*tie research one stage urther '& see"ing to e$*lain

the reasons 'ehind a *articular occurrence '& discoering causal relationshi*s+ ;ncecausal relationshi*s hae 'een discoered, the search then shits to actors that can 'e

changed (aria'les) in order to inluence the chain o causalit&+

TYPE OF RESEARCH DESIGN

The research design is *re *lanned hich is designed or anal&sis+ And also the data as

collected ro. structured and ell thought O out instru.ents+

NATURE OF STUDY

Initial Public Offers and its effect on Stock Market Page @


9/104

The stud& as totall& a actinding stud&+ The .ain ai. o this is to identi& and ealuate

the 7P;%s and its eects on stoc" .ar"et+

STUDY AREA

The stud& has 'een conducted in #."a& ?lo'al >inancial Serices Pt+ td++,

Kaha'u'nagar+

DATA

ata%s are the useul inor.ation or an& or.s o docu.ent designed in a s&ste.atic and

standardi=e .anner hich are used or so.e urther *roceedings+ ;ne o the i.*ortant

tools or conducting .ar"eting research is the aaila'ilit& o necessar& and useul data+

So.e ti.e the data are aaila'le readil& in one or. or the other and so.e ti.e the data

are collected aresh+

Th# s+,%$#s +- Data -a)) ,n.#% t/+ $at#0+%i#s1

!2 P%i3a%* Data The Pri.ar& data are those, hich are collected aresh or the irst

Ti.e, and thus ha**ens to 'e original in character+ 4ith reerence to This stud&,

data is collected through Interview method the stud& also includes o'taining

inor.ation ro.


10/104

Ti3# an. )a$# Pro-ect co.*leted ithin a *eriod o 5 da&s+ #."a& ?lo'al >inancial

Serices td+, Kaha'u'nagar 8ranch+

SCOPE OF THE STUDY

The stud& ith the *ri.e o'-ecties o IPOs an. its #--#$t +n st+$: 3a%:#t + 4hat are

the .ain reasons 'ehind stoc" .ar"et luctuations during 7P;s issues This stud& adices

the inestor or uture e$*ectations toards .ar"et indices+

Researcher%s *ro-ect ill hel* ull, to urther stud& related to 7P;s+

Researcher%s *ro-ect ill hel* ull, to all inancial students to gain so.e

inor.ation and "noledge related to 7P;s+

Researcher%s *ro-ect ill hel* ull, to 'ro"ing co.*anies and other related

consultancies to understand the .ar"et situations during 7P;s issued+

Researcher%s *ro-ect ill hel* ull, to 7nestors to gain the "noledge o Stoc"

Kar"et and luctuations during 7P;s issued+ 7t ill 'e hel*ul to ta"e decision

toards inest.ents+

Researcher%s *ro-ect ill hel* ull, to eer& citi=en to understand Stoc" Kar"et

luctuations and 7P; details and its eect on Stoc" Kar"et+

Researcher%s *ro-ect ill hel* ull, eer& 'od& to


11/104

OB;ECTI


12/104

LIMITATIONS OF STUDY

1+ The stud& as to 'e co.*leted in a short ti.eL the ti.e actor *ut a considera'le

li.it on the sco*e and the e$tensieness o the stud&+

+ The unsu**ortie attitude o the res*ondents hile res*onding to the Iuestions,

reIuiring the Iualitatie inor.ation .a& hae aected the inal indings and

outco.es+

D+ 8ecause o the diersit& o nature o res*ondents as ell as due to conduction o

the stud& on er& s.all scale, the indings o the sure& could not 'e generali=ed+

+ 7t as tried er& harder to include the 'est o inor.ation ro. *u'lished and

un*u'lished sources aaila'le on internet, 'oo"s and .aga=ines 'ut so.e o the

data reIuired or the detailed stud& as not aaila'le ree+



13/104



14/104

RE!!

B* Na.#% Nai-a%

E@)ainin0 IPOs Un.#% %i$in0 in th# T,nisian Ma%:#t

This article tests our h&*otheses (signaling, .ar"et tendenc&, .ar"et characteristics and

the e$ ante uncertaint& and inor.ation as&..etr&) to e$*lain the initial *u'lic oerings

(7P;s) under *ricing in the Tunisian .ar"et+ Kost o the e.*irical studies ocus .ainl&

on deelo*ed .ar"ets and onl& a e studies anal&=e the cli.ates o 7P;s in e.erging

.ar"ets+ The Tunisian 'usiness eniron.ent is .otiating 'ecause o the institutional

reor.s that hae 'een successull& i.*le.ented since 199+ The stud& anal&ses all the

Tunisian 7P;s ro. Karch 199 to A*ril 003 in order to e$*lain under*ricing in 7P;s+

The indings sho that 7P;s under*ricing is .ainl& e$*lained '& the signalling and the

.ar"et characteristics h&*otheses+ The *heno.enon o under*ricing in 7P;s is i.*ortant

or *ortolio .anagers ho are e$*ected to .a"e o*ti.al (alue.a$i.ising) inancing

choices+ Also, results o this stud& *roide insight into the 'usiness eniron.ent in the

case o the Tunisian .ar"et+

Initial Public Offers and its effect on Stock Market Page 1D


15/104

Kani:a G,tha F#4 (>!!5 INDIAN ;OURNAL OF FINANCE2 the stud&

concerned .ade on the leel o under *ricing o 7ndian 7P;s or to ti.e *eriods+

Re*resenting o**osite .ar"et conditions+ The leel o under *ricing has 'eentested ro. our *ara.eters+

Such asL

• eel o under *ricing

• To see the eect o the .ar"et conditions on the leel o under *ricing+

• To see the eicienc& o the .ar"et+

• To see the eects oer su'scri*tion on under *ricing+

;ne o the Researches as done on 7P;s o Reliance Poer+ The .ain o'-ecties o the

stud& are as ollosL

Pri.ar& ;'-ectie

•Bnderstand the Reliance Poer 7P;s all in *rice+

Secondar& ;'-ectie

• >actors res*onsi'le or the all in *rice o Reliance Poer eIuit&

• Perce*tion o a retail inestor toard Reliance Poer 'eore listing o 7P;+

7n the a'oe stud&, the researcher ta"en onl& one co.*an& 7P;s .eans Reliance

Poer 7P;s+ 7n hisher research the researcher%s consider onl& the o'-ectie Reliance

7P;s all in *rice and actors or all in *rice+

K& research is dierent ro. a'oe research, in .& research+ 7 tr& to ind the

7P;s eects oer stoc" .ar"et+ Ho stoc" .ar"et ill luctuate hen nel& 7P;s issued

in stoc" .ar"et+ This research don '& ta"ing case stud& o C7 7P;s+ 8ut this research

a**lica'le or all ne issues to understand the 7P;s oer Stoc" Kar"et+

So.e other researches ere also done '& the researcher%s such as

7/T7A PB87C ;>>#R A/ B# #7?A/C#, the o'-ecties o this stud& are as

ollosL



16/104

• To stud& and understands the conce*ts and *rocedures inoled in 7P;%s+

• To stud& understand the *rocess o ue iligence and its signiicance in 7P;%s+

• To anal&=e the eect o 7nitial Pu'lic ;ers on the issuing co.*an&, inestors and

stoc" .ar"et+

• To understand the role o an 7nest.ent 'an"er in .anaging 7P;%s+

The issue o an 7P; '& a co.*an& inoled nu.'er o stages, each calling or great

deal eriication+ The releant u*date inor.ation on the co.*an& has to cauteri=e

*recisel& in the *ros*ectus+ The decision '& the inestor on hether to inest in a

co.*an& inluenced signiicantl& '& inor.ation contained in the *ros*ectus+ K&

research also coers the actors hich inluencing the inestors .indset to inest

.one&+

So.e other researcher%s also done the so .an& researches+ 7n their researches the

gien o'-ecties are aaila'le+

• The stud& the conce*t o 7nitial Pu'lic ;er (7P;)+

• To stud& the *rocedure or 7P;s+

• To stud& the 7P;%s o in inrastructure sector the > i.ited, Housing

• eelo*.ent and 7nrastructure i.ited and ;.a$e i.ited on the 'asis o issue,

allot.ent and *eror.ance+

7n this research e can o'sere that, Conce*t o 7P;s and *rocedure o 7P;s onl&+ K&

research also coers the *rocedure o 7P;s ith dierent .ethods o 7P;s *ricing

calculations,

Another Research also done on 7P;%s, the o'-ecties o stud& are as ollos++

• To get the "noledge o 7P;+

• To anal&=e the returns o 7P;s hich ere issued in the 1st Iuarter o 00@+

• To "no the return o those 7P;s or 1 .onth, D .onths, 6 .onths, and 1 &ear+

• To "no the .ar"et rate o return or the sa.e *eriod+

• To "no the *rocedure or calculating the Standard eiation, calculating

Shar*e%s Ratio E the a'nor.al return+



17/104

7n a'oe research stud& e can "no a'out the conce*t o 7P;s and returns on 7P;s+

K& research coers the inor.ation related to returns and this research gies the

"noledge to eer& inestor a'out the .ar"et conditions and ho are the e$*ected

returns in *articular scenario+

8ut, .& research is dierent ro. all the other researches and this research in ne

research+ 7n this research the researcher%s .ain ai. is to ind out the conce*ts 7P;s as

ell as ho the stoc" .ar"et eected '& an 7P;s+ 7n this research, researcher%s done a

case stud& on 7P;s o C;A 7/7A 7K7T#+ Ho the C7 7P;s aect the Stoc"

Kar"ets+

The literature reie on 7P;s can 'e diided in the olloing .ain heads

a2 Reason and timing of going public

?oing *u'lic .ar"s a atershed in the lie c&cle o the ir.+ 4hile increased

eIuit& can su**ort the ir.%s uture *lans o groth, the trade o or the ir. is that o

increased *u'lic scrutin&+

B%#a)* an. M*#%s (>>82 state that in the conte$t o USA the ir.s .a& see"

*riate eIuit& in their initial &ears and onl& later go or *u'lic issues+

Pa0an+5 Pan#tta an. in0a)#s !2 in their stud& o Ita)ian -i%3s, ind that

ir.s going *u'lic are not see"ing .one& or groth 'ut are re'alancing their

accounts ater high inest.ent and groth+

L#%n#% !72 ound that there are ti.es (indos o o**ortunit&) hen the

.ar"ets could 'e e$tre.el& o*ti.istic a'out a *articular industr& and it .a& 'e a

good ti.e or the ir.s in that industr& to go *u'lic+

The *ost 7P; *eriod sees a reduction in leerage as ell as inest.ent+ The& state

that going *u'lic is a conscious choice that so.e ir.s .a"e hile so.e others *reer to

re.ain *riate+ Thus going *u'lic is not a natural ele.ent in the lie c&cle o a ir.+

4 ) Valuation of IPO’s



18/104

• B#n'#nist# an. Sin.t !2 ind that under riters tr& to resole the

inor.ation as&..etr& *ro'le. 'eteen the ir. and the inestors '& *roiding

an incentie to the inestors to reeal their *riate inor.ation a'out the ir.+

Ki3 an. Ritt#% !2 in their stud& o 190 ir.s ind that under riters orecast

the ne$t &ears earnings nu.'ers and .ulti*l& the. ith P# ratios o co.*ara'le

ir.s in the industr& to get the a**ro$i.ate *rice o the 7P;+ Hoeer the& also

ound that P# ratios using historical earnings nu.'ers do not gie accurate results

hereas hen orecasted earnings nu.'ers are used then the aluation is .uch

.ore accurate+

P,%nanan.a3 an. S/a3inathan (>>(2 sa& that 7P;s are *riced 50: higher than industr& *eers+ Also the& ind that .ore the 7P; is oer*riced ith res*ect to

its *eers, orse is its long ter. *eror.ance+

c) Allocation mecanism

The allocation .echanis.s are s*eciied '& the regulators in dierent countries+

L+,0h%an5 Ritt#% an. R*.'ist !72 ind D .ain categories across countries

Auctions, >i$ed *rice oers and 8oo" 8uilding+ Sh#%3an (>>82 inds that 8oo"

'uilding is a su*erior .echanis. or selling 7P;s rather than auctions+

Initial Public Offers and its effect on Stock Market Page 1@


19/104



20/104

INITIAL PUBLIC OFFERING IPO2

7nitial *u'lic oering (7P;), also reerred to si.*l& as a F*u'lic oeringF, is hen a

co.*an& issues co..on stoc" or shares to the *u'lic or the irst ti.e+ The& are oten

issued '& s.aller, &ounger co.*anies see"ing ca*ital to e$*and, 'ut can also 'e done '&

large *riatel&oned co.*anies loo"ing to 'eco.e *u'licl& traded+ 7n an 7P;, the issuer

.a& o'tain the assistance o an underriting ir., hich hel*s it deter.ine hat t&*e o

securit& to issue (co..on or *reerred), 'est oering *rice and ti.e to 'ring it to .ar"et+

7nitial Pu'lic ;ering (7P;) in 7ndia .eans the selling o the shares o a co.*an&, or the

irst ti.e, to the *u'lic in the countr&s ca*ital .ar"ets+ This is done '& giing to the

*u'lic, shares that are either oned '& the *ro.oters o the co.*an&

or '& issuing ne shares+ uring an 7nitial Pu'lic ;er (7P;) the shares are gien to the

*u'lic at a discount on the intrinsic alue o the shares and this is the reason that the

inestors 'u& shares during the 7nitial Pu'lic ;ering (7P;) in order to .a"e *roits or

the.seles+

7P; in 7ndia is done through arious .ethods li"e 'oo" 'uilding .ethod, i$ed

*rice .ethod, or a .i$ture o 'oth+ The .ethod o 'oo" 'uilding has 'een introduced in

the countr& in 1999 and it hel*s the co.*an& to ind out the de.and and *rice o its

shares+ A .erchant 'an"er is no.inated as a 'oo" runner '& the 7ssuer o the 7P;+ The

co.*an& that is issuing the 7nitial Pu'lic ;ering (7P;) decides the nu.'er o shares

that it ill issue and also i$es the *rice 'and o the shares+ All these inor.ation are

.entioned in the co.*an&s red herring *ros*ectus+ uring the co.*an&s 7nitial Pu'lic

;ering (7P;) in 7ndia, an electronic 'oo" is o*ened or at least ie da&s+ uring this



21/104

*eriod o ti.e, 'idding ta"es *lace hich .eans that *eo*le ho are interested in 'u&ing

the shares o the Co.*an& .a"es an oer ithin the i$ed *rice 'and+ ;nce the 'oo"

'uilding is closed then the issuer as ell as the 'oo" runner o the 7nitial Pu'lic ;ering

(7P;) ealuate the oers and then deter.ine a i$ed *rice+ The oers or shares that all

'elo the i$ed *rice are re-ected+ The successul 'idders are then allotted the shares

7P;%s can 'e a ris"& inest.ent+ >or the indiidual inestor, it is tough to *redict hat the

stoc" or shares ill do on its initial da& o trading and in the near uture since there is

oten little historical data ith hich to anal&=e the co.*an&+ Also, .ost 7P;%s are o

co.*anies going through a transitor& groth *eriod, and the& are thereore su'-ect to

additional uncertaint& regarding their uture alue

KINDS OF ISSUES

Pri.aril&, issues can 'e classiied as a Pu'lic, Rights or *reerential issues (also "non as

*riate *lace.ents)+ 4hile *u'lic and rights issues inole a detailed *rocedure, *riate

*lace.ents or *reerential issues are relatiel& si.*ler+ The classiication o issues is

illustrated 'eloJ



22/104



23/104

Pu'lic issues can 'e urther classiied into 7nitial Pu'lic oerings and urther *u'lic

oerings+ 7n a *u'lic oering, the issuer .a"es an oer or ne inestors to enter its

shareholding a.il&+ The issuer co.*an& .a"es detailed disclosures as *er the 7P

guidelines in its oer docu.ent and oers it or su'scri*tion+ The signiicant eatures are

illustrated 'eloJ

Initia) P,4)i$ O--#%in0 IPO2

7t is hen an unlisted co.*an& .a"es either a resh issue o securities or an oer or sale

o its e$isting securities or 'oth or the irst ti.e to the *u'lic+ This *aes a& or listing

and trading o the issuer%s securities+

F,%th#% ,4)i$ +--#%in0 FPO2

7t is hen an alread& listed co.*an& .a"es either a resh issue o securities to the *u'lic

or an oer or sale to the *u'lic, through an oer docu.ent+ An oer or sale in such

scenario is alloed onl& i it is .ade to satis& listing or continuous listing o'ligations+

Ri0hts Iss,# RI2

7t is hen a listed co.*an& hich *ro*oses to issue resh securities to its e$isting

shareholders as on a record date+ The rights are nor.all& oered in a *articular ratio to

the nu.'er o securities held *rior to the issue+ This route is 'est suited or co.*anies

ho ould li"e to raise ca*ital ithout diluting sta"e o its e$isting shareholders unless

the& do not intend to su'scri'e to their entitle.ents+

P%i'at# )a$#3#nt

7t is an issue o shares or o conerti'le securities '& a co.*an& to a select grou* o

*ersons under Section 31 o the Co.*anies Act, 1956 hich is neither a rights issue nor a

*u'lic issue+ This is a aster a& or a co.*an& to raise eIuit& ca*ital+ A *riate

*lace.ent o shares or o conerti'le securities '& a listed co.*an& is generall& "non

'& na.e o *reerential allot.ent+ A listed co.*an& going or *reerential allot.ent has

to co.*l& ith the reIuire.ents contained in Cha*ter Q777 o S#87 (7P) ?uidelines

*ertaining to *reerential allot.ent in S#87 (7P) guidelines include *ricing, disclosures

in notice etc, in addition to the reIuire.ents s*eciied in the Co.*anies Act+



24/104

Ma=+% R#as+n -+% Listin0 IPO

Th# in$%#as# in th# $aita) An 7P; allos a co.*an& to raise unds or

utili=ing in arious cor*orate o*erational *ur*oses li"e acIuisitions, .ergers,or"ing ca*ital, research and deelo*.ent, e$*anding *lant and eIui*.ent and

.ar"eting+

Li,i.it* The shares once traded hae an assigned .ar"et alue and can 'e

resold+ This is e$tre.el& hel*ul as the co.*an& *roides the e.*lo&ees ith

stoc" incentie *ac"ages and the inestors are *roided ith the o*tion o trading

their shares or a *rice+


25/104

Mana0#% to the 7ssue shall carr& out such changes in the drat Pros*ectus or co.*l& ith

the o'seration issued '& the 8oard 'eore iling the Pros*ectus ith R;C+

C+3ani#s 4a%%#. n+t t+ iss,# s#$,%it*

/o co.*an& shall .a"e an issue o securities i the co.*an& has 'een

*rohi'ited ro. accessing the ca*ital .ar"et under an& order or direction *assed

'& the 8oard+

A)i$ati+n -+% )istin0

/o co.*an& shall .a"e an& *u'lic issue o securities unless it has .ade

an a**lication or listing o those securities in the stoc" e$change

Iss,# +- s#$,%iti#s in .#3at#%ia)i#. -+%3

/o co.*an& shall .a"e *u'lic or rights issue or an oer or sale o

securities, unlessJ

The co.*an& enters into an a0%##3#nt ith a .#+sit+%* or

de.ateriali=ation o securities alread& issued or *ro*osed to 'e issued to the

*u'lic or e$isting shareholdersL and

a+ The co.*an& gies an +ti+n to su'scri'ers shareholders

inestors to %#$#i'# the securit& $#%ti-i$at#s +% hold securities in

.#3at#%ia)i#. -+%3 ith a de*ositor&+

IPO G%a.in0

/o ,n)ist#. $+3an* shall .a"e an 7P; o eIuit& shares unless the

olloing $+n.iti+ns are satisied as on the date o iling o Pros*ectus ith R;CJ

a+ the unlisted co.*an& has +4tain#. grading or the 7P; ro. at

)#ast +n# credit rating agenc&

'+ Dis$)+s,%#s o all the 0%a.#s o'tained, along ith the rationale

descri*tion urnished '& the credit rating agenc&(ies) or each o

the grades o'tained+

E)i0i4i)it* N+%3s -+% IPO

An unlisted co.*an& .a& .a"e an initial *u'lic oering (7P;) o eIuit& shares

onl& i J



26/104

• The co.*an& has net tangi'le assets o at least Rs+ D crores in each o the

*receding D ull &ears (o 1 .onths each), o hich not .ore than 50: is held in

.onetar& assets+

•

The co.*an& has a trac" record o distri'uta'le *roits in ter.s o Section 05 o the Co.*anies Act, 1956, or at least three (D) out o i..ediatel& *receding ie

(5) &ears+

• The co.*an& has a net orth o at least Rs+ 1 crore in each o the *receding D ull

&ears (o 1 .onths each)+

• 7n case the co.*an& has changed its na.e ithin the last one &ear, at least 50: o

the reenue or the *receding 1 ull &ear is earned '& the co.*an& ro. the

actiit& suggested '& the ne na.e+

PROCEDURE FOR IPOs

Fi@#. P%i$in0 '#%s,s T%,# P%i$in0 B++: B,i).in02

The traditional .ethod o doing 7P;s is the i$ed *rice oering+ Here, the issuer and the

.erchant 'an"er agree on an Nissue *riceM+ Then the inestor has a choice o illing in an

a**lication or. at this *rice and su'scri'ing to the issue+ #$tensie research has reealed

that the i$ed *rice oering is a *oor a& o doing 7P;s+ >i$ed *rice oerings, all oer

the orld, suer ro. 7P; under*ricing+ 7n 7ndia, on aerage, the i$ed*rice see.s to

'e around 50: 'elo the *rice at irst listingL i+e+ the issuer o'tains 50: loer issue

*roceeds as co.*ared to hat .ight hae 'een the case+ This aerage .as"s a stead&

strea. o du'ious 7P;s ho get an issue *rice hich is .uch higher than the *rice at irst

listing+ Hence i$ed *rice oerings are ea" in to directionsJ

du'ious issues get oer*riced and

?ood issues get under *riced+

BOOKBUILDING

A .echanis. here, during *eriod or hich the 7P; is o*en, 'ids are collected ro.

inestors at arious *rices hich are a'oe or eIual to the loor *rice (the .ini.u.

*rice)+ The inal *rice o the share is deter.ined ater the 'id closing date, 'ased on

certain ealuation criteria+



27/104

The SEBI Dis$)+s,%# an. In'#st+% P%+t#$ti+n2 G,i.#)in#s5 (>>>, deine the ter.

'oo"'uilding in a rather co.*le$ language as Fa *rocess underta"en '& hich a

de.and or the securities *ro*osed to 'e issued '& a 'od& cor*orate is elicited and 'uilt

u* and the *rice or such securities is assessed or deter.ination o the Iuantu. o such

securities to 'e issued '& .eans o a notice, circular, adertise.ent, docu.ent or

inor.ation .e.oranda or oer docu.ent+

8oo" 'uilding *rocess is a co..on *ractice used in .ost deelo*ed countries or

.ar"eting a *u'lic oer o eIuit& shares o a co.*an&+ Hoeer, 8oo" 'uilding acts as

scientiic as ell as le$i'le *rice discoer& .ethod through hich a consensus *rice o

7P;%s .a& 'e deter.ined '& the issuer co.*an& along ith the 8oo" Running ead

Kanager (i+e+ .erchant 'an"er) on the 'asis o eed'ac" receied ro. indiidual

inestors as ell as .ost inor.ed inestors (ho are institutional and cor*orate inestors

li"e, BT7, 7C7, ?7C7, >77s, and S>C7 etc)+ The .ethod hel*s to .a"e a correct ealuation

o a co.*an&%s *otential and the *rice o its shares+

7n si.*le ter.s, 'oo"'uilding is a .echanis. '& hich the iss,# %i$# is .is$+'#%#. on

the 'asis o 4i.s %#$#i'#. ro. s&ndicate .e.'ers'ro"ers and not '& the

issuers.erchant 'an"ers+

TYPES OF BOOKBUILDING

The issue o securities through 8oo" 'uilding can 'e done in either o the olloing to

a&s+

• @5: 8oo" 'uilding

• 100: 8oo" 'uilding

8 B++: B,i).in0 %+$#ss

Bnder this t&*e o *u'lic oer, the issue o securities has to 'e categori=ed intoJ

Place.ent *ortion categor&

/et oer to the *u'lic

The o*tion o @5: 8oo" 8uilding is aaila'le to all 'od& cor*orate that are

otherise eligi'le to .a"e an issue o ca*ital to the *u'lic+ The securities issued through

the 'oo" 'uilding *rocess are indicated as *lace.ent *ortion categor& and securities



28/104

aaila'le to *u'lic are identiied as net oer to *u'lic+ 7n this o*tion, underriting is

.andator& to the e$tent o the net oer to the *u'lic+ The issue *rice or the *lace.ent

*ortion and oers to *u'lic are reIuired to 'e sa.e

!>> +- th# n#t +--#% t+ th# ,4)i$ th%+,0h B++: B,i).in0 %+$#ss J

The 100: o the net oer to the *u'lic, entire issue is .ade through 8oo"

8uilding *rocess+ Hoeer, there can 'e a reseration or ir. allot.ent to a .a$i.u. o

5: o the issue si=e or the *er.anent e.*lo&ees, shareholders o the co.*an& or grou*

co.*anies, *ersons ho, on the date o iling o the drat oer docu.ent ith the 8oard,

hae 'usiness association, as de*ositors, 'ondholders and su'scri'ers to serices, ith the

issuer .a"ing an initial *u'lic oering+

The nu.'er o 'idding centres, in case o @5: 'oo" 'uilding *rocess should not

'e less than the nu.'er o .andator& collection centres s*eciied '& S#87+ 7n case o

100: 'oo" 'uilding *rocess, the 'idding centres should 'e at all the *laces here the

recognised stoc" e$changes are situated+

PROCESS OF BOOKBUILDING

The 8oo" 'uilding is 'asicall& an auction o share+ 8oo" 'uilding essentiall& .eans that

the !'oo" is 'eing 'uilt+% uring the *rocess on 'oth the /S# E 8S#, inestors can atch

the 'oo" 'eing 'uilt a chart shon indicates the 'id *rice E the nu.'er o shares 'eing

'id or+ This hel*s the inestors to "no the .ar"et *rice+ >olloing .entioned are the

.ain ste*s o 8oo" 'uilding Process+

The co.*an& irst a+ints a 4++: %,nn#%, i+e+ .erchant 'an"er+

The 4++: %,nn#% %#a%#s & s,43its th# .%a-t .+$,3#nts t+ th# SEBI E

o'tains an ac"noledge.ent card+

The iss,#% & 4++: %,nn#% .#$i.# t+ +--#% sha%#s at a %i$# /ithin a s#$i-i#.

%i$# 4an. %an0#2"

;er regarding the .#3an. -+% s#$,%iti#s at .i--#%#nt %i$# )#'#)s a%# in'it#.

-%+3 s*n.i$at# 3#34#%s consisting o eligi'le 'ro"ers, .erchant 'an"ers,

Initial Public Offers and its effect on Stock Market Page @


29/104

underriters, inancial institutions, the 'ids+ The adertise.ent should .ention

the o*ening E closing dates or the 'ids+ A 'id is usuall& o*en or .ini.u. 5

or"ing da&s+

8ased on the 'ids receied, the iss,#% a%%i'#s at a -ina) $,t+-- %at# E the

allocation in consultation ith 8RK+

The issuer E the 'oo" runner .a& i.*ose restrictions on the nu.'er o shares

that can 'e allotted to each client so as to aoid an& uture ta"eoer threats+

The -ina) %+s#$t,s is -i)#. /ith th# %#0ist%a% o co.*anies along ith the

*rocure.ent agree.ent+

The *lace.ent *ortion o*ens or su'scri*tion onl& ater the *ros*ectus is iled

ith the R;C+

The *lace.ent *ortion closes a da& 'eore the o*ening o the *u'lic issue *ortion+

The *u'lic *ortion o*ens E the allot.ent E listing o *uts is done+ The *rice

deter.ined in the 8oo" 'uilding *rocess is a**lica'le to the *u'lic *ortion as

ell+ 7 the *u'lic *ortion stands oersu'scri'ed, then the allot.ent is .ade on a

*ro*ortionate 'asis+



30/104

B++: B,i).in0 P%+$#ss in In.ia

The ste*s hich are usuall& olloed in the 'oo" 'uilding *rocess can 'e su..ari=ed

'eloJ

1+ The issuer co.*an& *ro*osing an 7P; a**oints a lead .erchant 'an"er as a

8RK+

+ 7nitiall&, the issuer co.*an& consults ith the 8RK in draing u* a drat

*ros*ectus (i+e+ oer docu.ent) hich does not .ention the *rice o the issues,

'ut includes other details a'out the si=e o the issue, *ast histor& o the co.*an&,

and a *rice 'and+ The securities aaila'le to the *u'lic are se*aratel& identiied as

Nnet oer to the *u'licM+

D+ The drat *ros*ectus is iled ith S#87 hich gies it a legal standing+

+ A deinite *eriod is i$ed as the 'id *eriod and 8RK conducts aareness

ca.*aigns li"e adertise.ent, road shos etc+

5+ The 8RK a**oints a s&ndicate .e.'er, a S#87 registered inter.ediar& to

underrite the issues to the e$tent o Nnet oer to the *u'licM+

6+ The 8RK is entitled to re.uneration or conducting the 8oo" 8uilding *rocess+

@+ The co*& o the drat *ros*ectus .a& 'e circulated '& the 8RK to the

institutional inestors as ell as to the s&ndicate .e.'ers+

3+ The s&ndicate .e.'ers create de.and and as" each inestor or the nu.'er o

shares and the oer *rice+

9+ The 8RK receies the eed'ac" a'out the inestor%s 'ids through s&ndicate

.e.'ers+

10+ The *ros*ectie inestors .a& reise their 'ids at an& ti.e during the 'id *eriod+

11+ The 8RK on recei*ts o the eed'ac" ro. the s&ndicate .e.'ers a'out the 'id

*rice and the Iuantit& o shares a**lied has to 'uild u* an order 'oo" shoing the

de.and or the shares o the co.*an& at arious *rices+ The s&ndicate .e.'ers

.ust also .aintain a record 'oo" or orders receied ro. institutional inestors

or su'scri'ing to the issue out o the *lace.ent *ortion+

1+ ;n recei*ts o the a'oe inor.ation, the 8RK and the issuer co.*an&

deter.ine the issue *rice+ This is "non as the .ar"etclearing *rice+



31/104

1D+ The 8RK then closes the 'oo" in consultation ith the issuer co.*an& and

deter.ine the issue si=e o (a) *lace.ent *ortion and (') *u'lic oer *ortion+

1+ ;nce the inal *rice is deter.ined, the allocation o securities should 'e .ade '&

the 8RK 'ased on *rior co..it.ent, inestor%s Iualit&, *rice aggression,

earliness o 'ids etc+ The 'id o an institutional 'idder, een i he has *aid ull

a.ount .a& 'e re-ected ithout 'eing assigned an& reason as the 8oo" 8uilding

*ortion o institutional inestors is let entirel& at the discretion o the issuer

co.*an& and the 8RK+

15+ The >inal *ros*ectus is iled ith the registrar o co.*anies ithin da&s o

deter.ination o issue *rice and recei*ts o ac"noledge.ent card ro. S#87+

16+ To dierent accounts or collection o a**lication .one&, one or the *riate

*lace.ent *ortion and the other or the *u'lic su'scri*tion should 'e o*ened '&

the issuer co.*an&+

1@+ The *lace.ent *ortion is closed a da& 'eore the o*ening o the *u'lic issue

through i$ed *rice .ethod+ The 8RK is reIuired to hae the a**lication or.s

along ith the a**lication .one& ro. the institutional 'u&ers and the

underriters to the *riate *lace.ent *ortion+

13+ The allot.ent or the *riate *lace.ent *ortion shall 'e .ade on the nd da& ro.

the closure o the issue and the *riate *lace.ent *ortion is read& to 'e listed+

19+ The allot.ent and listing o issues under the *u'lic *ortion (i+e+ i$ed *rice

*ortion) .ust 'e as *er the e$isting statutor& reIuire.ents+

0+ >inall&, the S#87 has the right to ins*ect such records and 'oo"s hich are

.aintained '& the 8RK and other inter.ediaries inoled in the 8oo" 8uilding

*rocess+

P%i$in0

8eore esta'lish.ent o S#87 in 199, the Iualit& o disclosures in the oer docu.ents

as er& *oor+

The .ain dra'ac" o ree *ricing as the *rocess o *ricing o issues+ The issue *rice

as deter.ined around 60@0 da&s 'eore the o*ening o the issue and the issuer had no

clear idea a'out the .ar"et *erce*tion o the *rice deter.ined+

Initial Public Offers and its effect on Stock Market Page D0


32/104

7n 8oo" 8uilding the *rice is deter.ined on the 'asis o de.and receied or at *rice

a'oe or eIual to the loor *rice+

Th# A))+t3#nt P%+$#ss th%+,0h B++:4,i).in0

Ste#$% The &om#any will 'discover' its #rice

#arlier, the co.*an& deter.ined a i$ed *rice or the stoc" issue+ The issue as .ar"eted

to the general *u'lic through adertise.ents and a .edia ca.*aign+

Toda&, co.*anies *reer a 'oo" 'uilding *rocess+ 8oo" 'uilding is the *rocess o *rice

discoer&+ That .eans there is no i$ed *rice or the share+ 7nstead, the co.*an& issuing

the shares co.es u* ith a *rice 'and+ The loest *rice is reerred to as the loor and the

highest, the ca*+ 8ids are then inited or the shares+ #ach inestor states ho .an&

shares she ants and hat she is illing to *a& or those shares (de*ending on the *rice

'and)+ The actual *rice is then discoered 'ased on these 'ids+

Ste#( % Players of the game

Three classes o inestors can 'id or the sharesJ

ualiied 7nstitutional 8u&ersJ 78s include .utual unds and >oreign

7nstitutional 7nestors+ At least 50: o the shares are resered or this categor&+

Retail inestorsJ An&one ho 'ids or shares under Rs 50,000 is a retail inestor+

At least 5: is resered or this categor&+

The 'alance 'ids are oered to high net orth indiiduals and e.*lo&ees o the

co.*an&+

OB;ECTS OF THE OFFERING NEW IPO

>unds ReIuire.ent

>unding Plan (Keans o >inance)

A**raisal

Schedule o 7.*le.entation

>unds e*lo&ed



33/104

Sources o >inancing o >unds alread& de*lo&ed

etails o 8alance >und ReIuire.ent

7nteri. Bse o >unds

8asic Ter.s o 7ssue

8asis or issue *rice

Ta$ 8eneits

AD


34/104


35/104

share o the co.*an&+ The& hae their indiidual de.ands to 'e .et as the& on a certain

*ercentage o sta"es in the co.*an&+ The S#C regulations reIuire notiications ro. the

shareholders o the co.*an&, .eetings, and also a**roals ro. the. hile .a"ing

i.*ortant 'usiness decisions+

A .a-or ris" ith shareholders is that, the& can sell o their stoc"s an& ti.e the& ant, in

case the& see the *rice 'and o the sta"es o that co.*an& is going don+ This ill lead to

a urther dro* o the alue o shares in the .ar"et hich in turn ill decrease the oerall

alue o the co.*an&+

IPO G%a.in0

IPO 0%a.in0 (initial *u'lic oering grading) is a serice ai.ed at acilitating the

assess.ent o eIuit& issues oered to *u'lic+ The grade assigned to an& indiidual issue

re*resents a relatie assess.ent o the !unda.entals% o that issue in relation to the other

listed eIuit& securities in 7ndia+ 7P; grading is *ositioned as a serice that *roides !an

inde*endent assess.ent o unda.entals% to aid co.*aratie assess.ent that ould *roe

useul as an inor.ation and inest.ent tool or inestors+ Koreoer, such a serice

ould 'e *articularl& useul or assessing the oerings o co.*anies accessing the eIuit&.ar"ets or the irst ti.e here there is no trac" record o their .ar"et *eror.ance+

7P; grade assigned to an& issue re*resents a relatie assess.ent o the !unda.entals% o

that issue in relation to the unierse o other listed eIuit& securities in 7ndia+ This grading

can 'e used '& the inestor as tool to .a"e inest.ent decision+ The 7P; grading ill

hel* the inestor 'etter a**reciate the .eaning o the disclosures in the issue docu.ents

to the e$tent that the& aect the issue%s unda.entals+ Thus, 7P; grading is an additional

inestor inor.ation and inest.ent guidance tool+

Credit Rating agencies (CRAs) li"e 7CRA, CR7S7, CAR# and >itch Ratings ho are

registered ith S#87 ill carr& out 7P; grading+ S#87 does not *la& an& role in the

assess.ent .ade '& the grading agenc&+ The grading is intended to 'e an inde*endent and

un'iased o*inion o that agenc&+ 7P; grading is not .andator& 'ut is o*tional and the

assigned grade ould 'e a one ti.e assess.ent done at the ti.e o the 7P; and .eant to

aid inestors ho are interested in inesting in the 7P;+ The grade ill not hae an&ongoing alidit&+

Initial Public Offers and its effect on Stock Market Page D


36/104

SEBI GUIDELINES ON IPO GRADING

/o unlisted co.*an& shall .a"e an 7P; o eIuit& shares or an& other securit&

hich .a& 'e conerted into or e$changed ith eIuit& shares at a later date,

unless the olloing conditions are satisied as on the date o iling o Pros*ectus

(in case o i$ed *rice issue) or Red Herring Pros*ectus (in case o 'oo" 'uilt

issue) ith R;CJ

• The unlisted co.*an& has o'tained grading or the 7P; ro. at least one

credit rating agenc&L

• isclosures o all the grades o'tained, along ith the rationaledescri*tion

urnished '& the credit rating agenc&(ies) or each o the grades o'tained,

hae 'een .ade in the Pros*ectus (in case o i$ed *rice issue) or Red

Herring Pros*ectus (in case o 'oo" 'uilt issue)L and

• The e$*enses incurred or grading 7P; hae 'een 'orne '& the unlisted

co.*an& o'taining grading or 7P;+

Kost o the .ar"et anal&sts hae elco.ed this .oe o S#87 as it ill hel* the

inestors in a olatile .ar"et to "no hether the .erchant 'an"er has carried the

e$ercise in deter.ining the *rice o an issue in a *ro*er .anner or not+ 7t ill also hel*

the inestors in "noing hether the *rice o the issue is -ustiied or not+ The& een said

that .anage.ent o a good co.*an& ill neer get araid o getting graded o their 7P;s

i the& are good+ The onl& de.erit o this ste* '& the S#87 as said '& .an& e$*erts is that

there ill 'e a slodon in the nu.'er o 7P;s co.ing out as grading ill 'e a 'it

length& *rocess and there ill 'e a costactor attached to it also+

FEATURES OF IPO GRADING

7P; grading coers 'oth internal and e$ternal as*ects o a co.*an& see"ing to

.a"e an 7P; in general+ The internal actors include co.*etence and eectieness o the

.anage.ent, *roile o *ro.oters, .ar"eting strategies, si=e and groth o reenues,

co.*etitie edge, technolog&, o*erating eicienc&, liIuidit& and inancial le$i'ilit&, asset

Iualit&, accounting Iualit&, *roita'ilit& and hedging o ris"s+ A.ong e$ternal actors, the

"e& one is the industr& and econo.ic'usiness eniron.ent or the issuer+ Here, it is

i.*ortant to note that internationall&, the glo'al rating agencies such as Standard E Poorsand Kood&s do not *eror. grading o 7P;s at all+ 4hile Standard E Poors is the



37/104

.a-orit& sta"eholder in CR7S7 td, Kood&s is the single 'iggest sta"eholder in 7CRA

td+ Si.ilarl&, the third glo'al *la&er >itch 78CA (hich acIuired another rating agenc&

un E 8radstreet in 000) also does not grade 7P;s as &et+ The 7P; grading is indicated

on a ie *oint scale and a higher score indicating stronger unda.entals+

AN IPO GRADING SCALE

IPO 0%a.# Ass#ss3#nt

55 Strong unda.entals

5 A'oe aerage unda.entals

D5 Aerage unda.entals

5 8elo aerage unda.entals

15 Poor unda.entals

The *rocess ill ideall& reIuire D ee"s or co.*letion, so it .a& 'e a good

idea or co.*anies to initiate the grading *rocess a'out 63 ee"s 'eore the

targeted 7P; date to *roide suicient ti.e or an& contingencies+

C+st In'+)'#. In IPO G%a.in0

Though nothing has 'een declared oiciall& 'ut .ost o the credit rating has said

that 7P;grading ould not cost .uch to the issuers+ The& ould 'e charging 10 'asis

*oints o the a.ount to 'e raised ith a ceiling o a'out Rs 1015 la"hs+ Thus, een in the

case o a .ega 7P;, there ould 'e a ca* on ees, he noted+ Around 100 7P;s hit the

.ar"et on an aerage eer& &ear+ Hoeer, des*ite this see.ingl& 'ig nu.'er, the total

recei*ts or the entire rating industr& on account o grading ees ould 'e onl& a'out Rs

1015 crore+

B#n#-its +- IPO G%a.in0



38/104

There are arious *ositie sides o an 7P; grading+ The .ost signiicant actors

that go in aor o 7P; grading areJ

(a) P%+-#ssi+na) an. In.##n.#nt A%aisa) 7P; grading ill create aareness

a'out the unda.entals o the co.*an&%s 7P; and ill *roide ocused co.*an&

inor.ation as a "e& in*ut to *ros*ectie inestors that ill 'e hel*ul in ta"ing an

inest.ent decision, in a .anner si.ilar to hat a credit rating is or de't

inestors+

(') R#3+'a) +- In-+%3ati+n B,%.#n 4here disclosures o issues are large and

co.*le$, a serice anal&=ing and inter*reting these disclosures inde*endentl& and

Iuic"l& ill 'e e$tre.el& useul in cutting through the clutter+ Thus, the

useulness o 7P; grading ould 'e *articularl& high or s.all inestors as it ill

sere as a guide a'out the co.*an& co.ing out ith the issue+

(c) I3#.i3#nt -+% W#a: C+3ani#s 4hile unda.entall& sound co.*anies ill

gain ro. the .ar"et, co.*anies hose unda.entals are not er& strong ill 'e

i.*eded in 'uilding u* s*eculatie de.and a.ong inestors+ Such ea"

co.*anies ill need to oer *ricing, hich ill adeIuatel& co.*ensate inestors

or the ris"s the& ta"e+ Thereore, 7P; grading *roides disincenties or ea"

co.*anies *lanning to co.e to the .ar"et to raise eas& ca*ital+

ROLE OF MERCHANT BANKERS IN IPO

7nter.ediar&%s hel* cor*orations design securities that ill 'e attractie to

inestors, 'u& these securities ro. the cor*orations, and then resell the. to saers in the

*ri.ar& .ar"ets+

M#%$hant Ban:#%sJ L#a. Mana0#%

Kerchant 'an"ers *la& an i.*ortant role in issue .anage.ent *rocess+ ead

.anagers hae to ensure correctness o the inor.ation urnished in the oer docu.ent+

The& hae to ensure co.*liance ith S#87 rules and regulations as also ?uidelines or

isclosures and 7nestor Protection+ To this eect, the& are reIuired to su'.it to S#87 a

due diligence certiicate conir.ing that the disclosures .ade in the drat *ros*ectus or

letter o oer are true, air and adeIuate to ena'le the *ros*ectie inestors to .a"e a

Initial Public Offers and its effect on Stock Market Page D@


39/104

ell inor.ed inest.ent decision+ The role o .erchant 'an"ers in *eror.ing their due

diligence unctions has 'eco.e een .ore i.*ortant ith the strengthening o disclosure

reIuire.ents and ith S#87 giing u* the etting o *ros*ectuses+ Their unctions areJ

To act as inter.ediaries 'eteen the co.*an& see"ing to raise .one& and the

inestors+ The& .ust *ossess a alid registration ro. S#87 ena'ling the. to do

this -o'+

The& are res*onsi'le or co.*l&ing ith the or.alities o an issue, li"e draing

u* the *ros*ectus and .ar"eting the issue+

7 it is a 'oo" 'uilding *rocess, the lead .anager is also in charge o it+ 7n such a

case, the& are also called 8oo" Running ead Kanagers+

Post issue actiities, li"e inti.ation o allot.ents and reunds, are their res*onsi'ilit& as

ell+



40/104

ORIGIN OF INDIAN STOCK MARKET

The origin o the stoc" .ar"et in 7ndia goes 'ac" to the end o the eighteenth centur&

hen longter. negotia'le securities ere irst issued+ Hoeer, or all *ractical

*ur*oses, the real 'eginning occurred in the .iddle o the nineteenth centur& ater the

enact.ent o the co.*anies Act in 1350, hich introduced the eatures o li.ited lia'ilit&

and generated inestor interest in cor*orate securities+

An i.*ortant earl& eent in the deelo*.ent o the stoc" .ar"et in 7ndia as the

or.ation o the natie share and st+$: 4%+:#%s Association at 8o.'a& in 13@5, the

*recursor o the *resent da& 8o.'a& Stoc" #$change+ This as olloed '& the

or.ation o associationse$changes in Ah.ada'ad (139), Calcutta (1903), and Kadras

(19D@)+ 7n addition, a large nu.'er o e*he.eral e$changes e.erged .ainl& in 'uo&ant

*eriods to recede into o'liion during de*ressing ti.es su'seIuentl&+

Stoc" e$changes are intricac& interoen in the a'ric o a nations econo.ic lie+

4ithout a stoc" e$change, the saing o the co..unit& the sines o econo.ic *rogress

and *roductie eicienc& ould re.ain underutili=ed+ The tas" o .o'ili=ation and

allocation o saings could 'e atte.*ted in the old da&s '& a .uch less s*eciali=ed

institution than the stoc" e$changes+ 8ut as 'usiness and industr& e$*anded and the

econo.& assu.ed .ore co.*le$ nature, the need or #%3an#nt -inan$# arose+

#ntre*reneurs needed .one& or long ter. hereas inestors de.anded liIuidit& O the

acilit& to conert their inest.ent into cash at an& gien ti.e+ The anser as a read&

.ar"et or inest.ents and this as ho the stoc" e$change ca.e into 'eing+

Stoc" e$change .eans an& 'od& o indiiduals, hether incor*orated or not, constituted

or the *ur*ose o regulating or controlling the 'usiness o 'u&ing, selling or dealing in

securities+ These securities includeJ

(i) Shares, scri*, stoc"s, 'onds, de'entures stoc" or other .ar"eta'le securities o a li"e

nature in or o an& incor*orated co.*an& or other 'od& cor*orateL

(ii) ?oern.ent securitiesL and

(iii) Rights or interest in securities+



41/104

The 8o.'a& Stoc" #$change (8S#) and the /ational Stoc" #$change o 7ndia td (/S#)

are the to *ri.ar& e$changes in 7ndia+ 7n addition, there are Regional Stoc"

#$changes+ Hoeer, the 8S# and /S# hae esta'lished the.seles as the to leading

e$changes and account or a'out 30 *er cent o the eIuit& olu.e traded in 7ndia+ The

/S# and 8S# are eIual in si=e in ter.s o dail& traded olu.e+ The aerage dail&

turnoer at the e$changes has increased ro. Rs 351 crore in 199@93 to Rs 1,3 crore

in 199399 and urther to Rs ,@D crore in 1999000 (A*ril August 1999)+ /S# has

around 1500 shares listed ith a total .ar"et ca*itali=ation o around Rs 9, 1,500 crore+

The 8S# has oer 6000 stoc"s listed and has a .ar"et ca*itali=ation o around Rs 9,

63,000 crore+ Kost "e& stoc"s are traded on 'oth the e$changes and hence the inestor

could 'u& the. on either e$change+ 8oth e$changes hae a dierent settle.ent c&cle,

hich allos inestors to shit their *ositions on the 'ourses+ The *ri.ar& inde$ o 8S#

is 8S# Sense$ co.*rising D0 stoc"s+ /S# has the SEP /S# 50 7nde$ (/it&) hich

consists o it& stoc"s+ The 8S# Sense$ is the older and .ore idel& olloed inde$+

8oth these indices are calculated on the 'asis o .ar"et ca*itali=ation and contain the

heail& traded shares ro. "e& sectors+ Th# 3a%:#ts a%# $)+s#. +n Sat,%.a*s an.

S,n.a*s" 8oth the e$changes hae sitched oer ro. the o*en outcr& trading s&ste. to

a ull& auto.ated co.*uteri=ed .ode o trading "non as 8;T (8S# on ine Trading)

and /#AT (/ational #$change Auto.ated Trading) S&ste.+

7t acilitates .ore eicient *rocessing, auto.atic order .atching, aster e$ecution o

trades and trans*arenc&L the scri*s traded on the 8S# hae 'een classiied into A, 81,

8, C, > and grou*s+ The A grou* shares re*resent those, hich are in the carr&

orard s&ste. Ba.)a2+ The > grou* re*resents the de't .ar"et (i$ed inco.e

securities) seg.ent+ The grou* scri*s are the 'lac"listed co.*anies+ The C grou*

coers the odd lot securities in A, 81 E 8 grou*s and Rights renunciations+ The "e&

regulator goerning Stoc" #$changes, 8ro"ers, e*ositories, e*ositor& *artici*ants,

Kutual >unds, >77s and other *artici*ants in 7ndian secondar& and *ri.ar& .ar"et is the

Securities and #$change 8oard o 7ndia (S#87) td+



42/104

ABOUT BSE

8S# i.ited is the oldest stoc" e$change in Asia 4hat is no *o*ularl& "non as the

8S# as esta'lished as FThe /atie Share E Stoc" 8ro"ers AssociationF in 13@5+

;er the *ast 1D5 &ears, 8S# has acilitated the groth o the 7ndian cor*orate sector '&

*roiding it ith an eicient ca*ital raising *lator.+

Toda&, 8S# is the orlds nu.'er 1 e$change in the orld in ter.s o the nu.'er o

listed co.*anies (oer 900)+ 7t is the orlds 5th .ost actie in ter.s o nu.'er o

transactions handled through its electronic trading s&ste.+ And it is in the to* ten o

glo'al e$changes in ter.s o the .ar"et ca*itali=ation o its listed co.*anies (as o

ece.'er D1, 009)+ The co.*anies listed on 8S# co..and a total .ar"et ca*itali=ation

o BS Trillion 1+3 as o >e', 010+

8S# is the irst e$change in 7ndia and the second in the orld to o'tain an 7S; 9001J000

certiication+ 7t is also the irst #$change in the countr& and second in the orld to receie

7nor.ation Securit& Kanage.ent S&ste. Standard 8S @@9900 certiication or its

8S# ;nine trading S&ste. (8;T)+ Presentl&, e are 7S; @001J005 certiied, hich

is a 7S; ersion o 8S @@99 or 7nor.ation Securit&+

The 8S# 7nde$, S#/S#Q, is 7ndias irst and .ost *o*ular Stoc" Kar"et 'ench.ar"

inde$+ #$change traded unds (#T>) on S#/S#Q, are listed on 8S# and in Hong utures and o*tions on the inde$ are also traded at 8S#+

BSE CONTINUES TO INNO


43/104

• AcIuired a 15: sta"e in Bnited Stoc" #$change (BS#) to drie the deelo*.ent

and groth o the currenc& and interest rate deriaties .ar"ets

• aunched 8S# STAR K> Kutual und trading *lator., hich ena'les e$change

.e.'ers to use its e$isting inrastructure or transaction in K> sche.es+

• 8S# no oers AK>7 Certiication or Kutual >und Adisors through 8S#

Training 7nstitute (8T7)

• Colocation acilities or Algorith.ic trading

• 8S# also successull& launched the 8S# 7P; inde$ and PSB e'site

• 8S# rea.*ed its e'site ith ide range o ne eatures li"e ie strea.ing

Iuotes or S#/S#Q co.*anies, Adanced Stoc" Reach, S#/S#Q Gie,

Kar"et ?ala$&, and Ke.'ers

• aunched 8S# S#/S#Q K;87# STR#AK#R

4ith its tradition o sering the co..unit&, 8S# has 'een underta"ing Cor*orate

Social Res*onsi'ilit& (CSR) initiaties ith a ocus on #ducation, Health and

#niron.ent+ 8S# has 'een aarded '& the 4orld Council o Cor*orate ?oernance the

?olden Peacoc" ?lo'al CSR Aard or its initiaties in Cor*orate Social Res*onsi'ilit&

(CSR)+

>or .ore details E inor.ation, *lease isit our e'siteJ +'seindia+co.

LOGO


http://www.bseindia.com/http://www.bseindia.com/


44/104

ABOUT NSE

A4+,t th# Nati+na) St+$: E@$han0# +- In.ia

7n the ast groing 7ndian inancial .ar"et, there are D stoc" e$changes trading

securities+ The /ational Stoc" #$change o 7ndia (/S#) situated in Ku.'ai is the

largest and .ost adanced e$change ith 1016 co.*anies listed and @6 trading

.e.'ers+

The /S# is oned '& the grou* o leading inancial institutions such as 7ndian 8an" or

ie 7nsurance Cor*oration o 7ndia+ Hoeer, in the totall& de.utualised #$change, theonershi* as ell as the .anage.ent does not hae a right to trade on the #$change+

;nl& Iualiied traders can 'e inoled in the securities trading+

The /S# is one o the e e$changes in the orld trading all t&*es o securities on a

single *lator., hich is diided into three seg.entsJ 4holesale e't Kar"et (4K),

Ca*ital Kar"et (CK), and >utures E ;*tions (>E;) Kar"et+ #ach seg.ent has

e$*erienced a signiicant groth throughout a e &ears o their launch+ 4hile the 4K

seg.ent has accu.ulated the annual groth o oer D6: since its o*ening in 199, the

CK seg.ent has increased '& een 61: during the sa.e *eriod+

The /ational Stoc" #$change o 7ndia has stringent reIuire.ents and criteria or the

co.*anies listed on the #$change+ Kini.u. ca*ital reIuire.ents, *ro-ect a**raisal, and

co.*an&s trac" record are -ust a e o the criteria+ 7n addition, listed co.*anies *a&

aria'le listing ees 'ased on their cor*orate ca*ital si=e+

The /ational Stoc" #$change o 7ndia td+ *roides its clients ith a single, ull&

electronic trading *lator. that is o*erated through a GSAT netor"+ Bnli"e .ost orld

e$changes, the /S# uses the satellite co..unication s&ste. that connects traders ro.

D5 7ndian cities+ The adanced technologies ena'le u* to 6 .illion trades to 'e o*erated

dail& on the /S# trading *lator.+

Initial Public Offers and its effect on Stock Market Page D


45/104

NSE HISTORY

The /ational Stoc" #$change (/S#) is 7ndias leading stoc" e$change coering arious

cities and tons across the countr&+ /S# as set u* '& leading institutions to *roide a

.odern, ull& auto.ated screen'ased trading s&ste. ith national reach+ The #$change

has 'rought a'out un*aralleled trans*arenc&, s*eed E eicienc&, saet& and .ar"et

integrit&+ 7t has set u* acilities that sere as a .odel or the securities industr& in ter.s o

s&ste.s, *ractices and *rocedures+

/S# has *la&ed a catal&tic role in reor.ing the 7ndian securities .ar"et in ter.s o

.icrostructure, .ar"et *ractices and trading olu.es+ The .ar"et toda& uses stateoart

inor.ation technolog& to *roide an eicient and trans*arent trading, clearing andsettle.ent .echanis., and has itnessed seeral innoations in *roducts E serices i=+

de.utuali=ation o stoc" e$change goernance, screen 'ased trading, co.*ression o

settle.ent c&cles, de.ateriali=ation and electronic transer o securities, securities

lending and 'orroing, *roessionalisation o trading .e.'ers, inetuned ris"

.anage.ent s&ste.s, e.ergence o clearing cor*orations to assu.e counter*art& ris"s,

.ar"et o de't and deriatie instru.ents and intensie use o inor.ation technolog&+

NSES MISSION

/S#s .ission is setting the agenda or change in the securities .ar"ets in 7ndia+ The

/S# as setu* ith the .ain o'-ecties oJ

• #sta'lishing a nationide trading acilit& or eIuities, de't instru.ents and h&'rids,

• #nsuring eIual access to inestors all oer the countr& through an a**ro*riate

co..unication netor",• Proiding a air, eicient and trans*arent securities .ar"et to inestors using

electronic trading s&ste.s,

• #na'ling shorter settle.ent c&cles and 'oo" entr& settle.ents s&ste.s, and

• Keeting the current international standards o securities .ar"ets+



46/104

The standards set '& /S# in ter.s o .ar"et *ractices and technolog& hae 'eco.e

industr& 'ench.ar"s and are 'eing e.ulated '& other .ar"et *artici*ants+ /S# is .ore

than a .ere .ar"et acilitator+ 7ts that orce hich is guiding the industr& toards ne

hori=ons and greater o**ortunities+

LOGO

The logo o the /S# s&.'oli=es a single nationide securities trading acilit& ensuring

eIual and air access to inestors, trading .e.'ers and issuers all oer the countr&+ The

initials o the #$change i=+, /, S and # hae 'een etched on the logo and are distinctl&

isi'le+ The logo s&.'oli=es use o state o the art inor.ation technolog& and satellite

connectiit& to 'ring a'out the change ithin the securities industr&+ The logo s&.'oli=es

i'ranc& and unleashing o creatie energ& to constantl& 'ring a'out change through

innoation+

INDEX IN SHARE MARKET

7nde$ consists o grou* o shares+ 7nde$ denotes the direction o the entire .ar"et+ i"e

hen *eo*le sa& .ar"et is going u* or don then that .eans 7nde$ is going u* or don+

7nde$ consists o high .ar"et ca*itali=ation and high liIuidit& shares+

Hi0h Ma%:#t $aita)iati+n sha%#s Co.*anies haing highest nu.'er o shares and

highest *rice o each share+

Kar"et ca*itali=ation is calculated '& .ulti*l&ing current share *rice and nu.'er o

shares in the .ar"et+

Hi0h Li,i.it* sha%#s Shares in the .ar"et ith high olu.es+



47/104

T/+ t*#s +- In.i$#s

1+ /it& and

+ Sense$

Ni-t* Ni-t* $+nsist +- a 0%+, +- 8> sha%#s"

S#ns#@ S#ns#@ $+nsist +- a 0%+, +- 6> sha%#s"

Stoc" e$changes .ainl& there are to e$changes in 7ndia+

$" )SE *)ational stock e+change, % )ifty is listed with )SE"

(" -SE *-ombay stock e+change, % Sense+ is listed with -SE"

/S# and 8S# are countries econo.ic 'aro.eter+

Stoc" e$changes li"e /S# and 8S# are the *laces here the trading o shares ta"es *lace+

ABOUT BULLS AND BEARS

What a%# B#a%?

B#a% An o*erator ho e$*ects the share *rice to all

B#a% Ma%:#t A ea" and alling .ar"et here 'u&ers are a'sent

What a%# B,))s?

B,)) An o*erator ho e$*ects the share *rice to rise and ta"es *osition in the

.ar"et to sell at a later date+

B,)) Ma%:#t A rising .ar"et here 'u&ers ar outnu.'er the sellers

A 'ull .ar"et is one here *rices are rising, hereas a 'ear .ar"et is one here

*rices are alling+ The to ter.s are also used to descri'e t&*es o inestors+

A stoc" .ar"et 'ull is so.eone ho has a er& o*ti.istic ie o the .ar"etL the& .a&

'e stoc"holders or .a&'e inestors ho aggressiel& 'u& and sell stoc"s Iuic"l&+ A 'ear

inestor, on the other hand, is *essi.istic a'out the .ar"et and .a& .a"e .ore



48/104

conseratie stoc" choices+ So.eti.es, the ter.s are used to reer to s*eciic unds or

stoc"s+ 8ear .ar"et unds, or e$a.*le, are those that are alling and aring *oorl&+

7nestors so.eti.es reer to 'ull stoc"s to descri'e securities that are aggressiel& rising

and .a"ing their inestors .one&+


49/104

une.*lo&.ent .a"es *eo*le ar less illing to ga.'le on the stoc" .ar"et+ So.eti.es,

a *anic caused '& dire *redictions a'out the .ar"et can also create 'earish conditions+

WHAT DOES BULL AND BEAR MEAN IN STOCK MARKET?

!" 7n the si.*lest ter.s, a 'ear .ar"et is a donard trend that is long ter., usuall&

.easured in .onths+ The ter. is generall& a**lied to the stoc" .ar"et and .a&

include so.e ariations, 'ut the lo *oints are not historicall& lo and the high

*oints are not historicall& high+

(" A 'ull .ar"et, in contrast, is a trend o si.ilar duration 'ut in an u*ard direction+

Again, the high *oints are not at historic leels and the lo *oints are not the

loest in .ar"et histor&+ >or 'oth a 'ear and a 'ull .ar"et, other deinitions .a& 'e .ore general or .ore s*eciic, de*ending on the econo.ist or stud& issuing the

state.ent+

6" The ani.al na.es assigned to these trends are acce*ted as accurate, or the .ost

*art, 'ecause a *ositie .ar"et in hich *eo*le are .ore aggressie is co.*ared

to the traits o a health&, actie 'ull+ 8ears, on the other hand, are so.eti.es seen

as .oing .ore slol&, es*eciall& in certain eather situations+

7" 2et another e$*lanation has to do ith the trading o real 'ear s"ins, ith traders

in the .iddle 'etting on the *rice dro**ing as the& sold s"ins the& didn%t *ossess

at the ti.e+ These .en ere so.eti.es called 'ears+ ;thers hae e$*lained the

to ter.s as co.ing ro. the classic 'attles o earlier ti.es that *itted a 'ull

against a 'ear+

8" Uust a'out eer&one ho reads a nes*a*er or atches teleision nes is a.iliar

ith 'ull .ar"ets and 'ear .ar"ets+ Kost *eo*le don%t concern the.seles ith

the origins o the ords and their a**lication to trading in co.*an& stoc"+

7nestors act on the 'elie (or aith) that the .ar"et ill continue to i.*roe,

giing the. incentie to 'eco.e actie+

9" ;n the other side o the coin, hen inestors eel that *rices are going to dro* or

see that the& are in a donard trend, the& do not hold the sa.e *ositie outloo"

and lose aith in the .ar"et te.*oraril&+ Relia'le inest.ent counselors and

inancial adisers are Iuic" to e$*lain that 'ear and 'ull .ar"et assess.ents don%t



50/104

adhere to an& hardandast rules+ As ith .an& inancial and econo.ic actions,

there is *s&cholog& o the indiidual to consider+

" 7n other ords, a *erson or grou* .ight act as i the& are in a 'ear or 'ull .ar"et

'ased on their on assess.ent+ 7 a signiicant nu.'er o inestors act, the

co.'ined eight o the action .ight *ush the .ar"et in a *articular direction+

This could enhance a 'ear trend or 'ull trend, i not actuall& create the .o.entu.

to start such a .ar"et+ This could onl& 'e deter.ined oer a longer *eriod o ti.e

hoeer, so hindsight is ala&s 'etter hen assigning these ter.s+

" The ?reat e*ression as certainl& an e$tre.e e$a.*le o a 'ear .ar"et 'ecause

the aerage *rice o stoc"s dro**ed al.ost out o sight oer a three&ear *eriod+

#cono.ists consider the *eriod ro. the earl& 1990s to 000 the longest 'ull

.ar"et+ /u.erous techniIues are used to soten the 'los o a 'ear .ar"et or to

ta"e adantage o a 'ull .ar"et+

HOW TO PREDICT BEAR AND BULL MARKETS?

The easiest a& to *redict 'oth t&*es o .ar"ets is to reali=e that hat goes u* .ust co.e

don+ That is, i the .ar"et is rising, then &ou "no that at so.e *oint it ill start to all

again+ Si.ilarl&, i the .ar"et is currentl& alling, &ou can 'e certain that eentuall& it

ill *ic" u* again+ There are no *recise a&s to *redict either 'ull or 'ear .ar"ets,although general social econo.ic situations can hel* &ou to deter.ine hat ill ha**en+

A countr& hich ages a ar ill e$*erience 'ullish .ar"et conditions as goern.ent

contracts create .ore -o's and 'oost inestor conidence i their e$*ectation is to in+

Sudden international crises *ush the .ar"et donard and create 'earish conditions+

/es is er& oten a good indicator o here inestors are headed+ The re*orts ill

inor. a'out loss o inestor conidence as ell as sudden econo.ic donturns that .a&

aect the .ar"et+ 7 &ou notice ro. stoc" .ar"et research that seeral inde$es hae

changed '& 15: to 0:, &ou can 'e sure that .ar"et direction is changing+ 4hen &ou



51/104

notice such changes, it is ti.e to sit u* and ta"e notice+ 2ou .a& 'e headed or a 'ullish

or 'earish .ar"et+

MARKET CONDITIONS IN BOTH CASES

4hile reerring to .ar"ets is either 'ull or 'ear is er& general, there are certain t&*es o

s*eciic .ar"ets conditions that e$ist in 'oth .ar"ets+ >or e$a.*le, a 'ullish .ar"et is

oten acco.*anied '& a sudden increase de.and or securities and s.aller su**lies o the

sa.e securities+ This is 'ecause .ore inestors are illing to 'u& securities hile eer

ish to sell+ This, o course, onl& *ushes *rices higher+ The er& o**osite is true in a

'earish .ar"et+

The inestors 'ehaior is another condition *realent in 'oth .ar"ets+ 7n 'ullish .ar"ets,

theres a sudden increase interest in the stoc" .ar"et+ Kore *eo*le are ho*eul a'out

*ossi'le *roits on the stoc" .ar"et and .ost *eo*le are o*ti.istic a'out econo.ic

conditions+ 7n a 'earish .ar"et, inestors are not er& conident and thereore inest less+

IN


52/104

t&*es o inest.ent+ eensie stoc"s are another good o*tion that re.ain sta'le during

'earish conditions+ ;n the other hand, so.e inestors see 'earish .ar"et conditions as an

ideal ti.e to inest in .ore stoc"s+ Since .an& *eo*le are selling o their stoc"s

including alua'le 'luechi* stoc"s at lo *rices, it is *ossi'le to set u* longter.

inest.ents that ill *roe alua'le during 'ullish ti.es+

4hile eer& inestor loes to see the u*sing in *rices during a 'ull .ar"et, the ise

inestor ill 'e a'le to handle a 'ear .ar"et as ell+ 4hether &ou are -ust 'eginning to

inest or are an e$*erienced inestor, learning to deal ith arious .ar"et conditions &ou

need not *anic 'ut decide *atientl& on inest.ent+

ABOUT SEBI

WHAT IS SEBI ?

Securities and #$change 8oard o 7ndia (S#87) is an a*e$ 'od& or oerall deelo*.ent

and regulation o the securities .ar"et+ 7t as set u* on A*ril 1, 1933+ To start ith,

S#87 as set u* as a nonstatutor& 'od&+ ater on it 'eca.e a statutor& 'od& under the

Securities #$change 8oard o 7ndia Act, 199+ The Act entrusted S#87 ith

co.*rehensie *oers oer *racticall& all the as*ects o ca*ital .ar"et o*erations+

ROLE J FUNCTIONS OF SEBI

1+ To *rotect the interests o inestors through *ro*er education and guidance as

regards their inest.ent in securities+ >or this, S#87 has .ade rules and

regulation to 'e olloed '& the inancial inter.ediaries such as 'ro"ers, etc+

S#87 loo"s ater the co.*laints receied ro. inestors or air settle.ent+ 7t also

issues 'oo"lets or the guidance and *rotection o s.all inestors+

+ To regulate and control the 'usiness on stoc" e$changes and other securit&

.ar"ets+ >or this, S#87 "ee*s su*erision on 'ro"ers+ Registration o 'ro"ers and

su''ro"ers is .ade co.*ulsor& and the& are e$*ected to ollo certain rules and

regulations+ #ectie control is also .aintained '& S#87 on the or"ing o stoc"

e$changes+

D+ To .a"e registration and to regulate the unctioning o inter.ediaries such as

stoc" 'ro"ers, su''ro"ers, share transer agents, .erchant 'an"ers and other



53/104

inter.ediaries o*erating on the securities .ar"et+ 7n addition, to *roide suita'le

training to inter.ediaries+ This unction is useul or health& at.os*here on the

stoc" e$change and or the *rotection o s.all inestors+

+ To register and regulate the or"ing o .utual unds including BT7 (Bnit Trust o

7ndia)+ S#87 has .ade rules and regulations to 'e olloed '& .utual unds+ The

*ur*ose is to .aintain eectie su*erision on their o*erations E aoid their

unair E antiinestor actiities+

5+ To *ro.ote selregulator& organi=ation o inter.ediaries+ S#87 is gien ide

statutor& *oers+ Hoeer, selregulation is 'etter than e$ternal regulation+ Here,

the unction o S#87 is to encourage inter.ediaries to or. their *roessional

associations and control undesira'le actiities o their .e.'ers+ S#87 can also

use its *oers hen reIuired or *rotection o s.all inestors+

6+ To regulate .ergers, ta"eoers and acIuisitions o co.*anies in order to *rotect

the interest o inestors+ >or this, S#87 has issued suita'le guidelines so that such

.ergers and ta"eoers ill not 'e at the cost o s.all inestors+

@+ To *rohi'it raudulent and unair *ractices o inter.ediaries o*erating on

securities .ar"ets+ S#87 is not or interering in the nor.al or"ing o these

inter.ediaries+ 7ts unction is to regulate and control their o'-ectional *ractices

hich .a& har. the inestors and health& groth o ca*ital .ar"et+

3+ To issue guidelines to co.*anies regarding ca*ital issues+ Se*arate guidelines are

*re*ared or irst *u'lic issue o ne co.*anies, or *u'lic issue '& e$isting listed

co.*anies and or irst *u'lic issue '& e$isting *riate co.*anies+ S#87 is

e$*ected to conduct research and *u'lish inor.ation useul to all .ar"et *la&ers

(i+e all 'u&ers and sellers)+

9+ To conduct ins*ection, inIuiries E audits o stoc" e$changes, inter.ediaries and

selregulating organi=ations E to ta"e suita'le re.edial .easures hereer

necessar&+ This unction is underta"en or orderl& or"ing o stoc" e$changes E

inter.ediaries+

10+ To restrict insider trading actiit& through suita'le .easures+ This unction is

useul or aoiding undesira'le actiities o 'ro"ers and securities sca.s+



54/104

STOCK & EXCHANGE BOARD OF INDIA

R#0,)ati+n O- B,sin#ss In Th# St+$: E@$han0#s

Bnder the S#87 Act, 199, the S#87 has 'een e.*oered to conduct ins*ection o stoc"

e$changes+ The S#87 has 'een ins*ecting the stoc" e$changes once eer& &ear since

199596+ uring these ins*ections, a reie o the .ar"et o*erations, organi=ational

structure and ad.inistratie control o the e$change is .ade to ascertain hetherJ

• the e$change *roides a air, eIuita'le and groing .ar"et to inestors

• the e$changes organi=ation, s&ste.s and *ractices are in accordance ith the

Securities Contracts (Regulation) Act (SC(R) Act), 1956 and rules ra.ed there

under

• the e$change has i.*le.ented the directions, guidelines and instructions issued

'& the S#87 ro. ti.e to ti.e

• The e$change has co.*lied ith the conditions, i an&, i.*osed on it at the ti.e

o reneal grant o its recognition under section o the SC(R) Act, 1956+

uring the &ear 199@93, ins*ection o stoc" e$changes as carried out ith a s*ecial

ocus on the .easures ta"en '& the stoc" e$changes or inestors *rotection+ Stoc"

e$changes ere, through ins*ection re*orts, adised to eectiel& ollou* and redress

the inestors co.*laints against .e.'erslisted co.*anies+ The stoc" e$changes ere

also adised to e$*edite the dis*osal o ar'itration cases ithin our .onths ro. the date

o iling+

uring the earlier &ears ins*ections, co..on deiciencies o'sered in the unctioning o

the e$changes ere dela&s in *ost trading settle.ent, reIuent clu''ing o settle.ents,

dela& in conducting auctions, inadeIuate .onitoring o *a&.ent o .argins '& 'ro"ers,

nonadherence to Ca*ital AdeIuac& /or.s etc+ 7t as o'sered during the ins*ections

conducted in 199@93 that there has 'een considera'le i.*roe.ent in .ost o the areas,

es*eciall& in trading, settle.ent, collection o .argins etc

+

Initial Public Offers and its effect on Stock Market Page 5D


55/104

Stan.a%. & P++%s R#)ati+n /ith St+$: Ma%:#t

The co.*an& traces its histor& 'ac" to 1360, ith the *u'lication '& Henr& Garnu.

Poor o Histor& o Railroads and Canals in the Bnited States+ This 'oo" as an atte.*t to

co.

a study on ipo market

Documents