CHAPTER I - INTRODUCTION

INTRODUCTION
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary market creates long term instruments through which corporate entities borrow from capital market.

FPO
Further Public Offers are issued by companies or corporate bodies whose shares are already being traded in the capital market and they are issuing fresh shares either to fund the expansion of their existing business or to invest into other business activities. A company can raise capital through issue of shares or debentures. The various types of issues are: Public Issue, Rights Issue, Bonus Issue, Private Placement and Bought out Deal There can be two kinds of public issues, namely: Initial Public Offer (IPO) Further Public Offer (FPO)

CLASSIFICATION OF ISSUES
IPO An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. 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 issuers securities. The sale of securities can be through book building or normal public issue. Secondary Offerings Secondary Offerings are issued by companies or corporate bodies whose shares are already being traded in the capital market and they are issuing fresh shares either to fund the expansion of their existing business or to invest into other business activities.

Reasons for Going Public Raising funds to finance capital expenditure programs like expansion, diversification, modernization, etc. Financing of increased working capital requirements Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers for shares of another firm, etc. Debt Refinancing Exit Route for Existing Investors

OBJECTIVES OF THE STUDY

The project aims to study the functioning of primary markets in India and the role of SEBI. To understand the role of Depositories in the process of IPO. To understand the procedure of IPO for companies going public. To study the advantages and disadvantages of going public. To study the performance of IPOs. To do an in-depth study of the top IPOs in the last one year To analyze the upcoming IPOs.

SCOPE OF THE STUDY

The study covers the Primary Markets with IPOs in particular. The study attempts to study the advantages and disadvantages of IPOs. The study collects most of the information from different secondary resources apart from primary information by discussing with different managers and customers who do online trading. The study covers only the IPOs in India. The study attempts to study the IPOs that have come up in the last few years and the IPOs that are expected to come up in the next one year.

NEED OF THE STUDY

Different investment avenues are available to investors. Stock market also offers good investment opportunities to the investor alike all investments, they also carry certain risks. The investor should compare the risk and expected yields after adjustment off tax on various instruments, while talking investment decision the investor may seek advice from experts and consultancy include stock brokers and analysts while making investment decisions. The objective is to make the investor aware of the primary markets with special reference to Initial Public Offerings. The objective is to help the investor in selecting the appropriate initial public offerings in order to attain maximum return and to construct the portfolio. The investor should decide how best to reach the goals from the securities available. To identity investor objective constraints and performance, which help to formulate the investment policy? The development and improvement strategies in the investment policy are formulated. They will help the investors in selection of asset classes and securities in each class depending upon their real attributes.

RESEARCH METHODOLGY
Data collection is an actively in marketing research. The design of the data collection method is the spine of research design. The sources of data are classified in to two types. The Primary Data. The Secondary Data. PRIMARY DATA: The primary data are fresh data collected directly from the field and therefore consist of original information gathered for the specific purpose. It is expensive, laborious, and time consuming. But it assures a greater degree of accuracy and reliability as it comes straight from the horses month. SECONDARY DATA: The secondary data are the data, which the investigator borrows from other who have collected it for various other purposes. Therefore it may not entirely be reliable. It is less expensive and involves less expensive and involves less time and labor than the collection of primary data. The Sources of collecting Data: I. II. III. Reports and publication of Government department and international bodies. Newspaper, magazines, trade journals. Publication of books company records, brochures, catalogues and other documents. IV. Data related by statistical organization.

LIMITATIONS OF THE STUDY

The study is limited to Initial Primary Offerings in India. The study was carried out for a period of 45 days and due to paucity of time an in-depth study was not possible.

The IPO market is a dynamic one. Therefore data related to last few months

was only considered and interpreted.

Secondary information may not be authentic.

CHAPTER II REVIEW OF LITERATURE

Meaning of IPO
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary market creates long term instruments through which corporate entities borrow from capital market. Features of primary markets are:

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).

In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."

The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are:

Initial public offering; Rights issue (for existing companies); Preferential issue.

Classification of Issues

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IPO
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. 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 issuers securities. The sale of securities can be through book building or normal public issue.

FPO
Further Public Offers are issued by companies or corporate bodies whose shares are already being traded in the capital market and they are issuing fresh shares either to fund the expansion of their existing business or to invest into other business activities.

Reasons for Going Public

Raising funds to finance capital expenditure programs like expansion, diversification, modernization, etc. Financing of increased working capital requirements Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers for shares of another firm, etc. Debt Refinancing Exit Route for Existing Investors

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Advantages of Going Public

Facilitates future funding by means of subsequent public offerings Enables valuation of company Provides liquidity to existing shares Increases the visibility and reputation of the company Commands better pricing than placement with few investors Enables the company to offer its shares as purchase consideration or as an exchange for the shares of another company

Disadvantages of Going Public

Dilution of Stake makes co vulnerable to future takeovers Involves substantial Expenses Need to make continuous disclosures Increased regulatory monitoring Listing fees and Documentations Cost of maintaining Investor relations Takes substantial amount of management time and efforts

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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 13

No company shall make public or rights issue or an offer for sale of securities, unless: a. 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 b. 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.

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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, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name.

The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e., offer through offer document + firm allotment + promoters contribution through the offer document), does not exceed five (5) times its pre-issue networth as per the audited balance sheet of the last financial year.

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.

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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 IPOs 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 companys potential and the price of its shares.

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Book-Building Process

ISSUER

BOOK RUNNING LEAD MANAGERS

MUTUAL FUNDS

UNDERWRITERS MERCHANT BANKERS

STOCK BROKERS

INVESTORS

MFs

Financial Institutions

Foreign Financial Institutions

NRIs

Corporations HNIs Retail Investors

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.

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An Issuer Company can issue capital through book building in following two ways: 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 - In 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 recognized stock exchanges are situated.

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Book Building Process in India

The steps which are usually followed in the book building process can be summarized below: 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) (4) The draft prospectus is filed with SEBI which gives it a legal standing. 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.

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(9)

The BRLM receives the feedback about the investors 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, investors 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

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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

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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 networth individuals and employees of the company. Individuals who apply for the IPO put in their bids. The process is transparent. One can check on the issue subscription at the BSE and NSE Web sites. After evaluating the bid prices, the company will accept the lowest price that will allow it to dispose the entire block of shares. That is called the cut-off price.

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Reverse Book Building

Reverse book-building is a mechanism by which companies listed on a stock exchange can delist their shares. The reasons for delisting may be several and sometimes intentional. The reverse book building is an efficient price discovery mechanism of de-listing of securities, which is provided for capturing the sell orders on online basis from the shareholders through respective BRLM. In the reverse book-building scenario, the acquirer or promoter of a company offers to get back shares from the shareholders. It is a mechanism where, during the period for which the reverse book building is open, offers are collected at various prices, which are above or equal to the floor price from the share holders through trading members appointed by the acquirer or promoter of a company. The reverse book building price (i.e. final price/ exist price) is determined by BRLM in consultation with the acquirer or promoter of the company after the offer closing date in accordance with the SEBI (De-listing of Securities) Guidelines, 2003. which desires to get de-listed, in accordance to book building process. The offer price has a floor price, which is fixed for de-listing of securities below which no offer can be accepted. The floor price is the average of 26 weeks traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date of public announcement is made. There is no ceiling on the maximum price.

ROLE OF VARIOUS INTERMEDIARIES IN IPO

Intermediarys 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.

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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.

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Underwriters
Underwriters are required to register with SEBI in terms of the SEBI (Underwriters) Rules and Regulations, 1993. In addition to underwriters registered with SEBI in terms of these regulations, all registered merchant bankers in categories I, II and III and stockbrokers and mutual funds registered with SEBI can function as underwriters. Part III gives further details of registration of underwriters. In 1996-97, the SEBI (Underwriters) Regulations, 1993 were amended mainly pertaining to some procedural matters.

Bankers to an Issue
Scheduled banks acting as bankers to an issue are required to be registered with SEBI in terms of the SEBI (Bankers to the Issue) Rules and Regulations, 1994. These regulations lay down eligibility criteria for bankers to an issue and require registrants to meet periodic reporting requirements. Part III gives further details of registration of bankers to an issue.

Portfolio managers
Portfolio managers are required to register with SEBI in terms of the SEBI (Portfolio Managers) Rules and Regulations, 1993. The registered portfolio managers exclusively carry on portfolio management activities. In addition all merchant bankers in categories I and II can act as portfolio managers with prior permission from SEBI. Part III gives further details of the registration of portfolio managers.

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Registrars to an Issue and Share Transfer Agents

Registrars to an issue (RTI) and share transfer agents (STA) are registered with SEBI in terms of the SEBI (Registrar to the Issue and Share Transfer Agent) Rules and Regulations, 1993. Under these regulations, registration commenced in 1993-94 and is granted under two categories: category I - to act as both registrar to the issue and share transfer agent and category II - to act as either registrar to an issue or share transfer agent. With the setting up of the depository and the expansion of the network of depositories, the traditional work of registrars is likely to undergo a change.

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 issues fundamentals. Thus, IPO grading is an additional investor information and investment guidance tool.

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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.

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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 5/5 4/5 3/5 2/5 1/5 Assessment Strong fundamentals Above average fundamentals Average fundamentals Below average fundamentals Poor fundamentals

Data-flow diagram showing the entire IPO-grading procedure

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This 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.

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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 companys 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. 30

(d) Improved Investors Sophistication: It is perceived that an independent and informed opinion on the fundamental quality of the company will bring about greater level of investor sophistication in a scientific manner. In fact, investors may take investment decisions in a better way on the basis of opinion of CRAs regarding IPO grading. However, the assessment is not a recommendation to buy or not buy a stock. It is, instead, a powerful tool to assist the investors in making up their mind about the quality of a company proposing to offer an IPO investment option.

SEBI GUIDELINES FOR IPOS

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1. IPOs of small companies Public issue of less than five crores has to be through OTCEI and separate guidelines apply for floating and listing of these issues. 2. Size of the Public Issue

Issue of shares to general public cannot be less than 25% of the total issue, incase of information technology, media and telecommunication sectors this stipulation is reduced subject to the conditions that:

Offer to the public is not less than 10% of the securities issued. A minimum number of 20 lakh securities is offered to the public and Size of the net offer to the public is not less than Rs. 30 crores.

3. Promoter Contribution

Promoters should bring in their contribution including premium fully before the issue Minimum Promoters contribution is 20-25% of the public issue. Minimum Lock in period for promoters contribution is five years Minimum lock in period for firm allotments is three years.

4. Collection centers for receiving applications

There should be at least 30 mandatory collection centers, which should include invariably the places where stock exchanges have been established. For issues not exceeding Rs.10 crores (including premium, if any), the collection centres shall be situated at:-

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the four metropolitan centres viz. Bombay, Delhi, Calcutta, Madras; and at all such centres where stock exchanges are located in the region in which the registered office of the company is situated.

5. Regarding allotment of shares

Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock exchange. It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located. In an Issue of more than Rs. 25 crores the issuer is allowed to place the whole issue by book-building Minimum of 50% of the Net offer to the Public has to be reserved for Investors applying for less than 1000 shares. There should be atleast 5 investors for every 1 lakh of equity offered (not applicable to infrastructure companies). Quoting of Permanent Account Number or GIR No. in application for allotment of securities is compulsory where monetary value of Investment is Rs.50,000/- or above.

Indian development financial institutions and Mutual Fund can be allotted securities upto 75% of the Issue Amount. A Venture Capital Fund shall not be entitled to get its securities listed on any stock exchange till the expiry of 3 years from the date of issuance of securities.

Allotment to categories of FIIs and NRIs/OCBs is upto a maximum of 24%, which can be further extended to 30% by an application to the RBI supported by a resolution passed in the General Meeting.

6. Timeframes for the Issue and Post- Issue formalities

The minimum period for which a public issue has to be kept open is 3 working days and the maximum for which it can be kept open is 10 working 33

days. The minimum period for a rights issue is 15 working days and the maximum is 60 working days.

A public issue is effected if the issue is able to procure 90% of the Total issue size within 60 days from the date of earliest closure of the Public Issue. In case of over-subscription the company may have the right to retain the excess application money and allot shares more than the proposed issue, which is referred to as the green-shoe option.

A rights issue has to procure 90% subscription in 60 days of the opening of the issue. Allotment has to be made within 30 days of the closure of the Public Issue and 42 days in case of a Rights issue. All the listing formalities for a public Issue has to be completed within 70 days from the date of closure of the subscription list.

7. Dispatch of Refund Orders

Refund orders have to be dispatched within 30 days of the closure of the Public Issue. Refunds of excess application money i.e. for un-allotted shares have to be made within 30 days of the closure of the Public Issue.

8. Other regulations pertaining to IPO

Underwriting is not mandatory but 90% subscription is mandatory for each issue of capital to public unless it is disinvestment in which case it is not applicable.

If the issue is undersubscribed then the collected amount should be returned back (not valid for disinvestment issues). If the issue size is more than Rs. 500 crores voluntary disclosures should be made regarding the deployment of the funds and an adequate monitoring mechanism to be put in place to ensure compliance.

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There should not be any outstanding warrants or financial instruments of any other nature, at the time of initial public offer. In the event of the initial public offer being at a premium, and if the rights under warrants or other instruments have been exercised within the twelve months prior to such offer, the resultant shares will not be taken into account for reckoning the minimum promoter's contribution and further, the same will also be subject to lock-in.

Code of advertisement specified by SEBI should be adhered to. Draft prospectus submitted to SEBI should also be submitted simultaneously to all stock exchanges where it is proposed to be listed.

9. Restrictions on other allotments

Firm allotments to mutual funds, FIIs and employees not subject to any lockin period. Within twelve months of the public/rights issue no bonus issue should be made. Maximum percentage of shares, which can be distributed to employees cannot be more than 5% and maximum shares to be allotted to each employee cannot be more than 200.

10. Relaxations to public issues by infrastructure companies. These relaxations would be applicable to Infrastructure Companies as defined under Section 10(23G) of the Income Tax Act, 1961, provided their projects are appraised by any Developmental Financial Institution (DFI) or IDFC or IL&FS. The projects must also have a participation of at least 5% of the project cost (in debt and/or equity) by the appraising institution.

The infrastructure companies will be exempted from the requirement of making a minimum public offer of 25 per cent of its securities.

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The requirement of 5 shareholders per Rs. 1 lakh of offer is also waived in case of offerings by infrastructure companies. For public issues by infrastructure companies, minimum subscription of 90% would no longer be mandatory provided disclosure is made about the alternate source of funding which the company has considered, in the event of under subscription in the public issue.

Infrastructure companies are permitted to freely price the offerings in the domestic market provided that the promoter companies along with Equipment Suppliers and other strategic investors subscribe to 50% of the equity at the same or a higher price than what is being offered to the public. Adequate disclosures about the justification for the pricing will be required to be made in the offer documents.

The Infrastructure Companies would be allowed to keep their issues open for 21 days. The relaxation would give infrastructure companies sufficient time to mobilise funds for their issues.

Infrastructure Companies would not be required to create and maintain a Debenture Redemption Reserve (DRR) in case of Debenture Issues.

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CHAPTER III INDUSTRY PROFILE

37

Introduction to The Capital Market

The capital market is the market for securities, where companies and the government can raise long term funds. The capital market includes the stock market and the bond market. Financial regulators ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. Capital market thus plays a vital role in channelizing the savings of individuals for Investment in the economic development of the country. As a result the investors are not constrained by their individual abilities, but by the abilities of the companies, which in turn enhance the savings and investments in the country, liquidity of capital market is an important factor affecting growth. Since projects require long term finance, but on the other hand, the investor may not like to relinquish control over their savings for a long time. A liquid stock market ensures a quick exit without incurring heavy losses or costs. Thus development of efficient market system is necessary for creating conductive climate for investment and economic growth. Capital Market Segment Primary and Secondary Broadly , the comprises of two segments the new issue market which is commonly known as primary market and the stock market which is known as secondary market.

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Primary A primary offering, such as with a corporate bond, means you are buying it directly from the issuer, at par value, usually. A secondary market is where you sell or buy existing issues. I.E. If you bought a bond last year, now need to get your principal, you can sell it in the secondary market. You may not get par value. If rates are up since you bought the bond, then you will likely have to sell it at a discount to be able to get rid of it. If rates have fallen since you bought it, you could get a premium for it. Secondary The market where securities are traded after they azre initially offered in the primary market. Most trading is done in the secondary market. To explain further, it is trading in previously issued financial instruments. An organized market for used securities. Bombay Stock Exchange (BSE), National Stock Exchange NSE, bond markets, over-the-counter markets, residential mortgage loans, governmental guaranteed loans etc Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, implementation of incentive-based management contracts, and information (via price discovery) that guides management decisions. enabling aggregating

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BRIEF ABOUT THE STOCK EXCHANGES Stock Exchange is a market like any other centralized market where both buyers and sellers come and conduct their business of purchase and sale of shares & securities. In other words, it is a market place for shares and securities where trading takes place in a controlled and protected environment. MEANING OF STOCK EXCHANGE A stock exchange, share market or bourse is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation). There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities.

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Functions of Stock Exchange

Stock exchange is established into the main purpose of providing a market place for the members to deal in securities under well laid down regulations and to protect the interest of the investors. The main functions of stock exchange are It brings the companies and investors together so that the investors can put risk capital into companies and thus, companies can use the capital. It provides an orderly regulated market for securities. It provides continuous, ready and open market for selling and buying securities. It promotes savings and investment in the economy by attracting funds from the investors. It facilitates take overs by means of acquiring majority of shares traded on the stock market. It acts as a clearing house of business information. It motivates the managers of well reputed companies, to retain their shares in A group, to improve performance. It induces the managers to improve performance for converting non-specified shares into specified shares in the exchange. It enables the investors to evaluate the net worth of their holdings. It also allows the companies to float their shares in the market.

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FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance of capital markets throughout the world. The development of a market economy is dependent on the development of the capital market. The regulation of a capital market involves the regulation of securities; these rules enable the capital market to function more efficiently and impartially. A well regulated market has the potential to encourage additional investors to partake, and contribute in, furthering the development of the economy. The chief capital market regulatory authority is Securities and Exchange Board of India (SEBI). SEBI is the regulator for the securities market in India. It is the apex body to develop and regulate the stock market in India It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI is headquartered in the popular business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers has been set up.

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The basic objectives of the Board were identified as:

to protect the interests of investors in securities; to promote the development of Securities Market; to regulate the securities market and For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and subbrokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:

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It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options; It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 bases). SEBI has been active in setting up the regulations as required under law.

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STOCK EXCHANGES IN INDIA

Stock Exchanges are an organized marketplace, either corporation or mutual organization, where members of the organization gather to trade company stocks or other securities. The members may act either as agents for their customers, or as principals for their own accounts. As per the Securities Contracts Regulation Act, 1956 a stock exchange is an association, organization or body of individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities. Stock exchanges facilitate for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerized. The trade on an exchange is only by members and stock broker do have a seat on the exchange.

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BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay Stock Exchange. It is the oldest market not only in the country, but also in Asia. In the early days, BSE was known as "The Native Share & Stock Brokers Association." It was established in the year 1875 and became the first stock exchange in the country to be recognized by the government. In 1956, BSE obtained a permanent recognition from the Government of India under the Securities Contracts (Regulation) Act, 1956.

In the past and even now, it plays a pivotal role in the development of the country's capital market. This is recognized worldwide and its index, SENSEX, is also tracked worldwide. Earlier it was an Association of Persons (AOP), but now it is a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

BSE Vision The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock exchange by establishing global benchmarks."

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BSE Management Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of eminent professionals, representatives of Trading Members and the Managing Director. The Board is an inclusive one and is shaped to benefit from the market intermediaries participation.

The Board exercises complete control and formulates larger policy issues. The dayto-day operations of BSE are managed by the Managing Director and its school of professional as a management team.

BSE Network The Exchange reaches physically to 417 cities and towns in the country. The framework of it has been designed to safeguard market integrity and to operate with transparency. It provides an efficient market for the trading in equity, debt instruments and derivatives. Its online trading system, popularly known as BOLT, is a proprietary system and it is BS 7799-2-2002 certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.

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BSE Facts BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the benchmark equity index that reflects the robustness of the economy and finance. It was the First in India to introduce Equity Derivatives First in India to launch a Free Float Index First in India to launch US$ version of BSE Sensex First in India to launch Exchange Enabled Internet Trading Platform First in India to obtain ISO certification for Surveillance, Clearing & Settlement 'BSE On-Line Trading System (BOLT) has been awarded the globally recognized the Information Security Management System standard BS7799-2:2002. First to have an exclusive facility for financial training Moved from Open Outcry to Electronic Trading within just 50 days

BSE with its long history of capital market development is fully geared to continue its contributions to further the growth of the securities markets of the country, thus helping India increases its sphere of influence in international financial markets.

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NATIONAL LIMITED

STOCK

EXCHANGE

OF

INDIA

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a taxpaying company unlike other stock Exchange in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. NSE GROUP National Securities Clearing Corporation Ltd. (NSCCL) It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced clearing operations in April 1996. It was formed to build confidence in clearing and settlement of securities, to promote and maintain the short and consistent settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk containment system. 49

NSE.IT Ltd. It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is uniquely positioned to provide products, services and solutions for the securities industry. NSE.IT primarily focuses on in the area of trading, broker front-end and back-office, clearing and settlement, web-based, insurance, etc. Along with this, it also provides consultancy and implementation services in Data Warehousing, Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe Facility Management, Real Time Market Analysis & Financial News.

India Index Services & Products Ltd. (IISL) It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and index related services and products for the Indian Capital markets. It was set up in May 1998. IISL has a consulting and licensing agreement with the Standard and Poor's (S&P), world's leading provider of investible equity indices, for co-branding equity indices.

National Securities Depository Ltd. (NSDL) NSE joined hands with IDBI and UTI to promote dematerialization of securities. This step was taken to solve problems related to trading in physical securities. It commenced operations in November 1996.

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NSE Facts It uses satellite communication technology to energize participation from around 400 cities in India. NSE can handle up to 1 million trades per day. It is one of the largest interactive VSAT based stock exchanges in the world. The NSE- network is the largest private wide area network in India and the first extended C- Band VSAT network in the world. Presently more than 9000 users are trading on the real time-online NSE application. Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE, we are constantly working towards creating a more transparent, vibrant and innovative capital market.

OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act 1956 and is recognized as a stock exchange under section 4 of the securities Contracts Regulation Act, 1956. The exchange was set up to aid enterprising promotes in raising finance for new projects in a cost effective manner and to provide investors with a transparent and efficient mode of trading Modeled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making and scrip less trading. As a measure of success of these efforts, the

51

Exchange today has 115 listings and has assisted in providing capital for enterprises that have gone on to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant mineral water, etc.

Need for OTCEI: Studies by NASSCOM, software technology parks of India, the venture capitals funds and the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical, Biotechnology and Media shares have repeatedly emphasized the need for a national stock market for innovation and high growth companies.

Innovative companies are critical to developing economics like India, which is undergoing a major technological revolution. With their abilities to generate employment opportunities and contribute to the economy, it is essential that these companies not only expand existing operations but also set up new units. The key issue for these companies is raising timely, cost effective and long term capital to sustain their operations and enhance growth. Such companies, particularly those that have been in operation for a short time, are unable to raise funds through the traditional financing methods, because they have not yet been evaluated by the financial world.

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EVOLUTION AND GROWTH OF INDIAN PRIMARY MARKET

Early Liberalization Phase: 1992-1995 (Fixed Pricing) The initiation of the process of reform in India also would not have been possible without changes in the regulatory framework. The New Economic policy (1991) led to a major change in the regulatory framework of the capital market in India. The Capital Issues (Control) Act 1947 was repealed and the Office of the Controller of Capital Issues (CCI) was abolished. The Securities and Exchange Board of India (SEBI), established in 1988 and armed with statutory powers in 1992, came to be established as the regulatory body with the necessary authority and powers to regulate and reform the capital market. SEBI came to be recognized as a regulatory body for the capital market after the abolition of the CCI. The control on pricing of capital issue has been abolished and easy access is provided to the capital market. Initial Public Issue caught the attention of general public only after the success of Reliance, when millions of small investors made huge returns which were unheard of till then. Dhirubhai Ambani was the first promoter who raised huge amounts through the public issue route to finance large facilities. The issue process was smoothened, procedures were simplified and free pricing was allowed, although with certain restrictions, The Indian market had the concept of par value of equity shares, and anything above par was considered premium. The only companies that were allowed to come with premium issues were those, which had a three year profit-track record for the preceding five years. New companies without this record could float premium issues if their promoting companies had the same track record and they had to hold 50% of the post issue capital. Any new company floated by first generation entrepreneurs could only issue equity at par. There was no restriction about prices in a premium issue.

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The offer was always at a fixed price, whether premium or par. The companies had to appoint intermediaries like merchant bankers, registrars, bankers etc. Merchant bankers had the responsibility of fixing the prices, in consultation with the company, carrying out with due diligence, preparing the prospectus (offer documents) etc. The prospectus had to be submitted to SEBI for getting scrutiny. The trend continued in the early nineties as many large projects were launched after the economy was liberalised. Many of these companies came out with public issues and the retail participation increased dramatically. But many of the companies which raised money during this period just disappeared without a trace. Late Liberalisation Period: 1996-2005 (Book Building) The late nineties and the first few years of the current decade did not see much activity in the primary market even though we saw a huge bull run led by technology stocks at the turn of the decade. The bad experiences of retail investors kept them away from the market and made it difficult for companies to launch successful issues. The corporate sector was recovering from the damage caused by large capacity expansions and new projects set up in the nineties. The dormant primary issues market came alive after 2003 mostly because of the divestment programme of the government. The issue of Maruti Udyog, through which the government sold part of its stake in the company, rekindled retail investor interest in the primary market. The issue was made at a very reasonable price and investors made very good returns immediately. The year 2004 saw the primary market activity at its historic peak as some large private companies also came out with issues. Further divestment by the government; including the largest ever issue by an Indian company from ONGC, attracted more retail investors into the market. The IPO market continues to buzz in the current year as well. Taking advantage of the strength in the secondary market, many high profle companies are lining up to raise money from the market. The year started with the

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issue from Jet Airways which attracted a lot of interest from investors. As a result of tougher regulations, the quality of the issues has gone up substantially. 2006 onwards scenario: India's IPO market emerged as the eighth largest with $7.23 billion (Rs 30,000 crore) in net proceeds through 78 public issues, global research and consultancy firm Ernst & Young said in its Global IPO report. Across the world, the companies raised $246 billion, up from $167 billion in 2005, through a total of 1,729 IPOs, led by Chinese companies at the top with net proceeds of $56.6 billion. However, the biggest number of IPOs came from the United States with 187 offerings, followed by Japan with 185 and China with 175 IPOs. According to the study, India's increasing number of larger deals has been driven by the growth of Indian corporations and their need for additional capital for potential acquisitions. In 2007 Indian IPOs continue to surge in numbers. Continued strength is expected in the real estate and energy sector. "The rapid growth in emerging market economies has resulted in a migration of capital from the developed economies into the emerging markets," E&Y said. The localisation trend in India is evidenced by several billion-dollar IPOs hosted by Indian exchanges. In 2006, India's largest IPO, Reliance Petroleum raised $1.8 billion, followed by the oil production and exploration company, Cairn Energy, which raised $1.3 billion with both companies listing on domestic exchanges. However, some Indian companies are also listing abroad, especially London, Singapore and Luxembourg, primarily for higher valuations and visibility, the report noted.

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Chapter IV Company Profile

56

People running the show. Focus on customer-first-attitude, ethical and transparent business practices, respect for professionalism, research-based value investing and implementation of cutting-edge technology has enabled us to blossom into an over 1600 member team. Today we are a well diversified financial services firm offering a range of financial products and services such as Wealth Management, Broking & Distribution, Commodity Broking, Portfolio Management Services, Institutional Equities, Private Equity, Investment Banking Services and Principal Strategies. We have a diversified client base that includes retail customers (including High Net worth Individuals), mutual funds, foreign institutional investors, financial institutions and corporate clients. We are headquartered in Mumbai and as of Dec 31st, 2011, had a network spread over 555 cities and towns comprising 1,563 Business Locations operated by our Business Partners and us. As at Dec 31st, 2011, we had 738,156 registered customers. 2012: Motilal Oswal Financial Services won the RETAILER OF THE YEAR (Banking & Financial Services) award at the Awards for Retail Excellence 2012 organized by Asia Retail Congress on Feb 14, 2012. Motilal Oswal Mutual Fund launched Motilal Oswal Most Shares Gold ETF (Most Gold Shares), Indias 1st Gold ETF of its kind which seamlessly enables Investment as well as Consumption of Gold for Retail Investors. With Most Gold Shares, investors can get pure imported Gold at a price lower

57

than any other option in the market by redeeming the ETF units for physical gold bars in as low as 10 grams. Motilal Oswal Private Equity announced the first closing of its second private equity fund, India Business Excellence Fund-II. The first close has been achieved at an equivalent of Rs 3,500mn raised through a combination of domestic and offshore investors. 2011: The 16th Motilal Oswal Wealth Creation Study presentation was held in Mumbai on 9th December 2011 and was covered live on ET Now. The 16th Motilal Oswal Wealth Creation Study presentation was held in Mumbai on 9th December 2011 and was covered live on ET Now. Motilal Oswal Mutual Fund launches Motilal Oswal Must 10 Year Gilt Fund Indias First Fund to provide access to the 10 Year Benchmark G-Sec by investing 90-100% in 10 year G-Secs. Motilal Oswal Securities was awarded Best Equity Broking House at BSE IPF-D&B Equity Broking Awards 2011 on October 10, 2011. Motilal Oswal Financial Services Ltd. was honoured with Best Capital Markets & Related NBFC Award for FY11 at the CNBC TV18 India Best Banks and Financial Institutions Awards, 2011 held in Mumbai. At the second Asias BEST EMPLOYER BRAND AWARDS held in Singapore on 22nd July, 2011, Motilal Oswal Financial Services bagged awards in two categories: Award for Excellence in HR through Technology & Award for Managing Health at Work Motilal Oswal in association with Zee Business, hosted the first of its series of seminars under its investors education initiative called Investor Ki Kahani Usi Ki Zubanion July 2, 2011 at BSE in Mumbai. The seminar saw a colossal turnout with more than 750 investors attending the session. Motilal Oswal AMC organized the first edition of Motilal Oswal Most Shares ETF Conclave 2011 at NSE, Mumbai on 15th June, 2011. The event was

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telecast LIVE via webcast and the panel discussion was telecast LIVE by CNBC TV18. Mr. Raamdeo Agrawal was honoured with an award for Special Contribution to Indian Capital Market by Zee Business at the INDIAS BEST MARKET ANALYST AWARDS 2011 on April 29, 2011. Our Analysts Mr. Dhirendra Tiwari & Mr. Harshad Borawake won the Best Market Analyst Award for the categories Equity-Sectoral-Infrastructure and EquitySectoralEnergy respectively at INDIAS BEST MARKET ANALYST AWARDS 2011 organized by Zee Business on April 29, 2011. Motilal Oswal Asset Management Company becomes Indias 1st AMC to ring The NASDAQ Stock Market Opening Bell on 30 March 2011, to celebrate the launch of Motilal Oswal Most Shares NASDAQ 100 - Indias First US Equities Based ETF. Motilal Oswal Most Shares NASDAQ 100 - Indias First US Equities Based ETF gets listed on NSE and BSE on 31st March, 2011 Motilal Oswal Securities won 4 awards at the ET Now Starmine Analyst Awards 2010-2011. This puts MOSL amongst the Top 3 Award winning Brokers at the ET NOW Starmine Analyst Awards 2010-2011 Our analyst Mr. Alpesh Mehta was awarded Top Earnings Estimator Overall, at the ET NOW Starmine Analyst Awards 2010. He also received an award for Top Earnings Estimator for Financial Sector along with our analysts Mr. Harshad Borawake being awarded Top Stock Picker for Energy Sector and Mr. Siddharth Bothra being awarded Top Stock Picker for Real Estate Sector. Motilal Oswal Mutual Fund launches Most Shares NASDAQ 100 - Indias first US Equities based ETF tracking the NASDAQ-100 Index Motilal Oswal Mutual Funds Most Shares M50 bagged the Most Innovative Fund of the Year Award at CNBC TV18-CRISIL Mutual Fund Award 2011 held in Mumbai. Motilal Oswal Most Shares Midcap 100 ETF Indias First Midcap Index ETF; based on CNX Midcap Index was listed on NSE on February 4, 2011

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 Motilal Oswal Asset Management launches Must Shares M100 ETF - Indias First Midcap ETF; based on CNX Midcap Index 2010: The 15th Motilal Oswal Wealth Creation Study presentation was held in Mumbai on 15th December 2010 and was covered live on CNBC TV18 Motilal Oswal Securities bagged the Best Performing Equity Broker (National) Award at CNBC TV18 Financial Advisor Awards 2010 held in Mumbai. CNBC TV18 organized Financial Advisor Awards 2010, in partnership with UTI MF. These awards are authoritative evaluation backed by a robust methodology powered by Indias leading rating house, ICRA. Motilal Oswal Securities entered into a strategic alliance with Barclays Bank, for an equity trading platform for its (Barclays) customers. This alliance provides Barclays customers with the option to invest in equities, derivatives and IPOs, through MOSL. Motilal Oswal Securities Limited bagged the QualTech Prize for Improvement - 2010 in the Services Category on September 24, 2010. The Award winning project was a DMAIC project done in Account Opening Department to reduce Account Opening Turn around Time. Ashutosh Maheshvari, CEO, MOIAPL, bagged the India M&A Investment Banker award, and Acquisition of Equipav (Brazil) by Shree Renuka Sugars (India) facilitated by MOIAPL won the ASIA PACIFIC CROSS-BORDER DEAL of the YEAR at the ASIA-PACIFIC M&A ATLAS AWARDS held on September 23, 2010, organized by Global M&A Network. Motilal Oswal Private Equity organized the First Annual Investor Meet of India Realty Excellence Fund (IREF) on 28th August, 2010 in Mumbai. The event provided a platform for investors to interact with the investment team, Mopes partner developers and get a flavor of their investment strategy Motilal Oswal 6th Annual Global Investor conference was held in Mumbai from August, 2010. Around 110 corporate participated in the conference and more than 500 investors attended it

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 Most Shares M50 ETF was listed on NSE on July 30, 2010 Must Shares M50 ETF NFO which was open for subscription from June 30, 2010 till July 19, 2010 raised over Rs.235 crores, making it the largest amount raised during the NFO by any equity ETF in the past 5 years (Data source: Value Research Online.com) Motilal Oswal Asset Management launches its maiden mutual fund offering Most Shares M50 Motilal Oswal Asset Management hosted the 1st Value Investing forum in March 2010 and was covered live on CNBC TV18 2009: Motilal Oswal Financial Services purchased its new corporate office building based in Prabhadevi, the heart of Mumbai city with a planned usable area of over 2,00,000 sq ft The 14th Motilal Oswal Wealth Creation Study presentation held in Mumbai in December 2009 and was covered live on CNBC TV18 MOSL ranked No. 2 (Best Local brokerage) in the AsiaMoney Brokers Poll 2009 and No. 2 (Best Indian Brokerage House) category by Institutional Investor Motilal Oswal Private Equity's India Reality Excellence Fund achieved its final closing of INR 1.64 bn Motilal Oswal Investment Advisors facilitates the first cross border acquisition by an Indian company in the sugar sector in Brazil Motilal Oswal Securities Ltd. rated as No.1 Broker in ET Now - Starmine Analyst Awards 2009 Motilal Oswal 5th Annual Global Investor Conference was held in Mumbai where around 80 Indian Corporate participated and over 400 investors from all over the world attended Motilal Oswal Securities Ltd. enters 'Limca Book of Records' for creating India's largest dealing room in Mumbai

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 MOSL was 'Rated No.1 Best recommendations Mid & Small Caps' and won awards in 3 out of 4 categories at the Starmine India Broker Rankings 2009 from Thomson Reuters

Motilal Oswal Chairman and Managing Director, MOFSL Raamdeo Agrawal Joint Managing Director, MOFSL Navin Agarwal Director, MOFSL Ashutosh Maheshwari CEO-MOIAPL Vishal Tulsyan CEO-MOPEAPL Nitin Rakesh MD & CEO MOAMC Ramnik Chhabra Associate Director-Head Marketing, MOFSL Sameer Kamath Chief Financial Officer, MOFSL Mr. Sudhir Dhar Senior Vice President-Head HR & Admin, MOFSL

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CHAPTER V DATA ANALYSIS & INTERPRETATIONS

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BSE IPO Index

Initial Public Offerings (IPOs) are a great opportunity for promoters to sell shares at a very high price and for the investing public to make some listing gains if possible. Buying a stock that has just got listed after an IPO is a foolish idea. The BSE IPO index has performed badly since its launch on 24 August 2009. The index closed at 1947.54 on the day of its launch. By the end of December 2011, exactly 26 months after its launch, the BSE IPO index was at 1,310.1, down almost 637 points. In the same period, the Sensex is up by 50% increasing from 10,335 points on 2 nd Jan 2009 to 15,517 points on 30th Dec 2011.

The Bombay Stock Exchange (BSE) launched the BSE IPO index to track the value of the companies listing subsequent to a successful completion of an IPO. The index currently has 72 companies. But this figure is continually changing, depending on

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how many companies are listed, as an IPO company is kept on the index only for two years.

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TOP 10 ALL TIME IPOs IN INDIA

INDIA'S 10 LARGEST IPOS

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Coal India India's largest ever public offer from Coal India Ltd to raise up to Rs 15,000 crore (Rs 150 billion) hit the stock markets in October 2010. The government is divesting 10 per cent of its stake in Coal India Ltd (CIL), the world's largest coal miner, through the IPO. Reliance Power Anil Dhirubhai Ambani Group-promoted Reliance Power Ltd's Rs 11,700 crore (Rs 117 billion) initial public offering set many a record: it started off with a bang on January 15, 2008 with the share sale -- India's biggest-ever -- getting fully subscribed within a minute of opening. It received the highest number of applications ever -- 3.1 million applications. Oil and Natural Gas Corporation

ONGC's public offering, which opened on March 5, 2004 was oversubscribed within half an hour of its opening, with estimated proceeds of Rs 9,500 crore (Rs 95 billion). Till the Reliance Power IPO was launched, the ONGC offering was the largest IPO by any company ever in the Indian capital markets with 142.59 million shares being sold through the book-building route in a price band of Rs 680-750.

DLF

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DLF Universal's IPO hit the markets on June 11, 2007 and closed on June 14. Although scheduled for June 2006, the IPO ran into rough weather with minority investors create a furore with 'cheating' allegations against the company. DLF managed to settle this issue and filed a new prospectus with the Securities and Exchange Board of India. The Sebi approval for the same was received soon after. DLF Universal priced its IPO between Rs 500 and Rs 550. It was earlier expected to price the issue around Rs 600. The issue raised about Rs 9,188 crore (Rs 91.88 billion). The IPO was oversubscribed a modest 3.45 times.

Cairn India IPO size: Rs 5,788 crore, year of issue: 2006 Cairn, the oil and gas exploration company, entered the Indian capital market with a public issue of 328,799,675 equity shares of Rs 10 each at a premium decided through a 100 per cent book-building process. The share was issued in a price band of Rs 160-Rs 190. The construction and development work for the oil major's Rajasthan oil field was partly funded by the IPO. The company raised about Rs 5,788 crore (57.88 billion) through the IPO.

Tata Consultancy Services

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IPO size: Rs 5,420 crore, year of issue: 2004 India's largest IT company, Tata Consultancy Services Ltd, offered 5.54 crore (55.4 million) equity shares of Re 1 each, including a fresh issue of 2.27 crore (22.7 million) shares, in its initial public offering through a book-building route. The Rs 5,000 crore (Rs 50 billion) IPO opening coincided with the birth centenary of JRD Tata, who was at the helm of the Tata group for over four decades before Ratan Tata took charge. The TCS IPO created a record as the IPO was oversubscribed by 6.69 times and received a total application amount worth Rs 34,000 crore (Rs 340 billion) as against the issue size of Rs 5,000 crore.

Reliance Petroleum IPO size: Rs 2,700 crore, year of issue: 2006 Reliance Petroleum opened for bidding on April 13, 2006. The price band was fixed at Rs 57 to Rs 62 and the bidding closed on April 20, 2006. This was the second time in the market for the petrochem major, after 1993 when it first came out with an IPO. The company offered 45 crore (450 million) equity shares for subscription. Retail investors could bid for up to 1,600 shares at the upper end of the price band and they needed to pay only Rs 16 per share at the time of bidding. The balance amount was to be payable on allotment. The company raised Rs 2,700 crore (Rs 27 billion) through the IPO.

National Thermal Power Corporation

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IPO size: Rs 5,368 crore, year of issue: 2004 The National Thermal Power Corporation offered a public issue of equity shares of Rs 10 each by offering 865,830,000 equity shares in a price band of Rs 52 to Rs 62. The issue was made through 100 per cent book building process. The offer was made for 10.5 per cent of NTPC's enlarged capital. The issue raised about Rs 5,368 crore (Rs 53.68 billion) at the top end of the price band. Post offer, the government's stake in NTPC reduced to 89.5 per cent. The issue opened on October 7, 2004 and closed on October 14.

Idea Cellular IPO size: Rs 2,443 crore, year of issue: 2007 The issue was oversubscribed 49.51 times. The issue was oversubscribed 49.51 times. A 32.69 crore (326.9 million) issue received 16.18 billion bids while 35.71 crore bids at cut off price. The company entered capital market with an initial public offering, aggregating to Rs 21,250 million, of equity shares of Rs 10 each. The price band for the issue was between Rs 65 and Rs 75 per equity share.

Jet Airways IPO size: Rs 1,899 crore, year of issue: 2005

The initial public offer by Jet Airways got an overwhelming response on the very first day -- February 18, 2005. The issue was fully subscribed within five minutes of opening and was oversubscribed 4.4 times. The issue received a total 7.5 crore (75 million) bids for the 1.72 crore (17.2 million) shares on offer at a price band of Rs 950-1,125.

TREND OF IPOS YEAR ON YEAR

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

Amount (Rs. Crore) 5,732 22,131 25,526 23,676 24,993 53,219 3,534 49,441 55,613 14,178

No of Issues 14 34 34 102 85 91 22 47 67 38

60,000 50,000 40,000 30,000 22,131 20,000 10,000 0 5,732 34 34

102 85

53,219

55,613 49,441

Rs in Crores

91 25,526 23,676 24,993

67 14,178 22 3,534 47 38

1 14 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

TOP GAINERS - 2011

ISSUE PRICE RS.)

NAME OF THE ISSUE

PRICE ON 31ST DEC 2011 (RS)

INCREASE (%)

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ONELIFE CAPITAL ADVISORS LIMITED AANJANEYA LIFECARE LIMITED PRAKASH CONSTROWELL LTD RUSHIL DECOR LIMITED FLEXITUFF INTERNATIONAL LIMITED LOVABLE LINGERIE LIMITED TREE HOUSE EDUCATION & ACCESSORIES

230.1 485.05 243.6 120.25 257 316.6 158

110 234 138 72 155 205 135

109.18% 107.29% 76.52% 67.01% 65.81% 54.44% 17.04%

500 450 400 350 300 250 200 150 100 50 ONELIFE CAPITAL ADVISORS LIMITED 110 230.1 234 109% 107%

485.05

77%

67%

66% 257

243.6

155 138 120.25 72

AANJANEYA LIFECARE LIMITED Issue Price

PRAKASH CONSTROWELL LTD Current Price Increase

RUSHIL DECOR LIMITED

FLEXITUFF INTERNATIONAL

TOP Losers - 2011

PRICE ON 31ST DEC 2011 (RS) ISSUE PRICE RS.)

NAME OF THE ISSUE

DECREASE (%)

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TAKSHEEL SOLUTIONS LIMITED BHARATIYA GLOBAL INFOMEDIA LIMITED ACROPETAL TECHNOLOGIES LIMITED BROOKS LABORATORIES LIMITED SHILPI CABLE TECHNOLOGIES LIMITED INDO THAI SECURITIES LIMITED SERVALAKSHMI PAPER LIMITED PARAMOUNT PRINTPACKAGING LIMITED VASWANI INDUSTRIES LIMITED SANGHVI FORGING AND ENGINEERING

12.85 7.35 11.5 13.25 9.6 10.6 4.35 5.55 10.55 22.25

150 82 90 100 69 74 29 35 49 85

-91.43% -91.04% -87.22% -86.75% -86.09% -85.68% -85.00% -84.14% -78.47% -73.82%

150

150

120 100 90 90 -9 1 % 60 82 -9 1 % -8 7 % -8 7 % 69 -8 6 %

30 1 2 .8 5 0 T A K S HE E L S O L UT IO B NS HA R A T IY A G L O B A L A C R O P E T A L L IM IT E D INF O M E D IA L IM IT E D T E C HNO L O G IE S Is s u e P ric e C u rre n t P ric e BRO O KS L A B O R A T O R IE S S HIL P I C A B L E T E C HNO L O G IE S 7 .3 5 1 1 .5 1 3 .2 5 9 .6

D e c re a s e

IPOS By Grade
Grade Assigned IPO GRADE 1 Total 6

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IPO GRADE 2 IPO GRADE 3 IPO GRADE 4 IPO GRADE 5

17 10 4 1

IPOs by Grade

IPO GRADE 1 IPO GRADE 2 IPO GRADE 3 IPO GRADE 4 IPO GRADE 5

TOP BOOK RUNNERS LEAD MANAGERS IN 2011

Book Runners - Lead Managers JM Financial Consultants Private Limited Almondz Global Securities Limited Arihant Capital Markets Limited IPOs 5 4 3

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Ashika Capital Limited Corporate Strategic Allianz Limited ICICI Securities Limited Kotak Mahindra Capital Company Limited

3 3 3 3

TOP BOOK RUNNERS LEAD MANAGERS IN 2011

10 8 6 4 2 0 JM Financial Consultants Private Limited Almondz Global Securities Limited Arihant Capital Markets Limited Ashika Capital Limited Corporate Strategic Allianz Limited ICICI Securities Limited Kotak Mahindra Capital Company Limited 5 4

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CHAPTER VI FINDINGS, SUGGESTIONS & CONCLUSION

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FINDINGS

IPOs are the most popular for private companies to go public. Companies generally go for IPOs for expansion of operations or setting up new divisions. IPOs are not so popular in India compared to the western countries. IPOs were offered at Fixed Offer Prices earlier, but Book Building process has been popular in the recent years. BSE IPO index is performing badly compared to the SENSEX. The total number of companies that have come for are just around 500 in the last 10 years The total no of companies coming for IPO have touched the maximum (102) in 2005-2006. The no of IPOs in 2011-2012 (till date) are just 38 as compared to 67 in the previous year. 2008-2009 was mostly affected with just 22 companies coming for IPOs because of recession. Companies were not coming for IPOs due to lack of investor confidence.

Of the 38 companies that have come for IPO this year, only 7 companies are now trading at a profit while the rest of companies are now trading at a loss. JM Financial Consultants Private Limited and Almondz Global Securities Limited stood on top in the list of Book Runners & Lead Managers in 2011. Close to 100 companies are in the pipe line to raise money through IPOs in the coming months.

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SUGGESTIONS A thorough fundamental analysis should be done before investing in any IPOs. Investors should come out of the opinion that all the IPOs will be traded at a premium. Looking at the previous trends, investors should be cautious while investing in Initial Public Offerings. Investors in IPOs should study the company and the growth of industry in which it is operating in thoroughly. Investors should also look at the economic conditions before investing in an IPO. The government in co-ordination with SEBI should be more proactive in checking dubious companies coming for IPOs with the sole objective of raising money to cheat the public. There should be more stringent rules imposed for companies to go public.

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CONCLUSIONS Investors should be careful while investing in IPOs. The essential points to take care of to see that IPOs are successful and investors benefit from investing in the IPOs include: 1. Investors should check that companies are appointing underwriters, book runners and lead managers appointed have good expertise in the industry. 2. The market relies heavily on analyst projections and recommendations: Investors should understand the company, customers, and competition; and also see that promoters have sincere commitment in covering the company. 3. Previous trends play an important role. The underwriter must have the ability and contacts to identify the right investor groups for the company and get them committed to attend. References from previous IPO successes are essential. 4. There must be sufficient evidence of being able to build a quality "book" of potential orders for your stock. 5. There should be a history regarding the ability to identify the right offer price and size. 6. Investors should go for those IPOs where companies provide significant aftermarket support in terms of maintaining and supporting trading in the stock, providing subsequent research reports on the company, and continuing institutional exposure to the company.

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BIBLIOGRAPHY BOOKS

1. Khan M. Y .and Jain. P.K (2009). Financial management. Pearson publications. 2. Security Analysis by Graham Dodd. 3. Investment Analysis And Management by Francis. WEBSITES www.moneycontrol.com www.capitalline.com www.nseindia.com www.sebi.gov.in www.capitalmarket.com www.wikipedia.com www.intimesepctrum.com www.thehindubusinessline.com www.financialexpress.com www.myiris.com www.icraratings.com

NEWSPAPERS 1. Economic Times

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