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About Fortune Group:

Fortune Financial Services (India) Limited was incorporated in the year 1991 by Mr. J. T. Poonja, Chairman and Mr.Nimish C Shah, Vice Chairman and Managing Director. Fortune Group which comprises the holding company Fortune Financial Services (India) Limited and its wholly-owned subsidiaries, is engaged in providing a range of Financial Services right from Equities and Derivatives trading, Equity Research, Commodities Trading, Portfolio Management Services, Distribution of Mutual Funds, IPO & Insurance products and also Investment Banking Services.

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The main activities of the company are conducted through Fortune Financial Services which is also the holding company & its wholly owned subsidiaries. A brief snapshot of all the companies is outlined as under.

y M/s. Fortune Financial Services (India) Ltd.
M/s. Fortune Financial Services (India) Ltd. is listed on the Bombay Stock Exchange Ltd and is SEBI registered Category I Merchant Banker. It has recently got approval from SEBI to launch its Portfolio Management Services (PMS). FFSIL has four business verticals viz. Fortune Equity Brokers (India) Limited, Fortune Commodities & Derivatives (India) Ltd., Fortune Credit Capital Ltd. and Fortune Financial India Insurance Brokers Limited.

y M/s. Fortune Equity Brokers (India) Ltd.
M/s. Fortune Equity Brokers (India) Ltd. is 100% subsidiary company of M/s. Fortune Financial Services (India) Ltd. It offers broking services in the Cash and Future & Option Segments of the National Stock Exchange of India Ltd and the Bombay Stock Exchange Limited. It is also a Depository Participant of Central Depository Services (India) Ltd

y M/s. Fortune Commodities & Derivatives (India) Ltd.
M/s. Fortune Commodities & Derivatives (India) Ltd. is subsidiary company of M/s. Fortune Financial Services (India) Ltd. and engaged in the business of commodities broking. It is having memberships with the MCX and NCDEX, two leading Indian Commodities Exchanges.

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y

M/s. Fortune Credit Capital Ltd.
Fortune Credit Capital Ltd. is 100% subsidiary company of M/s. Fortune

Financial Services Ltd. It is formed for the purpose of financing, lending to the clients. The Company has received license from RBI for NBFC operations.

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M/s. Fortune Financial India Insurance Brokers Limited.
M/s. Fortune Financial India Insurance Brokers Limited is 100% subsidiary

company of Fortune Financial India Insurance Brokers Limited and formed for the purpose of providing insurance broking and related products and services.

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1991
Mr. J.T. Poonja and Mr. Nimish C. Shah incorporated Fortune Financial Services (India) Private Limited as a Non-Banking Financial Company (NBFC). Besides core investment banking and corporate advisory services, Fortune's also focused on fund based activities such as lease, hire purchase, bill discounting and inter-corporate loans

1992
Fortune declared dividend @10%

1993
Fortune became a SEBI registered Category - I Merchant Banker Fortune declared dividend @12.5%

1994
In anticipation of a potential IPO, the name of the Company was changed to Fortune Financial Services (India) Ltd. Opened an office in New Delhi to increase the scope of activities Fortune declared dividend @15

1995
Authorized Capital of Fortune was increased to Rs.600 lacs Fortune made an Initial Public Offering (IPO) of 25 lac equity shares of Rs.10/- each at a premium of Rs. 20/- per share aggregating to Rs.750 lacs. The issue was over subscribed by 2.52 times Fortune was listed on the Bombay Stock Exchange, Delhi Stock Exchange, Ahmedabad Stock Exchange and Madras Stock Exchange

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Fortune opened a branch office in Bangalore Fortune was associated with 10 issues aggregating to Rs.115 crores as Lead / Comanagers Fortune was involved with underwriting 113 issues for an aggregate amount of Rs. 26 crores Company received membership of National Stock Exchange (NSE). Fortune promoted a separate company called Good Fortune Advisory Services Pvt. Ltd., to operate this activity and invested Rs.10 lacs towards share capital Fortune declared dividend @16%.

1996
Fortune launched its consumer finance division with a primary focus on car financing. Opened offices in Pune and Mangalore Fortune handled 9 Investment Banking assignments in its capacity as Lead Managers/ Co-Managers/ Advisors aggregating to Rs.176 crores. This included the issue of Search Chem Industries Limited, a group company of United Phosphorus Limited Fortune set up its in-house equity research division with a view to provide equity research to corporate clients and support its corporate finance and investment banking activities Fortune started accepting fixed deposits from public. The fixed deposit schemes of the Company is rated "FA" by CRISIL Besides having a fixed deposit center in Mumbai, Fortune opened centers in Madras, Bangalore and New Delhi Fortune declared dividend @20%

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1997
In order to broaden its base in consumer finance, Fortune took up office equipment finance in addition to car financing Fortune extended its focus to External Commercial Borrowings, private placement of Non-Convertible Debentures and Preference Shares for mobilizing funds for its corporate clients Opened offices at Chennai and Chandigargh to promote consumer finance and corporate financing activities Fortune declared dividend @22%

1998
Due to a downturn in the market conditions, Fortune's senior management decided to suspend the NBFC activities effective from April 1998 The fixed deposit scheme of Fortune was rated "FA" by CRISIL on account of its timely repayment of interest, repayment of the principal and the safety of the deposits Fortune stopped accepting / renewing fixed deposits since April 1998 Fortune declared dividend @15%

1999
Fortune Financial became the 1st Indian company to go in for a buyback of its shares, subsequent to the guidelines for Buyback of shares coming into effect from Jan 1999 Fortune offered to buyback 25% of its paid-up capital of Rs.549 lacs at an offer price of Rs.10/- each per share as against the average quoted market price of Rs.5.65 per share. An amount of Rs.114 lacs was reduced from the share capital consequent to the buyback

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Successfully completed the second buyback and reduced Rs. 47 lacs from the share capital Fortune prepaid / repaid all its fixed deposit outstanding along with interest

2000
Acquired Corporate Membership of Bombay Stock Exchange Limited (BSE) In addition to Investment Banking and Corporate Advisory Services, Fortune launched its stock broking activities Fortune concluded two major deals involving a FMCG company and a well know Media Company's private placement of equity shares

2001
Fortune completed the private placement of equity shares of Popular Entertainment Network Limited and clickforcotton.com, India's first cotton exchange portal Managed few IPOs, take over offers and right issue despite adverse market conditions Fortune also made a secondary market placement of equity shares for Goldstone Technologies Ltd., and Mirc Electronics Limited

2002
Fortune commenced its full fledged broking operation by empanelling with leading FIs / MFs / Banks Fortune completed a major take over offer of Noble Explochem Reserve Bank of India de-registered Fortune as a NBFC Fortune's equity shares are voluntarily de-listed from Madras Stock Exchange

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2003
Managed open offers of Gujarat JHM Hotels Ltd., Punjab Chemicals and Pharmaceuticals Ltd. Fortune's equity shares are voluntarily de-listed from Ahmedabad Stock Exchange Ltd Fortune empanelled with three institutions for secondary market business

2004
Fortune empanelled with seventeen institutional clients for its secondary market business Fortune was appointed as merchant bankers to manage an open offer by Zircon Traders Ltd. Successfully completed the FCCB issues for Alok Industries Limited and United Phosphorus Limited raising approximately US$ 110 million Opened its branch at Hyderabad to promote stock broking activities Fortune's shares are voluntarily de-listed from Delhi Stock Exchange Subsidiary company started mutual fund distribution during FY 2003-04

2005
Fortune declared an interim dividend of 10% and final dividend of 5% during FY 20042005 after gap of six years due to carry-forward losses Fortune was associated with ECB/FCCB overseas fund raising for its Indian mid-sized corporate clients in excess of US$ 250 million Fortune was involved with varied domestic assignments - follow on issues, buyback program, open offers and IPOs for Indian mid-sized corporate clients

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Fortune proposes to increase its capital base by making a bonus issue during FY 20052006 Opened a branch office in Goa Commenced F&O operations on the National Stock Exchange (NSE)

2006
Shareholders of Fortune approved the issuance of bonus shares in the ratio of 1:1 Allotment of bonus shares was completed on March 31, 2006 Commenced DP Services

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Fortune Group Organizational Structure
CAPITAL MARKETS
VISHAL TREHAN, COUNTRY HEAD Sales Operation Sales Equity Comm -odity
Derivati-ves

INVESTMENT BANKING
Institutional Sales & Dealing

GROUP FUNCTIONS

Arun Kumar

Company Law & Compliance

Research

Dealing

Vijay Dugad Head

Sanjay M. Head

DH. Shinde Head - IB

Insuar a-nce

Distrib -ution

BB Tantri
Kuldeep Vashist

K Sundaram Head Treasury

Haroon N M Mansoori CS & AH (Legal)

SGM KumarHead

HeadDy.Head Operation Naveen Sharma Zonal Head Retail & Broking (Northern Region)

Fund Raising Advisory

Sanjay Shah CS & Regulatory compliance

Vivek Sharma Dy. Head HR & Leagal

Dhara Ballabh Dy.Head RMS

Issue Management V.N. Sharma Subbiah Merger & Acquisition Secretarial Manickam Corporate Account & Taxation Corporate Advisory

Vinay Shah State Head Maharastra

Milind Karanjekar Depository

Corporate Affairs 11

Director

Treasury

1.1 INTRODUCTION TO PROJECT TOPIC

IPO stands for Initial Public Offering and means the new offer of shares from a company which was previously unlisted. This is done by offering those shares to the public, which were held by the promoters or the private investors prior to the IPO. In the case when other investors or Promoter held the shares the stake holding comes down to the extent their shares are offered to the public. In other cases new shares are issued to the public and the shares, which are with the promoters stay with them. In both cases the share of the promoters in the total capital comes down. For example say there are 100 shares in a company and 50 of these are offered to the public in an IPO then in such a case the promoter¶s stake in the company comes down from 100% to 50%. In another case the company issues 50 additional shares to the public and the stake of the promoter comes down from 100% to 67%.

y What is an IPO
An IPO is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO.

PRIVATE

COMPANY
PUBLIC

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Companies fall into two broad categories: private and public. A privately held company has fewer shareholders and its owners don't have to disclose much information about the company. Anybody can go out and incorporate a company: just put in some money, file the right legal documents and follow the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too. It usually isn't possible to buy shares in a private company. You can approach the owners about investing, but they're not obligated to sell you anything. Public companies, on the other hand, have sold at least a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is also referred to as "going public." Public companies have thousands of shareholders and are subject to strict rules and regulations. They must have a board of directors and they must report financial information every quarter.

y Primary and Secondary markets
In the primary market securities are issued to the public and the proceeds go to the issuing company. Secondary market is term used for stock exchanges, where stocks are bought and sold after they are issued to the public

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.

1. Primary market
When a business entity needs money the general course of action that it follows is that it goes to the bank. However banks may not be ready to provide huge finance for a long time especially if the returns are not fixed. The best way to raise money is through offer of shares and for this: PRIMARY MARKET is the answer The Primary Market deals with the new securities which were previously not trade able to the public. The main function is to facilitate the transfer of resources from savers to entrepreneurs seeking to establish or to expand and diversify existing events. The mobilization of funds through the Primary Market is adopted by the state government and corporate sector. In other words the Primary Market is an integral part of the capital market of a country and together with the securities market. The development of security as well as the scope for higher productive capacity and social welfare depends upon the efficiency of the Primary Market.

2. SECONDRY MARKET
Once the offer price is fixed and the shares are issued to the people, stock exchanges facilitate the trading of shares for the general public. Once a stock is listed on an exchange, people can start trading in its shares. In a stock exchange the existing shareholders sell their shares to anyone who is willing to buy them at a price agreeable to both parties. Individuals cannot buy or sell shares in a stock exchange directly; they have to execute their transaction through authorized members of the stock exchange who are also called STOCK BROKERS.

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y DIFFERENT KINDS OF ISSUE:

Why go public??
Before deciding whether one should complete an IPO, it is important to consider the positive and negative effects that going public may have on their mind. Typically, companies go public to raise and to provide liquidity for their shareholders. But there can be other benefits. Going public raises cash and usually a lot of it, being publicly traded also opens many financial doors: y Because of the increased scrutiny, public companies can usually get better rates when they issue debt. y As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal. y Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent. y Going public can also boost a company¶s reputation which in turn, can help the company to expand in the marketplace.

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1.2 IPO ± ADVANTAGES AND DISADVANTAGES:
The decision to take a company public in the form of an initial public offering (IPO) should not be considered lightly. There are several advantages and disadvantages to being a public company, which should thoroughly be considered. This memorandum will discuss the advantages and disadvantages of conducting an IPO and will briefly discuss the steps to be taken to register an offering for sale to the public. The purpose of this memorandum is to provide a thumbnail sketch of the process. The reader should understand that the process is very time consuming and complicated and companies should undertake this process only after serious consideration of the advantages and disadvantages and discussions with qualified advisors.

Advantages of going public:
y Increased Capital
A public offering will allow a company to raise capital to use for various corporate purposes such as working capital, acquisitions, research and development, marketing, and expanding plant and equipment.

y Liquidity
Once shares of a company are traded on a public exchange, those shares have a market value and can be resold. This allows a company to attract and retain employees by offering stock incentive packages to those employees. Moreover, it also provides investors in the company the option to trade their shares thus enhancing investor confidence.

y Increased Prestige
Public companies often are better known and more visible than private companies, this enables them to obtain a larger market for their goods or services. Public companies are able to have access to larger pools of capital as well as different types of capital.

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y Valuation
Public trading of a company's shares sets a value for the company that is set by the public market and not through more subjective standards set by a private valuator. This is helpful for a company that is looking for a merger or acquisition. It also allows the shareholders to know the value of the shares.

y Increased wealth
The founders of the company often have the sense of increased wealth as a result of the IPO. Prior to the IPO these shares were illiquid and had a more subjective price. These shares now have an ascertainable price and after any lockup period these shares may be sold to the public, subject to limitations of federal and state securities laws.

Disadvantages of going Public:
y Time and Expense
Conducting an IPO is time consuming and expensive. A successful IPO can take up to a year or more to complete and a company can expect to spend several hundreds of thousands of dollars on attorneys, accountants, and printers. In addition, the underwriter's fees can range from 3% to 10% of the value of the offering. Due to the time and expense of preparation of the IPO, many companies simply cannot afford the time or spare the expense of preparing the IPO.

y Disclosure
The SEC disclosure rules are very extensive. Once a company is a reporting company it must provide information regarding compensation of senior management, transactions with parties related to the company, conflicts of interest, competitive positions, how the company intends to develop future products, material contracts, and lawsuits.

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In addition, once the offering statement is effective, a company will be required to make financial disclosures required by the Securities and Exchange Act of 1934. The 1934 Act requires public companies to file quarterly statements containing unaudited financial statements and audited financial statements annually. These statements must also contain updated information regarding nonfinancial matters similar to information provided in the initial registration statement. This usually entails retaining lawyers and auditors to prepare these quarterly and annual statements. In addition, a company must report certain material events as they arise. This information is available to investors, employees, and competitors.

y Decisions based upon Stock Price
Management's decisions may be effected by the market price of the shares and the feeling that they must get market recognition for the company's stock.

y Regulatory Review
The Company will be open to review by the SEC to ensure that the company is making the appropriate filings with all relevant disclosures.

y Falling Stock Price
If the shares of the company's stock fall, the company may lose market confidence, decreased valuation of the company may effect lines of credits, secondary offering pricing, the company's ability to maintain employees, and the personal wealth of insiders and investors.

y Vulnerability
If a large portion of the company's shares are sold to the public, the company may become a target for a takeover, causing insiders to lose control. A takeover bid may be the result of shareholders being upset with management or corporate raiders looking for an opportunity. Defending a hostile bid can be both expensive and time consuming.

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

SIGNIFICANCE TO THE COMPANY:
When a privately held corporation needs additional capital, it can borrow cash or sell stock to raise needed funds. Or else, it may decide to ³go public´. "Going Public" is the best choice for a growing business for the following reasons: y The costs of an initial public offering are small as compared to the costs of borrowing large sums of money for ten years or more, y y The capital raised never has to be repaid. When a company sells its stock publicly, there is also the possibility for appreciation of the share price due to market factors not directly related to the company. y It allows a company to tap a wide pool of investors to provide it with large volumes of capital for future growth.

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

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1.4 Objective of the Study: 
To analyze and evaluate the complex IPO process.  To study and incorporate the legal requirements of an IPO.  Pricing of an issue through the Book-Building Method.  Understand the IPO performance.  Understand the relationship between IPO Grade and IPO performance.

1.5 Hypothesis: 
Null Hypothesis (H0): There is no relationship between IPO grade and Stocks returns  Alternate Hypothesis (H1): There is relationship between IPO grade and Stocks returns

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1.6 Limitation of the Study: 
The project duration is not enough to get the thorough knowledge of IPO.  Because of time limitation I have taken only last five year data to compare the IPO performance.  Due to confidentiality it is difficult to get in-depth data.

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LITERATURE REVIEW:
This section describes five key studies that have researched different forms of going public. This chapter also provides a brief account of a study which analyzed spreads, in addition to outlining a study which analyzed the impact of Internet technology on investment banking.

1. Kenji and Smith (2009)
Kenji and Smith (2004) study the benefits and drawbacks of auctions versus book building as a method of IPO issuance in Japan. Their reason for choosing Japan as a test environment was due to the fact that book building has been a legal way of going public in Japan since 1997. Previously, auctioning was the only way that a company could go public in Japan. In their research, Kenji and Smith use the total issue cost as a percentage of the value of the issue to measure the benefits and drawbacks of the different methods of going public. The data that is used in this paper is a sample of 484 IPOs by companies that are listed on the JASDAQ or JASDAQ-OTC markets during a five-year period from 1995 to 1999. This included 321 auction IPOs and 163 book built IPOs. However, due to varying market conditions during the years spanning from 1995 to 1999, the research has been divided into two different sections. The first uses all the data from the whole sample period, whereas the second section uses data only from the years 1996 through 1998, when the market was characterized by very stable market conditions. This provides a fairly similar setting for both auctions (January 1996 ± September 1997) and book built (October 1997 - December 1998) IPO data sets. Firm data that is used include: sales revenue, equity to book value, shares outstanding, firm age, as well as number of employees. Issue data includes offering date, number of shares issued, amount raised, offer price, first after market price, and other offering details. Total issue cost in their research is defined as the first aftermarket price instead of actual issue price.

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During the whole period, the total issue cost against the aftermarket price in book built IPOs is an average of 28,04%, whereas the auction priced cost is only 8,17%. However, the second sample (1996-1998) notes values of 15,3% and 7% respectively. The data demonstrates that the book building method provides more flexibility, making small issues appear to be more feasible, and decreasing the cost of going public for larger companies. The empirical analysis demonstrates that under the auctions-only system, issuers are older and larger than book built issuers. The analysis also reveals that under pricing is a substitute cost for lower fees, thus when all else being equal, increased under pricing reduces the fee as a percentage of the aftermarket price. The method used for analysis in Kenji¶s and Smith¶s study was regression analysis, with reliance on previously identified variables. When analyzing total issue cost and issue size, it was found that issuer age, sales revenue, and equity to book value are not significantly related to the total cost of auctioned IPOs. In the book built issues, the percentage cost is less for large issuers with established track records. In the study, the difference in equally-weighted average issue cost compares what the issue cost would have been in both book building and auction scenarios for any given company individually. Kenji and Smith found that auctioning reduces mean total issue cost by an average of 6% of the first aftermarket price. Additionally, they predicted that pricing through the auction method is projected to have resulted in lower total costs at least in 82,5% of the subsample. In conclusion, Kenji and Smith found that under the auction method, high quality issuers had a limited ability to distinguish themselves from low quality issuers. Furthermore, the research found that small and risky firms, as a group, incur higher costs with book building, whereas larger and better-established issuers realize savings with this particular method.

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Overall in this sample of Japanese IPOs, the average total issue cost, measured as a percentage of the initial aftermarket price, was significantly higher in the book building regime than in the auction regime. However, it was found that aggregate under pricing would have been lower under the book building, on the basis of either the full sample, or the subsample.

2. Sherman and Jagannathan (2009)
In their study Sherman and Jagannathan identify the underlying reason for the relative unpopularity of auctions as a means of going public. This study appears to be the most comprehensive endeavor in terms of attempting to holistically identify the reasons auctions have not been as attractive as other means of going public. Their research studies international trends in auctions use. Here, the evidence overwhelmingly indicates that auctions have been tried in over 20 countries but are rarely used today. ³In other words, out of more than 45 countries, we have not been able to find even one country in which auctions are currently the dominant method.´ (Sherman and Jagannathan 2005, 14) Sherman and Jagannathan delve into commonly used stereotypical explanations for why auctions are not used. The two most common notions are (1) auctions are not used because they are still experimental and unproven, and (2) issuers are pressured into book building due to higher fees. Nonetheless, through international research, it was proven that even in markets where auctions have been used for a long time, there was a decline in their use as soon as book building or some other method became available. For the second issue, the authors found that competition in the market would drive down prices of book building issues. Additionally, other research has shown that fixed price offers lead to even lower spreads, compared to auctions. In their study Sherman and Jagannathan find that on global scale initial returns is not the most important aspect of the issue for the issuer. This was evident from data collected on IPOs in Singapore, where both auctions and fixed price offers were available. In this case, statistics revealed that the fixed price method was chosen as the dominant means of going public, although auctions consistently provided lower under pricing.

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Finally, the study also deemed whether any perceivable effect can be distinguished from adding modern Internet technologies to enable bidding for the IPO auction. The results illustrate that the median return for Open IPOs is 2%, which is excellent. However, the research points out that there are significant outliers in the group. In conclusion, Sherman and Jagannathan find that auctions have been tried and tested in many markets, but have lost popularity due to poor control on the part of the issuer in terms of the price and effort that are applied. They also identify that auctions provide lower under pricing. This would imply that issuers are not only looking to optimize under pricing, but are moreover interested in other attributes of the issue. ³Without some way of screening out free-riders and the unsure participation of serious investors, IPO auctions are too risky for both issuers and investors.´

3. Kaneko and Pettway (2008)
Kaneko and Pettway attempt to provide an answer to the question ³Does book building provide a better mechanism for issuing firms than auctions?´ Similar to Kenji and Smith (2004), the Japanese market is used to test the assumption. The Japanese auction process uses price discriminating auctions, instead of a fixed price or marketclearing price as in the Open IPO process. The empirical research in Kaneko and Pettway (2003) is broken up into three parts. Firstly the descriptive statistics are analyzed, which demonstrate that book building had significantly higher initial returns than auction priced IPOs. In the following part, the auctioned priced and book built IPOs are analyzed separately through regression analysis. In this section seven independent variables17 are tested to uncover which variables have the most impact on under pricing. In the test of auctioned IPOs, it was found that market volatility of daily index returns one month prior to the issue is the most significant factor affecting under pricing. When the same regressions were run on the book built IPOs, it was found that market change three months prior to the IPO was the most significant factor affecting under pricing.

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In the third part of Kaneko¶s and Pettway¶s research, regression analysis was run on both sets of data, however controlling for the different firm specific characteristics. There, it was also found that book built IPOs are underpriced significantly more than auction priced IPOs. When the book built and auctioned priced IPOs were analyzed for effects of hot and cold markets, it was found that book built IPOs are still much more frequently underpriced. In conclusion, Kaneko and Pettway found that under all conditions and while controlling firm specific characteristics, book built IPOs were much more frequently underpriced in comparison to auctioned IPOs.

4. Biasis and Faugeron-Crouzet (2007)
In their research, Biasis and Faugeron-Crouzet analyze different types of IPO auctions. They study uniform price auctions, fixed price offerings, internet-based Open IPO mechanisms, and auctions such as Mise en Vente in France. These were analyzed within a uniform theoretical model. (Biasis and Faugeron-Crouzet 2002, 13-17). In fixed price offers, Biasis and Faugeron- Crouzet found high initial returns. High returns were left both to institutional investors as well as small-uninformed investors, because of a lack of adjustment for price and demand. For uniform price auctions, underpricing was also evident, however with less underpricing than with fixed price offers. The Mise en Vente auction is an auction type IPO procedure that is commonly used in France. This auction has a fixed market clearing price and pro rata allocation. The highest market clearing bids do not set the market-clearing price, instead it is set by a Bourse official, based on the function of demand. It is noted that an explicit algorithm that maps demand into price does not set the pricing in such cases. The research found that for an optimal IPO auction, the IPO price must be set in a manner, which reflects the information held by investors. If this is not done as in fixed price auctions, under pricing is bound to be pervasive, whereas information gathering of the value of the stock during the IPO process is bound to be insignificant. Biasis Faugeron-Crouzet viewed the Open IPO process as a true Dutch auction when it in fact was not.

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An Open IPO process is a so-called Dirty Dutch auction as coined by Sherman (1999). Much like the Mise en Vente, the fixed market-clearing price is not set at the highest possible level, but instead it is marked down and set by the issuing company and the underwriter based on their own perception of the function of demand. Their study moreover identifies the problem of translating, i.e., mapping demand into prices and into explicit computerized rules, which occur in Mise en Vente and in Book building. The authors also highlight the importance of established relationships between bidders and underwriters. Finally, according to Biasis and Faugeron-Crouzet an established relationship can enhance the ability to extract information from investors.

5. Wilhelm (2007)
Wilhelm¶s research dwells into the issue of how the Internet has affected investment banking that has relied on relationship based production technology to date. The methodology applied in this study is based on previous research relating to investment banking. The author does not conduct his own empirical study; instead, he identifies a list of anomalies that other studies have found indicative of the phenomenon that investment banking, as we know it, could be changing. Indications of the change in traditional investment banking according to the author are that there has been a decline in the size of underwriter syndicates and there are fewer or more dominant intermediaries in the securities underwriting business (Pichler and Wilhelm 2001, 2256). The second observation was made on the point of low-cost communication and data processing, which might lead to a ³direct marketing´ business model. For example Wit Capital, a subsidiary of Goldman Sachs, seeks to identify affinity groups through data mining for a given firm¶s offering. In sum, the study forecasts that new technologies will complement traditional technologies, rather than replace them, as has been witnessed with Wit Capital and W.R. Hambrecht¶s Open IPO.

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6. Summary of previous research:
Below is a table summarizing the findings of the five key studies in the field: Overview of Literature Review

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IPO

An initial public offering (IPO) will make the earlier private corporation a public corporation and there will be several issues to deal with compared to the private market. Most of them we will handle in the following sections. In this thesis we will only cover the Stockholm Stock Exchange (OMXS), and we denote that all stock exchanges around the world are different from each other.

At the Stockholm Stock Exchange there are two different listings possibilities; first is the A-list that is for companies with higher turnover and it has higher demands on firms that want to be listed. The other is the O-list that covers the rest of the publicly listed companies, with fewer demands and companies with smaller turnover. (OMX, 2006) According to Petty, Bygrave and Shulman (1994), an IPO alternative is only for a few entrepreneurial ventures. There are many listing requirements along with direct and indirect costs, which in hand may be inconvenient or uneconomic for most entrepreneurs. In the following chapters central themes such as motives, valuation, requirements and performance will be covered, in order to explain the nature of an IPO.

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TRENDS IN IPO
PRIMARY REASONS FOR A COMPANY GOING PUBLIC.
Most people label a public offering as a marketing event, which it typically is. For the majority of firms going public, they need additional capital to execute long-range business models, increase brand name, to finance possible acquisitions or to take up new projects. By converting to corporate status, a company can always dip back into the market and offer additional shares through a rights issue.

PERFORMANCE IN 90s
Let us have a look at the general development of the Primary Markets in the nineties. There have been many regulatory changes in the regulation of primary market in order to save investors from fraudulent companies. The most path breaking development in the primary market regulation has been the abolition of CCI (Controller of capital issues). The aim was to give the freedom to the companies to decide on the pricing of the issue and this was supposed to bring about a self-managing culture in the financial system. But the move was hopelessly misused in the years of 1994-1995 and many companies came up with issues at sky-high prices and the investors lost heavily. That phase took a heavy toll on the investor¶s sentiment and the result was the amount of money raised through IPO route.

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1993-96: SUNRISE, SUNSET.
With controls over pricing gone, companies rushed to tap the Primary Market and they did so, with remarkable ease thanks to overly optimistic merchant bankers and gullible investors. Around Rs20000 crores were raised through 4053 issues during this period. Some of the prominent money mobilizes were the so called µsunrise textiles, The

sectors¶-polyester, finance, aquaculture.

euphoria spilled over to the Secondary Market. But reality soon set in. Issuers soon failed to meet projections, many disappeared or sank. Result: the small investor deserted both markets-till the next boom!

1998-2000: ICE ON A HOT STREAK
As the great Indian software story played itself out, software stocks led a bull charge on the bourses. The Primary Market caught up, and issues from the software markets flooded the market. With big IPOs from companies in the ICE (Information Technology, Communication and Entertainment) sectors, the average issue price shot up from Rs.5 crore in 1994-96 to Rs.30 crore. But gradually, hype took over and valuations reached absurd levels. Both markets tanked.

2001-2002-ALMOST CLOSED
There were hardly any IPOs and those who ventured, got a lukewarm response. A depressed Secondary Market had ensured that the doors for the Primary Market remained closed for the entire FY 2001- 2002.There were hardly any IPOs in FY 2001-2002.

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2002: QUALITY ON OFFER.
The Primary Market boom promises to be different. To start with, the cream of corporate India is queuing up, which ensures quality. In this fragile market, issue pricing remains to be conservative, this could potentially mean listing gains. This could rekindle the interest of small investors in stocks and draw them back into the capital market. The taste of gains from the primary issues is expected to have a spillover effect on the secondary market, where valuations today are very attractive.

2003: IPO-IMPROVED PERFORMANCE OVERALL!
Even as the secondary market moved into top gear in 2003 the primary market too scripted its own revival story, buoyed largely by the Maruti IPO which was oversubscribed six and a half times. In 2003 almost all primary issues did well on domestic bourses after listing, prompting retail investors to flock to IPO¶s. All IPO¶s, including Indraprastha Gas and TV Today Network which was oversubscribed 51 times showed the growing appetite for primary issues. Divi Labs hit the market in February followed by Maruti. Initially, the Maruti share price was considered steep at Rs125 per share for a Rs5 paidup share. By the end of the year, the stock had climbed to over Rs355. Close on the heels of Maruti, came the Uco Bank IPO, which attracted about 1mn applicants. The primary issue of Indian Overseas Bank attracted about 4.5mn applicants and Vijaya Bank over Rs40bn in subscriptions. The last one to get a huge response was Indraprastha Gas, which reportedly garnered about Rs30bn. TV Today¶s public offer was expected to draw in excess of Rs30bn. In overseas listings, the only notable IPOs were Infosys Technology's secondary ADR offering and the dull debut of Sterlite Group company Vedanta on the London Stock Exchange. It was really Maruti Udyog that took the lead with its new issue in June. The issue was heavily over-subscribed and by the middle of December the share value appreciated 186 per cent. The near trebling of the investment in less than 6 months inspired the retail investor who is now back again in the market scouting for good scrips. After the phenomenal success of Maruti issue, a number of companies have approached the capital market and a lot more are waiting for SEBI approval.

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SEBI has taken enough care to force companies to make relevant disclosures for the investor to judge the quality of new issues. Besides, the companies themselves have been careful not to overprice the shares. On the contrary, some of the companies have deliberately under-priced them to let the issue get over-subscribed and to let the investor share some of the capital gain after listing. With the care taken by SEBI and the companies it is unlikely that the experience of 1995 will be repeated.

2007: INITIAL PUBLIC OUTBURST
In 2007, the Indian equity market was in full swing with the index gaining ~53% Y-o-Y and valuations edging beyond explanation. The total market capitalization of the Indian stock market increased 8% (INR 5,230 bn) on the back of 96 new listings in 2007. 2007 stood out in the history of Indian capital markets with the highest funds raised through IPOs in any calendar year with maximum companies from the construction (16) and IT sectors (11).‡ Almost 61 of the 96 IPOs (63%) debuted in premium in CY 07 as compared to 54 out of 75 IPOs (72% of total IPOs) in 2006.

2008: IPO IN DOWNTURN 
On January 15, 2008, Reliance Power attracted $27.5 billion of bids on the first day of its IPO, equivalent to 10.5 times the stock on offer, thereby, creating India's IPO record. Its upper cut off price was Rs. 450. The proposed IPO was to fund the development of its six power projects across the country.  Emaar MGF¶s IPO, at $1.6 billion is estimated to be the second largest IPO in the world so far this year, behind Reliance Power's $3 billion IPO.  Thomson Financial data reveals that India accounts for 49.1% of global IPO proceeds at the moment, compared to just 3.7% same time last year. Significant, given that global IPOs declined 36.1% over the last one year.

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2009: IPO IN RECOVERY PERIOD
The severe economic downturn in 2008 sent worldwide IPO markets plummeting by over 60% in both deal numbers and funds raised since 2007. With assets being revalued globally, no IPO market was insulated from the financial crisis. The spreading financial contagion effectively shut down public markets worldwide, bringing to an abrupt end the record-setting IPO boom years of 2006-07. Even so, some larger quality companies with strong business plans still managed to access the public markets with positive results. Despite faltering economies and sinking stock markets in 2008, the US and China led in IPO fundraising and deal numbers, respectively, while Saudi Arabia emerged as the third largest IPO market. Trends in IPO activity can be difficult to predict, especially in times of market volatility. Global markets will require a period of macroeconomic stability and confidence rebuilding for the window of IPO opportunity to reopen.

2010 IPO pipeline
This contains many quality companies from both developed and emerging markets, which continue to ready themselves to go public while waiting for market conditions to improve. After extensive interviews with some of the world¶s top investment bank leaders and stock exchange leaders, Ernst & Young¶s Global IPO trends report 2009 reviews the major developments in the worldwide IPO markets of 2008 and the first quarter of 2009. As the sixth global IPO report produced by Ernst & Young, this review offers an in-depth examination of the key trends for companies planning an IPO today, as well as perspectives on IPO readiness. As Jim Turley, Chairman and CEO, Ernst & Young, emphasizes in the report¶s opening interview, ³A crisis is a terrible thing to waste.´ Indeed, many market-leading companies were formed during challenging economic times. Companies that undergo an effective IPO readiness transformation during these tough times will be the first to go public when markets reopen. Early signs suggest a shift toward a new economic landscape favoring companies that offer innovative and productive solutions for the changing environment.

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Important Factors to be kept in Mind 
Who are the Promoters?  What is their credibility and track record?  What is the company manufacturing providing services?  What has been the past performance of the Company offering the IPO?  What is the Project cost?  What are the means of financing and profitability projections?  What are the Risk factors involved?  Who has appraised the Project? In India Projects apprised by IDBI and ICICI have more credibility than small Merchant Bankers. or

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Motives for IPO
There are many different motives for making an IPO; we will cover some of the most common to give the reader an understanding of the advantages with an IPO. Grundvall, Melin-Jakobsson & Thorell (2004) describe a variation of general motives that are to be presented below. The raising of capital: The stock exchange (e.g. OMXS in Sweden) is a part of the capital market. They provide a market for risk capital, the so called secondary market where ³secondhand´ shares are traded. One of the most common reasons for going public is to gain access to this market, hence expand a company¶s capital due to issuing new shares. Further, many high-growth firms are often constrained financially and need a new way to acquire capital. Along with this, there is a time difference between the time of investment and the time it takes to generate capital, therefore debt financing may not be suitable. According to this an IPO may be a better alternative, since you evade debt financing (Huyghebaert & Van Hulle 2005). Publicity: By going public, the company will be analyzed by financial institutions, media, and several other entities, which will make the company and its business operations more known. This can have positive businesslike advantages, but if it is handled badly there is a chance for incorrect interpretations and negative spreading of rumours about the company. Status: When a company goes public it usually raises the status of the company, especially rewarding towards international companies and media. It can somewhat be seen as a ³sign of quality´. Recruitment possibilities: Many companies have seen an advantage when recruiting staff after an IPO. The reason is surely somewhat psychological. The challenge and stimulation with a continuous external interest, is to many people a positive factor. This motive goes hand in hand with the motives of publicity and status.

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Ownership for employees: One motive could be that possibility to make employees owners of the company. The company can through different ownershipprograms offer the employees part-ownership. For a person who believes in the company and in him-/herself, a positive personal dividend can be obtained.

Generation change: An IPO can help to solve problems with a potential change of generations. The heirs of family, whose fortune lies primarily in a company, may have completely different interests and plans for the future. An IPO facilitates the possibility to divide the µfortune¶ without having to break up the company or sell it in its entirety. According to Arnold (2002) there could also be other motives that may be essential to the shareholders, and for future investments. For shareholders: Shareholders benefit from the availability of a speedy, cheap secondary market if they want to sell. Not only does the public market give the possibility for the shareholders to sell their shares, it also gives them a value of their shares within a reasonable degree of certainty. By contrast, unquoted companies¶ shareholders often find it difficult to estimate the value of their shares. Mergers and acquisitions through own shares: After an IPO, a company has the possibility to acquire other companies through paying the whole sum, or a part of the sum, with their own newly issued shares. After the company has gone public, every share is set at a price. This price, multiplied with a number of shares can represent the sum or part of the sum in a merger or acquisition. This kind of deal is directed to the acquired company¶s owner, and the owner has to agree to such deal before it is attainable. Also needed in this kind of deal, is the approval of the shareholders of the buying company. The own share will be diluted when investing with own shares. According to earlier empirical researches there are a few additional motives for going public, or at least some other aspects of above stated motives.

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Dispersed share ownership: In a public firm, the required capital is created by selling shares to a large number of investors. To compare this with a private firm where external financing often is generated by one large investor (or small group of investor). Two positive reasons of having a public firm with a large number of investors are; (1) The presence of numerous shareholders, all with smaller holdings, imply a much better diversified owners structure

(2) The avoidance of a large investor, with considerable more bargaining power towards the entrepreneur, to interfere with the entrepreneur¶s business strategy. (Chemmanur & Fulghieri, 1999)

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Valuation of IPOs
According to Kiholm and Smith (2004), there are several methods of valuing a firm. The different methods to use depend in what stage a company is situated in, what risks that is involved in the IPO, and what legislation that is present in the country. Different opinions of a firm¶s worth can also play a big role when considering an IPO. The company will b valued by analysts, who will look at balance sheet, income statement and cash flow of the company, and then decide the value of the company. The issuing of shares helps the company to raise capital through selling the shares. By supplying freely tradable shares to investors, the IPO set off the public market for the shares and allows the ³market´ to establish a value of the equity. The procedure of going public starts with that a company selects an underwriter, normally an investment bank, that advices, issues, distributes and underwrites the risk of market price fluctuations during the offering. This is the primary valuator of the company that also serves as a good ground before an IPO, even though it is not always accurate in their valuation when compared to the final offering prices. When an underwriter determines the value of a firm it looks to value the enterprise on a pre-money basis, i.e. before the IPO proceeds but reflecting the opportunities facing the venture. This will be a comparison of firms in the same industry or recent pricings on similar companies. After that, the underwriter arrives at an estimate of an equity market value. Having done this, the underwriter will determine the number of shares to be offered, and the price per share based on estimate of existing value per share. (Kiholm & Smith, 2004) According to Lowry (2001), IPO volume is positively related to firms¶ demand for additional capital and the level of investor sentiment. The author also claims that when temporary overvaluations of companies occur (a common occurrence when PE companies are involved in pricing), the volume of IPOs also is increased.

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According to Wiggenhorn and Madura (2005), miss-pricing of newly public firms may be affected due to liquidity and/or information during the first year after the IPO. This comes from the fact that they have not shed any information up until the IPO, and their liquidity is limited because they have not yet secured financing at the early stage. The miss-pricing phenomenon varies among the three different periods. In the first period the owners or managers have inside information but are not allowed to sell. Investors¶ overconfidence about private information causes an overreaction to the price, and for that reason mispricing may be present. In the second period miss-pricing is present since private- and public information increases, and analysts cover the firm more actively. In the third period, a miss-pricing may be present due to the owners¶ sell-out of shares. To sum up, a newly public firm experiences both changes in liquidity as well as a change in both public and private information. This is due to the underwriter¶s efforts to stabilize the share price, and how investors respond to the information. According to Hebb and MacKinnon (2004), there is also an increased risk of under-pricing of a public company when a commercial bank acts as an underwriter instead of an investment bank. This is due to the presence of a greater degree of asymmetric information in the after-market. It has been discussed that the reason for this comes from a potential conflict of interest faced by commercial banks, since they may place their own interest before their customers¶ interest. Also noticeable is the fact that the issuing firm is rewarding the underwriter for the services they achieve, e.g. they are paying fees. It is however important to recognize that the investment bank is also selling the securities to their customers. Thus, it becomes unclear as to what is driving the pricing decision by the investment banker. There are empirical evidences that investment bankers tend to under-price new offerings to the disadvantage of the existing shareholders. (Petty et al., 1994)

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3.1 6 ways not to get duped by an IPO!
Everyone is talking about it even if they don't know what it means.

What is an IPO? If a brand new company or a company already in existence, but with no shares listed on the stock exchange, decides to invite the public to buy its shares, it is called an Initial Public Offering or an IPO. Since it is the first time the company is approaching the public for money, it is also referred to as 'going public'. If a company that is already listed (its shares are available for buying and selling on the stock exchange) is coming out with a fresh lot of shares, it is called the new issue. Here are six terms commonly associated with an IPO that you, as an investor, must be aware of.

How to invest in an IPO
i. Book building
Book building is the process of price discovery. That means there is no fixed price for the shares. Instead, the company issuing the shares comes up with a price band. The lowest price is referred to as the floor and the highest, the cap. Bids are then invited for the shares. Each investor states how many shares s/he wants and what s/he is willing to pay for those shares (depending on the price band). The actual price is then discovered based on these bids. To understand the entire book building process, read Want to bid for shares?

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ii. Allotment
This is the process whereby those who apply are given shares. According to the book building process, three classes of investors can bid for the shares:
y

Qualified Institutional Buyers: QIBs include mutual funds and Foreign Institutional Investors. At least 50% of the shares are reserved for this category.

y

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

y

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

The bids are first allotted to the different categories and the over-subscription (more shares applied for than shares available) in each category is determined. Retail investors and high net worth individuals get allotments on a proportional basis. Assuming you are a retail investor and have applied for 200 shares in the issue, and the issue is over-subscribed five times in the retail category, you qualify to get 40 shares (200 shares/5). Sometimes, the over-subscription is huge or the issue is priced so high that you can't really bid for too many shares before the Rs 50,000 limit is reached. In such cases, allotments are made on the basis of a lottery. Say, a retail investor has applied for five shares in an issue, and the retail category has been over-subscribed 10 times. The investor is entitled to half a share. Since that isn't possible, it may then be decided that every 1 in 2 retail investors will get allotment. The investors are then selected by lottery and the issue allotted on a proportional basis. That is why there is no way you can be sure of getting an allotment.

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To understand the entire allotment process, read Want to bid for shares?

iii. Draft Offer Document
Any company making a public issue is required to file its prospectus with the Securities and Exchange Board of India [ Images ], the market regulator. A prospectus is the document that contains all the information you need about the company. It will tell you why the company is coming is out with a public issue, its financials and how the issue will be priced. This is called a Draft Offer Document. This is first filed with SEBI which may specify changes, if any, to be made. Once the changes are made, it is filed with the Registrar of Companies or the Stock Exchange. It must be filed with SEBI at least 21 days before the company files it with the RoC/ Stock Exchange. During this period, you can check it out on the SEBI web site.

Iv. Red Herring Prospectus
This is a prospectus that will have all the information as a draft offer document, except details of the price or number of shares being offered or the amount of issue. That is because it is used in book building issues only, where the details of the final price are known only after bidding is concluded. So a Red Herring prospectus is an offer document used only in book building issues. All issues these days are through the book building route.

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v. Underwriters
An underwriter to the issue could be a banker, broker, merchant banker (see below) or a financial institution. They give a commitment to underwrite the issue. Underwriting means they will subscribe to the balance shares if all the shares offered at the IPO are not picked up. Suppose there is an issue is for Rs 100 crore (Rs 1 billion) and subscriptions are received only for Rs 80 crore (Rs 800 million). It is then left to the underwriters to pick up the balance Rs 20 crore (Rs 200 million). If underwriters don't pay up, SEBI will cancel their licenses.

Vi. Lead Manager
Just because the prospectus has been filed with SEBI, it doesn't mean it recommends the issue or guarantees its contents. That responsibility rests with the lead managers to the issue, who are supposed to do due diligence on the issue. In plain language that means certifying the issue is in accordance with the regulations, proper disclosures have been made and the facts in the prospectus are correct. They are also called merchant bankers or investment bankers and are in charge of the issue process. Their functions are:
y

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.

y

They are responsible for complying with the formalities of an issue, like drawing up the prospectus and marketing the issue.

y

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.

y

Post issue activities, like intimation of allotments and refunds, are their responsibility as well.

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The actual work of drawing up the list of allottees, crediting the shares to their demat accounts and ensuring refunds is done by the Registrars to the Issue. These are financial institutions appointed to keep a record of the issue and ownership of company shares. In the case of complaints like non-receipts of shares or refunds, investors must complain to the lead managers, who take up the matter with the registrars. The names of all the lead managers and the registrar to the issue, with their addresses, phone numbers and e-mail addresses, are displayed prominently on the cover of every prospectus.

On a closing note
Don't forget there are no guarantees in subscribing to IPOs. The lead manager may have certified the facts as disclosed in the prospectus are right. Prominent financial institutions may agree to underwrite the issue. The issue may end up being oversubscribed. But the responsibility for investing in an issue rests fairly and squarely on you, the investor. So make sure you have studied the company and the issue thoroughly before you makes the decision to invest.

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3.2 THE RISK FACTOR

Investing in IPO is often seen as an easy way of investing, but it is highly risky and many investment advisers advise against it unless you are particularly experienced and knowledgeable. The risk factor can be attributed to the following reasons:

UNPREDICTABLE:
The Unpredictable nature of the IPO¶s is one of the major reasons that investors advise against investing in IPO¶s. Shares are initially offered at a low price, but they see significant changes in their prices during the day. It might rise significantly during the day, but then it may fall steeply the next day.

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NO PAST TRACK RECORD OF THE COMPANY:
No past track record of the company adds further to the dilemma of the shareholders as to whether to invest in the IPO or not. With no past track record, it becomes a difficult choice for the investors to decide whether to invest in a particular IPO or not, as there is basis to decide whether the investment will be profitable or not.

POTENTIAL OF STOCK MARKET:
Returns from investing in IPO are not guaranteed. The Stock Market is highly volatile. Stock Market fluctuations widely affect not only the individuals and household, but the economy as a whole. The volatility of the stock market makes it difficult to predict how the shares will perform over a period of time as the profit and risk potential of the IPO depends upon the state of the stock market at that particular time.

RISK ASSESSMENT:
The possibility of buying stock in a promising start-up company and finding the next success story has intrigued many investors. But before taking the big step, it is essential to understand some of the challenges, basic risks and potential rewards associated with investing in an IPO. This has made Risk Assessment an important part of Investment Analysis. Higher the desired returns, higher would be the risk involved. Therefore, a thorough analysis of risk associated with the investment should be done before any consideration.

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For investing in an IPO, it is essential not only to know about the working of an IPO, but we also need to know about the company in which we are planning to invest. Hence, it is imperative to know:  The fundamentals of the business  The policies and the objectives of the business  Their products and services  Their competitors  Their share in the current market  The scope of their issue being successful  It would be highly risky to invest without having this basic knowledge about the company.  There are 3 kinds of risks involved in investing in IPO:

BUSINESS RISK:
It is important to note whether the company has sound business and management policies, which are consistent with the standard norms. Researching business risk involves examining the business model of the company.

FINANCIAL RISK:
Is this company solvent with sufficient capital to suffer short-term business setbacks? The liquidity position of the company also needs to be considered. Researching financial risk involves examining the corporation's financial statements, capital structure, and other financial data.

MARKET RISK:
It would beneficial to check out the demand for the IPO in the market, i.e., the appeal of the IPO to other investors in the market. Hence, researching market risk involves examining the appeal of the corporation to current and future market conditions.

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3.3 Preparations and Requirements for IPO
We will now cover the preparations and requirements before and after the IPO, and we will start with the different aspects a company has to go through before making an IPO. 

Before the IPO

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The chronology of an IPO is relatively straightforward according to Petty et al. (1994):

1. The owners and management decide to go public 2. An investment banker is selected to serve as underwriter 3. A prospectus is prepared 4. The managers, along with the investment banker, goes on the road to tell the firm¶s story to the brokers who will be selling the stock 5. On the day before the IPO is released to the public, the decision is made as to the actual offering price 6. The shares are offered to the public This is not as easy as it sounds; it comes with numerous other complications. It is also said that a shift in power arises during the process. As of the time of the prospectus has been prepared, and the firm¶s management are on the road show, the investment banker gets more control of the decisions. After that the demands of the marketplace starts to take over, and the market decides the final outcome. (Petty et al., 1994) To be able to make a planned IPO, the company has to be well prepared to avoid difficulties to make the IPO in due time. It takes approximately three months to complete an IPO after an application for admission to the stock exchange. Before the formal application is completed, issues have to be handled and demands have to be met. This takes time, and a firm should count on roughly one to two years of preparations before the formal application. (Grundvall et al., 2004) Kensinger, Martin and Petty (2000) mean that to go public takes a lot of energy and time from the management and is often experienced as a distraction to the ordinary business. It results in a reduction of managerial focus and a decline in performance. Further, the authors mean, it also implies uncertainty to the employees when being set out to a new owner, which may result in lower morale due to the stress and

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anxiety. Owners and employees with a lower morale will often result in decreased earnings which is very bad to a company just about to go public. According to a research by Petty et al. (1994), the IPO process is considered one of the most shattering and annoying, but still the most motivating and exciting experiences the management have known. In a survey, the CEOs who had participated in the IPO procedure had spent on average 33 hours per week on IPO-related work for over four and a half months.

According to Grundvall et al. (2004), there are several requirements that have to be fulfilled before going public. Legal due diligence: Before a company makes an IPO, it has to be inspected by an external commercial lawyer. The reason for this is to show whether it exists possible obstacles to the IPO and to verify that the whole picture is given of the company and its business. Education: A company has to send their Board of Directors, management team and accountants to go through training in order to create an understanding of the demands the stock exchange has on each listed company. Record (A-list only): If a company wants to be listed at the A-list it has to show a historical record of operations conducted the last three years and be able to show accounting documents. There are no specific demands if a company wants to enter the O-list. However there exists a demand of non-financial information so that the investors can make an appropriate valuation of the company. Documented earning capacity (A-list only): To enter the A-list a company needs a record of profit earning. The profit has to be comparative to other firms in the same industry. For both lists an inspection of key ratios will be conducted. The purpose with the inspection is to examine if the company has a stability and profitability according to the stock exchange. The company has to show sufficient financial resources for the upcoming twelve months after the day of the IPO.

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Market value (A-list only): If the company would like to be listed at the A-list they need a market value of at least 300 Billion SEK. There is no such demand for listing at the O list.  After the IPO

There are also continuous requirements after an IPO. These requirements concern the Board of Directors and the management team of the company and consist of the assembly of the Board of Directors, control of economy and capacity to deliver information, as swell as spreading of shares and owner-concentration. (Grundvall et al., 2004) To begin with there are extensive accounting and information demands that every company is obliged to follow, such as the delivery of an annual report, interim report and preferably an interim financial statement. Further, companies are required to disclose a far greater range and depth of information than is otherwise required, which may come as demanding sometimes.

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The motives behind these regulations are to protect investors and for the stock exchange to be able to supervise trade, price formation and that regulations not are abused. Also important is the guarantee of fair pricing and contemporaneous knowledge of information over the market to avoid insider trading and suchlike. (Arnold, 2002) Some decision-making changes may also be experienced after an IPO. An increased Boardof Directors¶ size may enhance corporate governance since the CEO may have a less dominating role, which can be better for the whole of the company, as well as the shareholders. However, a larger Board of Directors may imply costs to a company in a way of poorer communication and decision-making that is associated with larger groups. Larger group may experience a lower participation and are often less cohesive. Also, if a public Board of Directors not is as knowledgeable about the company, as the former owners were, this can result in less effective leadership for the company. (Pacini, Hillison, Marlett & Burgess, 2005)

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Performance of IPOs

According to Jain and Kini (1999), there is a difference in performance due to in what stage of the growth cycle the company is in. A firm that goes public in an early stage of their growth cycle tends to be less profitable at the time of the IPO. Firms that are already profitable, and further into their growth cycle, tend to demonstrate a higher operating performance after the IPO. Also, a firm that goes public in an early stage is more likely to fail or get acquired by another company. Leleux and Muzyka (1999, cited in Wright, Wilson & Robbie, 2002) discuss three empirical anomalies when seeing to pricing and performance of IPO shares; abnormal initial returns, hot issue phenomenon and long-term underperformance. Abnormal initial returns: This phenomenon implies an under-priced stock with a higher first market price than offering price. This was particular notable from the mid-sixties to the late eighties in both the U.S. and Europe, and was usually around 10 to 25 percent. The phenomenon has been widely studied and is seen to be a robust measurement across many countries still today. (Leleux & Muzyka, 1999, cited in Wright, Wilson & Robbie, 2002) Hot issue phenomenon: There are studies that show patterns in the way IPOs are made, for example firms seem to go public in about the same time. This depends on economic times, and the fact that good economic times affect cash flow in a positive way. With strong positive cash flows many firms have incitements for going public. Therefore it is common that the IPOs come in waves in good economic times. (Benninga, Helmantel & Sarig, 2003) Long-run underperformance: A stock seems to under-perform compared to benchmarks at a three to six year period after an IPO.

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Leleux and Muzyka (1999) made a research during a time period of three years and with five European countries as a sample, in order to analyse the long-term performance of IPOs. During the test, four out of five countries underperformed and had a negative market-adjusted return of approximately 20 percent. According to Howton, Howton and Olson (2001), long-run underperformance may be present due to managerial mismanagement of new funds due to agency conflicts that leads to results not optimal to shareholders, and hence the value of the company. Another important phenomenon is the short-term strategy view that comes with many public companies. Since many investors possess less information about a company, compared to the management of a company, they tend to focus on quarterly reports to attain performance of a firm. This in hand affects the stock price of a company and corporate executives tend to be concerned by reputations and the company¶s stock price so they start to focus on short-term performance as well.

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3.4 Getting In On an IPO
The Underwriting Process
Getting a piece of a hot IPO is very difficult, if not impossible. To understand why, we need to know how an IPO is done, a process known as underwriting. When a company wants to go public, the first thing it does is hire an investment bank. A company could theoretically sell its shares on its own, but realistically, an investment bank is required - it's just the way Wall Street works. Underwriting is the process of raising money by either debt or equity (in this case we are referring to equity). You can think of underwriters as middlemen between companies and the investing public. The biggest underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse First Boston, Lehman Brothers and Morgan Stanley. The company and the investment bank will first meet to negotiate the deal. Items usually discussed include the amount of money a company will raise, the type of securities to be issued and all the details in the underwriting agreement. The deal can be structured in a variety of ways. For example, in a firm commitment, the underwriter guarantees that a certain amount will be raised by buying the entire offer and then reselling to the public. In a best efforts agreement, however, the underwriter sells securities for the company but doesn't guarantee the amount raised. Also, investment banks are hesitant to shoulder all the risk of an offering. Instead, they form a syndicate of underwriters. One underwriter leads the syndicate and the others sell a part of the issue.

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Once all sides agree to a deal, the investment bank puts together a registration statement to be filed with the SEC. This document contains information about the offering as well as company info such as financial statements, management background, any legal problems, where the money is to be used and insider holdings. The SEC then requires a cooling off period, in which they investigate and make sure all material information has been disclosed. Once the SEC approves the offering, a date (the effective date) is set when the stock will be offered to the public. During the cooling off period the underwriter puts together what is known as the red herring. This is an initial prospectus containing all the information about the company except for the offer price and the effective date, which aren't known at that time. With the red herring in hand, the underwriter and company attempt to hype and build up interest for the issue. They go on a road show - also known as the "dog and pony show" - where the big institutional investors are courted. As the effective date approaches, the underwriter and company sit down and decide on the price. This isn't an easy decision: it depends on the company, the success of the road show and, most importantly, current market conditions. Of course, it's in both parties' interest to get as much as possible. Finally, the securities are sold on the stock market and the money is collected from investors.

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As you can see, the road to an IPO is a long and complicated one. You may have noticed that individual investors aren't involved until the very end. This is because small investors aren't the target market. They don't have the cash and, therefore, hold little interest for the underwriters. If underwriters think an IPO will be successful, they'll usually pad the pockets of their favorite institutional client with shares at the IPO price. The only way for you to get shares (known as an IPO allocation) is to have an account with one of the investment banks that is part of the underwriting syndicate. But don't expect to open an account with $1,000 and be showered with an allocation. You need to be a frequently trading client with a large account to get in on a hot IPO. Bottom line, your chances of getting early shares in an IPO are slim to none unless you're on the inside. If you do get shares, it's probably because nobody else wants them. Granted, there are exceptions to every rule and it would be incorrect for us to say that it's impossible. Just keep in mind that the probability isn't high if you are a small investor.

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Parameters to judge an IPO
Good investing principles demand that you study the minutes of details prior to investing in an IPO. Here are some parameters you should evaluate:-

y Promoters
Is the company a family run business or is it professionally owned? Even with a family run business what are the credibility and professional qualifications of those managing the company? Do the top level managers have enough experience (of at least 5 years) in the specific type of business?

y Industry Outlook
The products or services of the company should have a good demand and scope for profit.

y Business Plans
Check the progress made in terms of land acquisition, clearances from various departments, purchase of machinery, letter of credits etc. A higher initial investment from the promoters will lead to a higher faith in the organization.

y Financials
Why does the company require the money? Is the company floating more equity than required? What is the debt component? Keep a track on the profits, growth and margins of the previous years. A steady growth rate is the quality of a fundamentally sound company. Check the assumptions the promoters are making and whether these assumptions or expectations sound feasible.

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y Risk Factors
The offer documents will list our specific risk factors such as the company¶s liabilities, court cases or other litigations. Examine how these factors will affect the operations of the company.

y Key Names
Every IPO will have lead managers and merchant bankers. You can figure out the track record of the merchant banker through the SEBI website.

y Pricing
Compare the company¶s PER with that of similar companies. With this you can find out the P/E Growth ratio and examine whether its earnings projections seem viable.

y Listing
You should have access to the brokers of the stock exchanges where the company will be listing itself.

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Parties Involved in the IPO:

‡ Issuer ‡ Lead Manager ‡ Lawyer / Solicitor ‡ Auditors ‡ Reporting Accountants ‡ SEBI

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Understanding the role of intermediaries: 

Who are the intermediaries in an issue?
Merchant Bankers to the issue or Book Running Lead Managers (BRLM), syndicate members, Registrars to the issue, Bankers to the issue, Auditors of the company, Underwriters to the issue, Solicitors, etc. are the intermediaries to an issue. The issuer discloses the addresses, telephone/fax numbers and email addresses of these intermediaries. In addition to this, the issuer also discloses the details of the compliance officer appointed by the company for the purpose of the issue. 

Who is eligible to be a BRLM?
A Merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant Bankers) Regulations, 1992 is eligible to act as a Book Running Lead Manager to an issue.

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What is the role of a Lead Manager? (pre and post issue)
In the pre-issue process, the Lead Manager (LM) takes up the due diligence of company¶s operations/ management/ business plans/ legal etc. Other activities of the LM include drafting and design of Offer documents, Prospectus, statutory advertisements and memorandum containing salient features of the Prospectus. The BRLMs shall ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges, RoC and SEBI including finalization of Prospectus and RoC filing. Appointment of other intermediaries viz., Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also included in the pre-issue processes. The LM also draws up the various marketing strategies for the issue. The post issue activities including management of escrow accounts, co-ordinate non-institutional allocation, intimation of allocation and dispatch of refunds to bidders etc are performed by the LM. The post Offer activities for the Offer will involve essential follow up steps, which include the finalization of trading and dealing of instruments and dispatch of certificates and demat of delivery of shares, with the various agencies connected with the work such as the Registrar(s) to the Offer and Bankers to the Offer and the bank handling refund business. The merchant banker shall be responsible for ensuring that these agencies fulfill their functions and enable it to discharge this responsibility through suitable agreements with the Company. 

What is the role of a registrar?
The Registrar finalizes the list of eligible allottees after deleting the invalid applications and ensures that the corporate action for crediting of shares to the demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent. The Lead manager co-ordinates with the Registrar to ensure follow up so that that the flow of applications from collecting bank branches, processing of the applications and other matters till the basis of allotment is finalized, dispatch security certificates and refund orders completed and securities listed.

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What is the role of bankers to the issue?
Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed in all the mandatory collection centers as specified in DIP Guidelines. The LM also ensures follow-up with bankers to the issue to get quick estimates of collection and advising the issuer about closure of the issue, based on the correct figures. 

Question on Due diligence
The Lead Managers state that they have examined various documents including those relating to litigation like commercial disputes, patent disputes, disputes with collaborators etc. and other materials in connection with the finalization of the offer document pertaining to the said issue; and on the basis of such examination and the discussions with the Company, its Directors and other officers, other agencies, independent verification of the statements concerning the objects of the issue, projected profitability, price justification, etc., they state that they have ensured that they are in compliance with SEBI, the Government and any other competent authority in this behalf.

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What is the Registration Process?
Going public requires a Registration Statement which is a carefully crafted document that is prepared by your attorneys and accountants. It requires detailed discussions on information pertaining to: 

Business product/service/markets  Company Information  Risk Factors  Proceeds Use (How are you going to use the money)  Officers and Directors  Related party transactions  Identification of your principal shareholders  Audited financials

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After your registration statement is prepared, it is submitted to the Securities and Exchange Commission and various other regulatory bodies for their detailed review. When this process is completed, you and your management team will do a "road show" to present your company to the stock brokers who will then sell your stock to the public investors. Assuming they can successfully sell your issue, you¶ll receive your money. Then it's simple, all you have to do is make a lot more money with the proceeds so as to increase the value of your, your teams and the public investors stock.

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3.5 IPO SCAMS

YES BANK Ltd. CASE

The modus operandi adopted in manipulating the YES Bank Ltd (YBL)'s initial public offering (IPO) allotment involved opening of over 7,500 benami dematerialized accounts. These accounts were with the National Securities Depository Ltd (NSDL) through Karvy Stockbroking Ltd (Karvy-DP). Of the 13 erring entities, the chief culprits identified by SEBI were Ms Roopalben Panchal and Sugandh Estates and Investments Pvt Ltd. While Ms Panchal opened 6,315 benami DP accounts, another entity Sugandh opened 1,315 benami accounts. Each of these accounts applications were made for 1,050 shares, paying application money of Rs 47,250 each. By applying for small lots (1,050 shares through each accounts), they misused the retail allotment quota stipulated for IPOs. The shares allotted in IPO to the benamis of Ms Panchal and Sugandh would have otherwise gone to genuine retail applicants.

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The IPO of YBL opened on June 15, 2005 and its shares were listed on the BSE and the NSE on July 12, 2005. It was observed that Ms Panchal had transferred 9,31,600 shares to various entities in seven off-market transactions on July 11 - a day prior to the listing and commencement of trading on the stock exchanges. In order to get an allotment of 9,31,600 shares, Ms Panchal would have had to apply for crores of shares involving many crores of rupees in application money. However, Ms Panchal's name did not appear in the list of top 100 public issue allottees. Thus, it was suspected that Ms Panchal must have made multiple applications or that other applicants were acting as a front for her. Ms Panchal had applied for only 1,050 shares in the YES Bank IPO, paying the application money of Rs 47,250. And she did not receive any allotment in the IPO. On July 6, Ms Panchal received 150 shares each from 6,315 allottees through off-market transactions aggregating 9,47,250 YBL shares. Curiously, as per the dematerialized account data furnished by NSDL, of the above 6,315 entities as many as 6,221 entities have a same address in Ahmadabad. There are three more addresses of locations in Ahmadabad, which have been linked to Ms Panchal. All the 6,315 entities have their bank accounts with Bharat Overseas Bank and demat accounts with Karvy-DP. By applying for the maximum possible number of shares per applicant while being categorized as retail applicant and by putting in large number of applications in the lot of 1,050 shares, Ms Panchal and her associates (real or fictitious) have attempted to corner the maximum possible number of shares in the IPO allotment. This tantamount to an abuse of IPO allotment process, the SEBI order said. A similar modus operandi was adopted by Sugandh, which received 150 shares each from 1,315 dematerialized accounts aggregating 1,97,250 shares in off market transactions. According to SEBI findings, Ms Panchal and others booked profits to the tune of about Rs 1.70 crore on the day of the listing of YES Bank shares.

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Salient Features of IPO scam

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y

Current account opened in the name of multiple companies on the same date in the same branch of a bank

y

Sole person authorized to operate all these accounts who was also a Director in all the companies

y

Identity disguised by using different spelling for the same name in different companies

y

Multiple accounts opened in different banks by the same group of joint account holders

y

Huge funds transferred from companies accounts to the individual¶s account which was invested in IPO¶s

y

Loans/ overdrafts got sanctioned in multiple names to bypass limit imposed by RBI

y

Loans sanctioned to brokers violating guidelines

y

Multiple DP accounts opened to facilitate investment in IPO

y

Large number of cheques for the same value issued from a single account on the same day

y

Multiple large value credits received by way of transfer from other banks

y

Several accounts opened for funding the IPO on the request of brokers, some were in fictitious names

y

Refunds received got credited in brokers a/cs

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Operational deficiencies:
Factors that facilitated the scam 
Photographs not obtained  Proper introductions not obtained  Signatures not taken in the presence of bank official  Failure to independently

verify the identity and address of all joint account holders  Directors identity/ address not verified  Customer Due Diligence done by a subsidiary  Objective of large number of jt. account holders opening account not ascertained  Purpose of relationship not clearly established  Customer profiling based on risk classification not done  Poor monitoring and reporting system due to inadequate appreciation of ML issues  Absence of investigation about use and sources of funds  Unsatisfactory training of personnel  No system of fixing accountability of bank officials responsible for opening of accounts and complying with KYC procedures  Ineffective monitoring and control

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Measures to prevent scams: 

An analysis of IPO scam clearly brings out the laxity on the part of banks to scrupulously implement the KYC/AML guidelines issued from time to time. It also raises serious concerns about the integrity of the systems & systemic risks.  While scams may still happen despite best of preventive measures, it should not undermine the efforts being made to insulate the financial sector from money laundering. It is going to be a long fight with constant need to improve and innovate new strategies.  It is important to understand that the risks banks run as a result of non-compliance with regulatory and statutory guidelines can cause severe reputational and financial damage to individual banks and the Indian banking system as a whole  Need for comprehensive operational framework implementing important aspects of KYC instructions e.g.  Documentation procedure for opening of all types of customer accounts;  Clarity in understanding of risk classification of accounts and proper customer profiling  Ongoing monitoring of medium and high risk accounts

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Enhanced due diligence in respect of accounts with beneficial ownership, nonface to face transactions, group companies, high risk businesses and wire transfers etc.  Prompt reporting of cash and suspicious transactions to Principal Officer by branches  Effective audit machinery Good understanding of regulatory and statutory prescriptions in letter and spirit  Clear demarcation of duties and responsibilities  Violations to be dealt with sternly

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PRICING OF ISSUE:
CONTROLLER OF CAPITAL ISSUE
During the Controller of Capital Issue (CCI) regime the issues were priced by the company and approved by CCI. Generally the CCI was very conservative and hardly allowed premium issues.

ARRIVAL OF SEBI
After the Arrival of SEBI free market policy is followed for pricing of issue. Merchant Bankers are responsible for justifying the premium. The company was allowed to give future profit projections. A company can issue shares to applicants in the firm allotment category at higher price than the price at which securities are offered to public. Further, an eligible company is free to make public/rights issue in any denomination determined by it in accordance with the Companies Act, 1956 and SEBI norms.

DECIDING PREMIUM BY BID SYSTEM
Since year 2000 SEBI has changed pricing formula. The promoters cannot give future projections and merchant banker alone cannot decide the pricing of IPO. At present, 50%of the IPO is reserved for the wholesale investors and 50% is for the small investor. The Lead Manager starts road show in consultation with Institutional Investors. Then they call for bid at recommended prices. Once, bids are received pricing is open for discussion. The mean bid price is accepted and allocation is done.

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3.6 BOOK BUILDING:
THE LATEST AVTAAR OF PRICE DISOVERY

WHAT IS BOOK BUILDING?
Book Building is basically a capital issuance process used in Initial Public Offering (IPO), which aids price and demand discovery. IT is a process used for marketing a public offer of equity shares of a company and is a common practice in most developed countries. Book Building is so-called because the collection of bids from investors is entered in a "book". These bids are based on an indicative price range. The issue price is fixed after the bid closing date.

PERSONS INVOLVED IN THE BOOK-BUILDING PROCESS
The principal intermediaries involved in the Book Building process are the company; Book Running Lead Managers (BRLM) and syndicate members who are intermediaries registered with SEBI and are eligible to act as underwriters. Syndicate members are appointed by the BRLM.

HOW IS THE BOOK BUILT?
A company that is planning an initial public offer appoints a category-I Merchant Banker as a book runner. Initially, the company issues a draft prospectus which does not mention the price, but gives other details about the company with regards to issue size, past history and future plans among other mandatory disclosures. After the draft prospectus is filed with the SEBI, a particular period is fixed as the bid period and the details of the issue are advertised. The book runner builds an order book, that is, collates the bids from various investors, which shows the demand for the shares of the company at various prices.

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For instance, a bidder may quote that he wants 50,000 shares at Rs.500 while another may bid for 25,000 shares at Rs.600. Prospective investors can revise their bids at anytime during the bid period that is, the quantity of shares or the bid price or any of the bid options.

BASIS OF DECIDING THE FINAL PRICE On closure of the book, the quantum of shares ordered and the respective prices offered are known. The price discovery is a function of demand at various prices, and involves negotiations between those involved in the issue. The book runner and the company conclude the pricing and decide the allocation to each syndicate member.

PAYMENT FOR THE SHARES
The bidder has to pay the maximum bid price at the time of bidding based on the highest bidding option of the bidder. The bidder has the option to make different bids like quoting a lower price for higher number of shares or a higher price for lower number of shares. The syndicate member may waive the payment of bid price at the time of bidding. In such cases, the issue price may be paid later to the syndicate member within four days of confirmation of allocation. Where a bidder has been allocated lesser number of shares than he or she had bid for, the excess amount paid on bidding, if any will be refunded to such bidder. Advantage of the Book Building process versus the Normal IPO marketing process Unlike in Book Building, IPO¶s are usually marketed at a fixed price. Here the demand cannot be anticipated by the merchant banker and only after the issue is over the response is known. In book building, the demand for the share is known before the issue closes. The issue may be deferred if the demand is less. This process allows for price and demand discovery. Also, the cost of the public issue is reduced and so is the time taken to complete the entire process.

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DIFFERENCE IN FIXED PRICE PROCESS AND BOOK BUILDING PROCESS

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Book Building is basically a capital issuance process used in Initial Public Offer (IPO) which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria.

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Company plans an IPO via Book Building route

Appoints a Merchant Banker As Book Runner

Issue a Draft Prospectus (Containing all mandatory Company disclosures other than Price)

Draft prospectus filed simultaneously with concerned authority (SEBI)

Book runner appoints syndicates members and Registered intermediaries to garner subscription

Price discovery begins through the bidding process

A close of bidding, Book runner and company decide Upon the allocation and allotment

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The Process: 
The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.  The Issuer specifies the number of securities to be issued and the price band for orders.  The Issuer also appoints syndicate members with whom orders can be placed by the investors.  Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. This process is called 'bidding' and is similar to open auction.  A Book should remain open for a minimum of 5 days.  Bids cannot be entered less than the floor price.  Bids can be revised by the bidder before the issue closes.  On the close of the book building period the 'book runner evaluates the bids on the basis of the evaluation criteria which may include ±

o Price Aggression o Investor quality o Earliness of bids, etc.  The book runner the company concludes the final price at which it is willing to issue the stock and allocation of securities.

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Generally, the numbers of shares are fixed; the issue size gets frozen based on the price per share discovered through the book building process.  Allocation of securities is made to the successful bidders.  Book Building is a good concept and represents a capital market which is in the process of maturing.

Book-building is all about letting the company know the price at which you are willing to buy the stock and getting an allotment at a price that a majority of the investors are willing to pay. The price discovery is made depending on the demand for the stock.

The price that you can suggest is subject to a certain minimum price level, called the floor price. For instance, the floor price fixed for the Maruti's initial public offering was Rs 115, which means that the price you are willing to pay should be at or above Rs 115.

In some cases, as in Biocon, the price band (minimum and maximum price) at which you can apply is specified. A price band of Rs 270 to Rs 315 means that you can apply at a floor price of Rs 270 and a ceiling of Rs 315.

If you are not still very comfortable fixing a price, do not worry. You, as a retail investor, have the option of applying at the cut-off price. That is, you can just agree to pick up the shares at the final price fixed. This way, you do not run the risk of not getting an allotment because you have bid at a lower price. If you bid at the cut-off price and the price is revised upwards, then the managers to the offer may reduce the number of shares allotted to keep it within the payment already made. You can get the application forms from the nearest offices of the lead managers to the offer or from the corporate or the registered office of the company.

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How is the price fixed? All the applications received till the last date is analyzed and a final offer price, known as the cut-off price is arrived at. The final price is the equilibrium price or the highest price at which all the shares on offer can be sold smoothly. If your price is less than the final price, you will not get allotment. If your price is higher than the final price, the amount in excess of the final price is refunded if you get allotment. If you do not get allotment, you should get your full refund of your money in 15 days after the final allotment is made. If you do not get your money or allotment in a month's time, you can demand interest at 15 per cent per annum on the money due.

How are shares allocated? 
As per regulations, at least 25 per cent of the shares on offer should be set aside for retail investors. Fifty per cent of the offer is for qualified institutional investors. Qualified Institutional Bidders (QIB) are specified under the regulation and allotment to this class is made at the discretion of the company based on certain criteria.  QIBs can be mutual funds, foreign institutional investors, banks or insurance companies. If any of these categories is under-subscribed, say, the retail portion is not adequately subscribed, then that portion can be allocated among the other two categories at the discretion of the management. For instance, in an offer for two lakh shares, around 50,000 shares (or generally 25 per cent of the offer) are reserved for retail investors. But if the bids from this category are received are only for 40,000 shares, then 10,000 shares can be allocated either to the QIBs or non-institutional investors.

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The allotment of shares is made on a pro-rata basis. Consider this illustration: An offer is made for two lakh shares and is oversubscribed by times times, that is, bids are received for six lakh shares. The minimum allotment is 100 shares. 1,500 applicants have applied for 100 shares each; and 200 applicants have bid for 500 shares each. The shares would be allotted in the following manner:  Shares are segregated into various categories depending on the number of shares applied for. In the above illustration, all investors who applied for 100 shares will fall in category A and those for 500 shares in category B and so on.  The total number of shares to be allotted in category A will be 50,000 (100*1500*1/3). That is, the number of shares applied for (100)* number of applications received (1500)* oversubscription ratio (1/3). Category B will be allotted 33,300 shares in a similar manner.  Shares allotted to each applicant in category A should be 33 shares (100*1/3). That is, shares applied by each applicant in the category multiplied by the oversubscription ratio. As, the minimum allotment lot is 100 shares, it is rounded off to the nearest minimum lot. Therefore, 500 applicants will get 100 shares each in category A ² total shares allotted to the category (50,000) divided by the minimum lot size (100).  In category B, each applicant should be allotted 167 shares (500/3). But it is rounded off to 200 shares each. Therefore, 167 applicants out of 200 (33300/200) would get an allotment of 200 shares each in category B.  Recently, in India, there had been issue from Hughes Software Solutions which was a milestone in our growth from fixed price offerings to true price discovery IPOs. While the HSS issue has many positive and fascinating features, the design adopted was still riddled with flaws, and we can do much better.

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The final allotment is made by drawing a lot from each category. If you are lucky you may get allotment in the final draw.  The shares are listed and trading commences within seven working days of finalization of the basis of allotment. You can check the daily status of the bids received, the price bid for and the response form various categories in the Web sites of stock exchanges. This will give you an idea of the demand for the stock and a chance to change your mind. After seeing the response, if you feel you have bid at a higher or a lower price, you can always change the bid price and submit a revision form.  The traditional method of doing IPOs is the fixed price offering. Here, the issuer and the merchant banker agree on an "issue price" - e.g. Rs.100. Then one have the 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 underpriced, with a prevalence of underpricing on average.  What is needed is a way to engage in serious price discovery in setting the price at the IPO. No issuer knows the true price of his shares; no merchant banker knows the true price of the shares; it is only the market that knows this price. In that case, can we just ask the market to pick the price at the IPO?  Imagine a process where an issuer only releases a prospectus, announces the number of shares that are up for sale, with no price indicated. People from all over India would bid to buy shares in prices and quantities that they think fit. This would yield a price. Such a procedure should innately obtain an issue price which is very close to the price at first listing -- the hallmark of a healthy IPO market.

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Documents Required:
A company coming out with a public issue has to come out with an Offer Document/ Prospectus. An offer document is the document that contains all the information you need about the company. It will tell you why the company is coming is out with a public issue, its financials and how the issue will be priced. The Draft Offer Document is the offer document in the draft stage. Any company making a public issue is required to file the draft offer document with the Securities and Exchange Board of India, the market regulator. If SEBI demands any changes, they have to be made. Once the changes are made, it is filed with the Registrar of Companies or the Stock Exchange. It must be filed with SEBI at least 21 days before the company files it with the RoC/ Stock Exchange. During this period, you can check it out on the SEBI Web site. Red Herring Prospectus is just like the above, except that it will have all the information as a draft offer document; it will, however, not have the details of the price or the number of shares being offered or the amount of issue. That is because the Red Herring Prospectus is used in book building issues only, where the details of the final price are known only after bidding is concluded.

Players: 
Co-managers and advisors  Underwriters  Lead managers  Bankers  Brokers and principal brokers  Registrars  Stock exchanges.

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4.1 Research Methodology
Methodology means science of method or the body of methods used for a study. Methodology is indispensable because of its scientific free through. Unless, a proper method is following, any project work or study would not be a success. Therefore at notable results, methodology should form a significant part of it. The aim is to present a clear idea of the procedure followed in this study. Since the value of any systematic and scientific research line in its methodology which gives a clear idea of the form of procedure adopted in conducting it and stating the purpose becomes the essential part of every study. In this project work, methodology includes objectives of the study, significance of the study and limitation of the study.

4.2 Sources of data There are two sources of collecting data (of both financial and non financial in nature) Primary data The primary data is collected through interview method among various department heads pertaining to Equity Research, Commodity, Derivatives, etc. Secondary data: Secondary financial data was collected from the website of the company. Major secondary source for the data collection is websites and magazines.

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91

IPO(2005) Performance Equity
Scrip Code

Sensex
C ha C ha m pa
Issue Amount (Rs. Cr.) 200 22-Apr-05 58.225 -42% Monthly Listing date Average as on 20-12-10 Sensex as on Listing Date 6346.57

se 20 x a -1 s 2 - on 20 10

e

e

e

N o.

Pr ic

Sl .

su e

Company

Issue Dates Start End 04-Apr-05

ng

ng

ris

io n
Result

Se n

%

1

532628

3I INFOTECH LTD. ABG SHIPYARD LTD. AIA ENGINEERING LTD. ALLAHABAD BANK ALLSEC TECHNOLOGIES LTD. AMAR REMEDIES LTD. AURIONPRO SOLUTIONS LTD. BANNARI AMMAN SPINNING MILLS LTD. BARTRONICS INDIA LTD. BOMBAY RAYON FASHIONS LTD.

Is

%

Co

100

30-Mar-05

19881.75

213%

-255%

Under Performed Under Performed Under Performed Under Performed Under Performed Over Performed Over Performed

2

532682

185

18-Nov-05

26-Nov-05

157.25

13-Dec-05

392.55

112%

9263.9

19881.75

115%

-2%

3

532683

250

17-Nov-05

22-Nov-05

117.5

14-Dec-05

430.5

72%

9241.76

19881.75

115%

-43%

4

532480

82

06-Apr-05

12-Apr-05

820

22-Apr-05

230.475

181%

6284.2

19881.75

216%

-35%

5

532633

135

13-Apr-05

20-Apr-05

42.41

9-May-05

34.275

-75%

6481.35

19881.75

207%

-281%

6

532664

28

25-Aug-05

31-Aug-05

42

16-Sep-05

122.2

336%

8380.96

19881.75

137%

199%

7

532668

90

27-Sep-05

04-Oct-05

27

25-Oct-05

248.55

176%

7921.44

19881.75

151%

25%

8

532674

135

19-Oct-05

25-Oct-05

94.5

14-Nov-05

142.05

5%

8494.29

19881.75

134%

-129%

Under Performed

9

532694

75

20-Dec-05

24-Dec-05

45

1-Dec-06

88.05

17%

9303.71

19881.75

114%

-96%

Under Performed Under Performed

10

532678

70

11-Nov-05

17-Nov-05

94.33

5-Dec-05

200.775

187%

6432.17

19881.75

209%

-22%

92

IPO(2005) Perfor ance
 

qu ty
£

¤

ensex
C ha C ha
Issue A ount
§

¢

su e

Is

¥

tart 
  

¨

nd 22-Dec-05

(Rs Cr )
© © 

11

532695

C L RT F H N LTD 
      

en

Co

cr p Code

Co pany
§'

pa

Issue Dates

Month y L st ng date Average as on 20-12-10
¦& ¦&

ensex as on L st ng Date
¦& ¦&

se 20 x a -1 s 2 - on 20 10

e

e

e

N o

Pr c

ng

ng

rs

¥%

¦&

on

¡$

¥%

Resu t

180 

19-Dec-05

81 9 

12-Jan-06

22 775 

-87

9303 71 

19881 75 

114

-201

Under er ormed ver er ormed ver er ormed Under er ormed 
  

12

532696

DUC M LUT N LTD 
          

115

19-Dec-05

22-Dec-05

46

13-Jan-06

566 925 

393

9374 19 

19881 75 

112

281   

13

531162

M M LTD 
  

70

04-Mar-05

10-Mar-05

35

24-Mar-05

401 25 

473

6442 87 

19881 75 

209

265  

14

532684

V R T NT C L ND R LTD
!      "     

160 

22-Nov-05

25-Nov-05

102 86 

15-Dec-05

100 825 

-37

9170 4 

19881 75 

117

-154 

15

532622

T W D TR R LTD 
    "      

72

09-Mar-05

14-Mar-05

151 2 

31-Mar-05

106 875 

48

6492 82 

19881 75 

206

-158

Under er ormed

!    

16

590025

inni Filamen s Ld
# "  !  

#    

19-Dec-05

23-Dec-05

--

15 275 

#D V/0!

19881 75 

#D V/0!

#D V/0!

#D V/0! Under er ormed

17

532630

X
"

LD RT LTD 
      

425 

30-Mar-05

06- pr-05

132 81 

27- pr-05

121

-72

6278 5 

19881 75 

217

-288    

18

517300 

UJ R T NDU TR W R C LTD 
       

68 

13- c -05

19- c -05

--

8-Nov-05

102 675 

51

8317 8 

19881 75 

139

-88

Under er ormed  

# 

#    

19 20

532662 532174

HT M D 
  

LTD
#

530

04- ug-05 01-Dec-05

10- ug-05 06-Dec-05

370 74 

9-Jan-05

141 375 

-73 

7876 15 

19881 75 

152 

-226 

Under er ormed #D V/0!          

CC

ank L d

--

1123 225 

#D V/0!

19881 75 

#D V/0!

#D V/0!   

¡$

93

IPO(2005) Performance Equity
Scrip Code

Sensex
om pa
Issue Amount (Rs. Cr.)
142.5 27-Jul-05 -100%

Sl .

su e

Company

Issue Dates Start End
08-Jul-05

%

21

532653

IL&FS INVESTSMART LIMITED INDIA INFOLINE LTD. INFRASTRUCTU RE DEVELOPMENT FINANCE COMPANY LTD. IVRCL INFRASTRUCTU RES & PROJECTS LTD. Jaiprakash Power Ventures Limited JET AIRW AYS (INDIA) LTD. JINDAL POLY FILMS LTD. KERNEX MICROSYSTEM S (INDIA) LTD. NECTAR LIFESCIENCES LTD. ORIENTAL BANK OF COMMERCE

Is

%

Monthly Listing date Average as on 20-12-10

Sensex as on Listing Date
7605.03

Se ns e 20 x a -1 s 2- on 20 10

e

C ha ng e

C ha ng e

N o.

Pr ic

ris

io n
Result

C

125

04-Jul-05

19881.75

161%

-261%

Under Performed Under Performed

22

532636

76

21-Apr-05

27-Apr-05

90.27

17-May-05

96.05

26%

6466

19881.75

207%

-181%

23

532659

34

15-Jul-05

22-Jul-05

1,372.24

12-Aug-05

177.725

423%

7767.49

19881.75

156%

267%

Ov er Performed

24

530773

395

18-Mar-05

23-Mar-05

--

11-Apr-05

123.65

-69%

6397.52

19881.75

211%

-279%

Under Performed

25

532627

32

22-Mar-05

29-Mar-05

576

18-Apr-05

53.65

68%

6156.78

19881.75

223%

-155%

Under Performed Under Performed Under Performed Under Performed

26

532617

1100

18-Feb-05

24-Feb-05

1,899.35

14-Mar-05

806.5

-27%

6810.04

19881.75

192%

-219%

27

500227

360

09-Jun-05

15-Jun-05

--

1-Jul-10

458

27%

7210.77

19881.75

176%

-149%

28

532686

250

28-Nov -05

03-Dec-05

--

20-Dec-05

136.675

-45%

9346.24

19881.75

113%

-158%

29

532649

240

22-Jun-05

28-Jun-05

92.88

18-Jul-05

27.875

-88%

7347.1

19881.75

171%

-259%

Under Performed

30

500315

250

25-Apr-05

29-Apr-05

1,450.00

16-May-05

428.75

72%

6528.03

19881.75

205%

-133%

Under Performed

94

IPO(2005) Performance Equity
Scrip Code

Sensex
om pa C ha C ha
Issue Amount (Rs. Cr.) 60 6-Dec-05 23.775 -80% Monthly Listing date Average as on 20-12-10 Sensex as on Listing Date 8815.53

se 20 x a -1 s 2 - on 20 10

e

e

e

N o.

Pr ic

Sl .

su e

Company

Issue Dates Start End 16-Nov-05

ng

ng

ris

io n
Result

Se n

%

31

532679

Store One Retail India Limited PRITHVI INFORMATION SOLUTIONS LTD. PROVOGUE (INDIA) LTD. PUNJ LLOYD LTD. PUNJAB NATIONAL BANK

Is

%

C

120

10-Nov-05

19881.75

126%

-206%

Under Performed

32

532675

270

25-Oct-05

28-Oct-05

135

16-Nov-05

38

-86%

8595.92

19881.75

131%

-217%

Under Performed

33

532647

150

10-Jun-05

16-Jun-05

60.74

7-Jul-05

63.4

-58%

7145.13

19881.75

178%

-236%

Under Performed Under Performed Over Performed Under Performed Under Performed

34

532693

700

13-Dec-05

16-Dec-05

642.11

6-Jan-06

100.9

-86%

9640.29

19881.75

106%

-192%

35

532461

390

07-Mar-05

11-Mar-05

3,120.00

29-Apr-05

1230.65

216%

6367.86

19881.75

212%

3%

36

532689

PVR LTD. REPRO INDIA LTD. SASKEN COMMUNICATIO N TECHNOLOGIES LTD. SHOPPER'S STOP LTD. SHREE RENUKA SUGARS LTD.

225

08-Dec-05

14-Dec-05

166.5

4-Jan-06

148.9

-34%

9648.08

19881.75

106%

-140%

37

532687

165

28-Nov-05

01-Dec-05

43.23

22-Dec-05

109.025

-34%

9373.2

19881.75

112%

-146%

38

532663

260

11-Aug-05

17-Aug-05

130

9-Sep-05

177.225

-32%

8060.01

19881.75

147%

-179%

Under Performed

39

532638

238

28-Apr-05

04-May-05

136.98

23-May-05

718.4

202%

6565.37

19881.75

203%

-1%

Under Performed Under Performed

40

532670

285

07-Oct-05

14-Oct-05

--

30-Oct-05

83.425

-71%

7892.32

19881.75

152%

-223%

95

IP (2005) Performance Equity
Scrip Code

(

Sensex
C ha C ha m pa
Issue Amount (Rs. Cr.) 44 2-Aug-05 -100% Monthly Listing date Average as on 20-12-10 Sensex as on Listing Date

se 20 x a -1 s 2 - on 20 10

e

e

e

N o.

Pr ic

Sl .

su e

Company

Issue Dates Start End 14-Jul-05

ng

ng

ris

io n
Result

Se n

%

41

532655

SHRI RAMRUPAI BALAJI STEELS LTD. FAME INDIA LTD. SPL INDUSTRIES LTD. SUZLON ENERGY LTD. SYNDICATE BANK Talbros Automoti e Compo. Ltd. TRIVENI ENGINEERING & INDUSTRIES LTD. TULIP TELECOM LTD. UTV SOFTWARE COMMUNICATIO NS LTD.
)

Is

%

Co

22

08-Jul-05

7756.04

19881.75

156%

-256%

Under Performed

42

532631

05-Apr-05

11-Apr-05

--

77

#DIV/0!

19881.75

#DIV/0!

#DIV/0!

#DIV/0!

43

532651

70

29-Jun-05

05-Jul-05

63

26-Jul-05

7.045

-90%

7552.77

19881.75

163%

-253%

Under Performed Under Performed #DIV/0!

44

532667

510

23-Sep-05

29-Sep-05

1,496.34

19-Oct-05

48.725

-90%

7971.06

19881.75

149%

-240%

45

532276

07-Jul-05

13-Jul-05

--

135.625

#DIV/0!

19881.75

#DIV/0!

#DIV/0!

46

--

01-Sep-05

09-Sep-05

--

#DIV/0!

19881.75

#DIV/0!

#DIV/0!

#DIV/0!

47

532356

48

18-Nov-05

25-Nov-05

240

13-Dec-05

103.9

116%

9263.9

19881.75

115%

2%

Over Performed

48

532691

120

09-Dec-05

15-Dec-05

108

5-Jan-06

173.3

44%

9617.74

19881.75

107%

-62%

Under Performed

49

532619

130

21-Feb-05

25-Feb-05

91

17-Apr-05

539.5

315%

6669.52

19881.75

198%

117%

Over Performed

50

532648

YES BANK LTD.

45

15-Jun-05

21-Jun-05

315

12-Jul-05

310.575

590%

7303.95

19881.75

172%

418%

Over Performed

96

Interpretation
From the above table we can interpret that out of 50 IPO issued and got listed in the year 2005 only 9 IPO has performed above the Stock market performance. Out of over performed IPO Yes Bank Ltd. Has performed well because, It opened 15 branches in FY06, the year it hit the market with its IPO. Thereafter the branches grew in number on year-on-year basis. It opened 133 new branches in the next 4 years and the total number rose from 17 in FY06 to 150 in FY10. This may be one of the reasons which decide the performance of IPO. The brand image and future prospectus of the company also decides the performance of the company. If the company is having bad brand image and there no chance for more growth then there is less chance of being fully subscription of that IPO. If the IPO is not price to perfection, not allowing capital appreciation for the IPO investors. Ethical value followed by company also affects the subscription of IPO.

97

E

D

5

2

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7

D

B

1

2

R

7

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D

1

2

5

T

6

&
7 1

B

6

1

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6

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B

3

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T

S

1

6

U

T

D

1

3 6

V

U

W

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X

,

3

V

F

X

T- Test at 5% Level Of Significance

,
X F I 8 X I 0 F 8 P 1 P G 2 F b H 3 8 1 G I G 2 H X H 3 I P H G X 5 F 6 H G

0

,
7 8 ` H 9 a G 1 8 4 I @ I A b 2 6 A G B a Q 3 f 2 A 5 D 6 7 1 8 7 X

I

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Paired Samples Test

Paired Samples Statistics

-Paired Samples Correlations

,
C F 9 D A Q D g g B H 8 D 1 D I 1 F 0 3 X 1 R 2 P 1 3 ` V X

F

G

,
` H a 8

c

5

6

,
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I

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9

F 2

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1

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w
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(
I F I W 6 Y I 2 8 A d X 1 Q 7

)
G

As calculated µt¶ value is less than the table value (1.645) we accept the null hypothesis, that is there is no relationship between IPO grade and Stock returns at 5% level of significance.

98

w

¡

v

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x

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l

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T- Test at 10% Level Of Significance

,
ˆ ’ d ‘ ¥ € • ’ ‘ ‘ ‡ ’ ™ „ ‰ ¦ ‹ r  § ˆ € ‘ ¨ ™ s ‰ t d š  u ’  ‰ ’  Ž d §

,
ˆ ‘ © } ¨ ‰ i ~ ª ‘ ‡ – š … ¦ „ Ž § … ª — « ‹  Ž ¥

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Paired Samples Statistics

Paired Samples Correlations

,
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,
« œ « — ž § ‹ Ÿ ‘ Š … Ÿ š ˆ ‡ ¦ † ‡ ¨ ‹ ¦ Œ © ‡  ‹ Ž ‡ † – „ ” — §

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As calculatedµt¶ value is less than the table value (1.282) we accept the null hypothesis, that is there is no relationship between IPO grade and Stock returns at 10% level of significance.

99

100

IPO¶S IN PAST RECENT YEAR¶S:

RECENT IPO DATA WITH BREAK-UP:

101

THE 8 BEST IPOS OF 2010:
2010 has had a very mixed fanfare when it comes to the IPO market. Investors have followed IPOs with a passion on and off since the 1900 s when technology, biotech and internet wonders reached the edge of imagination. Many of the 2010 IPOs have gone from hot to snot, and there are over 20 busted IPOs trading under their offering price. This year¶s class of IPOs does actually have many winners with double-digit percentage gains even after the choppiness seen this week. We are tracking gains so far in MakeMyTrip Ltd. (NASDAQ: MMYT), Fabrinet (NYSE: FN), Qlik Technologies, Inc. (NASDAQ: QLIK), Green Dot Corporation (NYSE: GDOT), AutoNavi Holdings Ltd. (NASDAQ: AMAP), RealD Inc. (NYSE: RLD), Oasis Petroleum Inc. (NYSE: OAS), and RealPage, Inc. (NYSE: RP). We have outlined the performance and added color in on the operations so that there is some extra outlook possibility into the future.

1) MakeMyTrip Ltd. (NASDAQ: MMYT) just became the best IPO of 2010. It actually may have been the best IPO debut since 2007. The online travel agency based in India sold 5 million shares at $14.00 per share versus a $12.00 to $14.00 expected price range. That comes to $70 million raised, or $80.5 million raised in gross proceeds if you consider the shares that will have been sold in the overallotment option. Shares closed at $26.45 on the debut for an 88.9% gain. With shares down around $25.50, MakeMyTrip is now µonly¶ up 82%. Keep in mind that this one opened up at $22.00 on Thursday, so that should really be considered the real benchmark for everyone else that did not get IPO shares.

102

2) Fabrinet (NYSE: FN) came public at the end of June, in the middle of the selling fury, which may account for some of the µvalue¶ despite the issue that it ran solidly over the last week and a half. The company is based in the Cayman Islands but has its facilities in the U.S., China, and Thailand. It provides foundry services to optical component, module, and subsystem original equipment manufacturers. Of the 8.5 million shares offered, 2,830,000 shares were sold by the company and the pricing was at $10.00. The interesting aspect here is that Fabrinet actually turned into a busted-IPO in late July and early August before a big swing upward in recent days. AT $14.40, Fabrinet is now up 44% from the IPO and up about 50% from the real post-IPO lows. Both Deutsche Bank and Stifel Nicolaus initiated the stock with Buy ratings early this month.

3) Qlik Technologies, Inc. (NASDAQ: QLIK) remains unheard of by most, but it remains one of the top IPOs of 2010 and was up about 50%. The company develops and sells software solutions for data analysis and reporting solutions. The price range was $8.50 to $9.50, yet its priced at $10.00 in mid-July. The 11.2 million shares did get its over-allotment option exercised, so underwriters sold some 12,880,000 shares after it was all said and done. At $14.98, we have a post-IPO trading range of $12.00 up to $16.04. At $14.35 today, Qlik is trading up 43.5% from its IPO price.

103

4) Green Dot Corporation (NYSE: GDOT) just had its first earnings report Thursday. The pre-paid credit company is proof that millions of Americans are no longer eligible on-the-grid in the credit economy. Shares have backed off a bit from highs, but at $46.40, the 4.6 million share IPO is up 29% from the $36.00IPO price versus a range set at $32.00 to $35.00. The lowest this ever saw on the IPO data was $41.13, so anything under $41.00 means any new buyers are thinking deal-parity has been breached. Trading volume in Green Dot has been very muted.

5) AutoNavi Holdings Ltd. (NASDAQ: AMAP) does personal navigation via digital map content and navigation and location-based solutions in China. This came public right before July 4 at $12.50, which was at the top of a $10.50 to $12.50 trading range. The IPO sale came to 9,918,750 ADRs after the overallotment was exercised by underwriters. At $15.85, shares are up about 27% and the post-IPO range is $12.62 to $16.96. Trading volume has been muted in this issue as wel

6) RealD Inc. (NYSE: RLD) owes much of its fame to ³Avatar´ for its 3D graphics systems. The mid-July IPO priced at $16.00, above the $13.00 to $15.00 range. The stock opened above $19 and sold off down to about $17.00 before a recent resurgence came back into the stock took it as high as $20.00. Even after a 3% drop today to $18.95 represents almost 20% gains from the IPO price.

104

7) Oasis Petroleum Inc. (NYSE: OAS) came public in mid-June. The one engages in the acquisition and development of oil and natural gas resources primarily in the Williston Basin. After a $13.00 to $14.00 range, the deal priced at $14.00. Shares rose initially and pulled back some, but the trend on Oasis treated it as one of the few watering holes in a desert as shares went as high as $18.74. At $17.95 today, the stock is up about 28% since mid-June and a post-IPO trading range of $13.88 to $18.74 exists.

8) RealPage, Inc. (NYSE: RP) may be too soon to judge considering that it just came public this week and there has not been enough to evaluate the company. It provides on-demand property management solutions to owners and managers of single-family and multi-family rental properties to manage marketing, pricing, screening, leasing, accounting, purchasing and other property operations. Of the 12.3 million shares sold at $11.00, 6 million shares were sold by the company. Shares opened at $13.00 and traded as high as $16.41 before a $14.52 close on its debut for a 32% gain. At $14.45 Friday, RealPage is still up over 30%.

105

I O Issues (2010) As on 21-Dec-2010
Equity
Claris Life MOIL RPP Infra Proj Gravita India Coal India Gyscoal Alloys Prestige Estate BS TransComm Oberoi Realty Commercial Eng Bedmutha Ind Sea TV Network Ashoka Buildcon Va Tech Wabag Cantabil Retail Tecpro Systems Electrosteel St Orient Green Ramky Infra Career Point Eros Intern Microsec Fin Tirupati Inks Indosolar Gujarat Pipavav Prakash Steelag Bajaj Corp Midfield Ind Aster Silicates Hindustan Media Technofab Engg Parabolic Drugs

Issue rice

Current rice

%Gain/Loss
-4% 18% -20% 102% 28% -55% -7% -44% 3% -64% -22% -48% -11% 8% -56% 3% -14% -45% -32% 16% -11% -54% -69% -16% 29% 18% -19% 3% -72% 2% -25% -26%

Equity
Jaypee Infra SJVN Mandhana Ind Tarapur Trans Nitesh Estates Talwalkars Fitn Goenka Diamond Intrasoft Tech Shree Gan Jewel Persistent Pradip Oversea ILandFS Trans DQ Entertain United Bank Man Infra Texmo Pipes ARSS Infra Hathway Cable Emmbi Polyarns DB Realty Aqua Logistics Thangamayil Syncom Health VasconEngg Jubilant Food Infinite Comp MBL Infra DB Corp Godrej Proper JSW Energy

Issue rice
102 26 130 75 54 128

Current rice
66 22.55 253.8 29 32.2 261.3

%Gain/Loss
-35% -13% 95% -61% -40% 104% -44% -41% -27% 34% -27% 18% 15% 53% -18% -51% 83% -28% -62% -60% -82% 106% -41% -25% 297% 6% -4% 24% 24% -2%

December-2010 228 218 375 443.6 75 60.25 November-2010 125 252.75 245 312.6 October-2010 71 32.05 183 169.95 248 137.9 260 267 127 45.55 102 80 100 52.1 324 289.5 1310 1408.4 135 59.75 355 367.05 11 9.44 47 25.75 450 306 310 359.9 175 156.25 118 54.25 43 13.35 September-2010 29 24.35 46 59.4 August-2010 110 130 660 532.95 133 136.5 July-2010 118 32.9 166 169.9 240 180.5 75 55.8

May-2010

April-2010 135 75 145 85.7 260 190.65 310 415.25 110 80.45 March-2010 258 303.5 80 92 66 100.8 252 207 90 44.55 450 822.4 February-2010 240 173.95 45 16.95 468 188 220 40.25 75 154.25 75 44 165 123 145 575.4 165 175 January-2010 180 173.3 212 262.75 490 605.2 100 98.35

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Conclusion
The Indian initial public offer (IPO) market has always had more than its fair share of doomsayers Right from the Maruti issue, which pundits decried as being overpriced, to the ONGC and TCS issues, where the huge sizes of the offerings drew predictions of calamitous effects on the secondary markets, the opinions of the ³experts´ have proved to be wide off the mark.

Not only did the mega issues sail through, but the secondary markets proved to be far more resilient than anybody had anticipated. The data show that as much as Rs. 2033.99 Crores has been raised from the primary market in the current calendar year, making it obvious that the Indian investor has far more appetite for equities than most people realize.

Most of the money has been raised by big companies with a long term track record. A substantial number of issues²barring that of TCS²also happened during the early part of the year, before the markets got the shivers. The heavy oversubscriptions in many cases can also be traced to the availability of bank finance for IPO investment.

Nevertheless, there is no denying the enormous interest retail and other investors have shown in the primary market, perhaps even more so than in the secondary one. This interest has been sustained despite the lack of bounce in the secondary market and is not confined to the big issues; even smaller issues have sailed through with large oversubscriptions. The factors which determine the IPO performance  Price  Market condition  Business Performance  Timing of IPO that is whether IPO is done in Bullish market or Bearish market.

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Recommendation

After making the project, I would like to say SEBI is playing very important role in regulating the risk and financial aspects of the investors. Also the DIP guideline is framed in such a manner, which can be understood by any individual. Overall the process and the various intermediaries, which are involved in IPOs or initial public offering, are doing very important task.

I found the following points very important from the investor point of view while doing this project:  The IPOs should be consumer friendly: Any investor should be able to analyze the IPO in its simplest form and should be able to understand of whether to apply for it or not.  IPOs should be graded which is already started. But I think such kind of grading is not enough because it doesn¶t give enough information about the company; it only says what the level of grade that a company deserves is.  I would suggest shortening the time between application and allocation or listing. We know SEBI and other intermediaries has done great job in doing so in the past, but looking at the current scenario we think it¶s very important to do so. This would help investor in investing the same money in other IPOs if he is not allotted shares in that particular company.

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IPO GLOSSARY
A
Allocation This is the amount of stock in an initial public offering (IPO) granted by the underwriter to an investor. Aftermarket Trading in the IPO subsequent to its offering is called the aftermarket.

B
Board of Directors The composition of the Board of Directors is particularly critical for an IPO. Typically, a board is composed of inside and outside directors. Broken IPOs If an IPO trades below its IPO price in the aftermarket, it is said to be a broken IPO.

C
Calendar This refers to upcoming IPOs and secondary offerings. Brokerage houses have equity calendars, bond calendars and municipal calendars. Clearing Price The price at which all shares of an IPO can be sold to investors in a Dutch Auction. Sometimes it referred to as the ³market clearing price´.

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F
First Day Close The closing price at the end of the first day of trading reflects not only how well the lead manager priced and placed the deal, but what the near-term trading is likely to be. Float When a company is publicly traded, a distinction is made between the total number of shares outstanding and the number of shares in circulation, referred to as the float. The float consists of the company's shares held by the general public.

G
Green Shoe A typical underwriting agreement allows the underwriters to buy up to an additional 15% of shares at the offering price for a period of several weeks after the offering. This option is also called the overallotment and is exercised when the IPO is oversubscribed and trading above its offer price. The term comes from the Green Shoe Company, which was the first to have this option.

H
Hot Issue When there is significantly more demand than supply for an IPO it is said to be a hot issue.

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I
Initial Public Offering This is the event of a company first selling its shares to the public. Insiders Management, directors and significant stockholders are regarded as insiders because they are privy to information about the operations of a company not known to the general public. IPO Price Individual investors often ask why the price at which an IPO starts trading is different from its offer price. This occurs because the offer price is set by the underwriters before the stock starts trading. Once the stock starts trading, the price is determined by actual supply and demand and can be higher or lower. IPO Research Prior to the offering, the underwriters involved in the IPO are prohibited from issuing research or recommendations for forty days. Following the IPO, the underwriter is allowed to issue a research report

M-N
Market Capitalization It means the total market value of a firm. It is defined as the product of the company's stock price per share and the total number of shares outstanding

Market Value The market value of a company is determined by multiplying the number of shares outstanding by the current price of the stock.

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O
Offering Price This is the price at which the IPO is first sold to the public. It is set by the lead manager, usually after the close of stock market trading the night before the shares are distributed to IPO buyers. In the case of some foreign IPOs, the pricing occurs over the weekend. Oversubscribed When a deal has more orders than there are shares available it is said to be oversubscribed.

P
Preliminary Prospectus This is the offering document printed by the company containing a description of the business, discussion of strategy, presentation of historical financial statements, explanation of recent financial results, management and their backgrounds and ownership. Proceeds Companies go public to raise money. The money raised is referred to as proceeds.

R
Red Herring This is the term of art for the preliminary prospectus. It gets its name from the printed red disclaimer on the left side of the prospectus.

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U-V
Underwriter This is a brokerage firm that raises money for companies using public equity and debt markets. Underwriters are financial intermediaries that buy stock or bonds from an issuer and then sell these securities to the public. Venture Capital Funding acquired during the pre-IPO process of raising money for companies. It is done only by accredited investors.

113

Bibliography

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Appendix
114

Df 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 40 60 120 X

SIGNIFICANCE LEVEL FOR ONE-DIRECTION TEST .10 .05 .025 .01 .005 3.078 6.314 12.706 31.821 63.657 1.886 2.920 4.303 6.965 9.925 1.638 2.353 3.182 4.541 5.841 1.533 2.132 2.776 3.747 4.604 1.476 2.015 2.571 3.365 4.032 1.440 1.943 2.447 3.143 3.707 1.415 1.895 2.365 2.998 3.499 1.397 1.860 2.306 2.896 3.355 1.383 1.833 2.262 2.821 3.250 1.372 1.812 2.228 2.764 3.169 1.363 1.796 2.201 2.718 3.106 1.356 1.782 2.179 2.681 3.055 1.350 1.771 2.160 2.650 3.012 1.345 1.761 2.145 2.624 2.977 1.341 1.753 2.131 2.602 2.947 1.337 1.746 2.120 2.583 2.921 1.333 1.740 2.110 2.567 2.898 1.330 1.734 2.101 2.552 2.878 1.328 1.729 2.093 2.539 2.861 1.325 1.725 2.086 2.528 2.845 1.323 1.721 2.080 2.518 2.831 1.321 1.717 2.074 2.508 2.819 1.319 1.714 2.069 2.500 2.807 1.318 1.711 2.064 2.492 2.797 1.316 1.708 2.060 2.485 2.787 1.315 1.706 2.056 2.479 2.779 1.314 1.703 2.052 2.473 2.771 1.313 1.701 2.048 2.467 2.763 1.311 1.699 2.045 2.462 2.756 1.310 1.697 2.042 2.457 2.750 1.303 1.684 2.021 2.423 2.704 1.296 1.671 2.000 2.390 2.660 1.289 1.658 1.980 2.358 2.617 1.282 1.645 1.960 2.326 2.576

.000 636.619 31.598 12.941 8.610 6.859 5.959 5.405 5.041 4.781 4.587 4.437 4.318 4.221 4.140 4.073 4.015 3.965 3.922 3.883 3.850 3.819 3.792 3.767 3.745 3.725 3.707 3.690 3.674 3.659 3.646 3.551 3.460 3.373 3.291

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Df 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 40 60 120 X

SIGNIFICANCE LEVEL FOR ONE-DIRECTION TEST .20 .10 .05 .02 .01 3.078 6.314 12.706 31.821 63.657 1.886 2.920 4.303 6.965 9.925 1.638 2.353 3.182 4.541 5.841 1.533 2.132 2.776 3.747 4.604 1.476 2.015 2.571 3.365 4.032 1.440 1.943 2.447 3.143 3.707 1.415 1.895 2.365 2.998 3.499 1.397 1.860 2.306 2.896 3.355 1.383 1.833 2.262 2.821 3.250 1.372 1.812 2.228 2.764 3.169 1.363 1.796 2.201 2.718 3.106 1.356 1.782 2.179 2.681 3.055 1.350 1.771 2.160 2.650 3.012 1.345 1.761 2.145 2.624 2.977 1.341 1.753 2.131 2.602 2.947 1.337 1.746 2.120 2.583 2.921 1.333 1.740 2.110 2.567 2.898 1.330 1.734 2.101 2.552 2.878 1.328 1.729 2.093 2.539 2.861 1.325 1.725 2.086 2.528 2.845 1.323 1.721 2.080 2.518 2.831 1.321 1.717 2.074 2.508 2.819 1.319 1.714 2.069 2.500 2.807 1.318 1.711 2.064 2.492 2.797 1.316 1.708 2.060 2.485 2.787 1.315 1.706 2.056 2.479 2.779 1.314 1.703 2.052 2.473 2.771 1.313 1.701 2.048 2.467 2.763 1.311 1.699 2.045 2.462 2.756 1.310 1.697 2.042 2.457 2.750 1.303 1.684 2.021 2.423 2.704 1.296 1.671 2.000 2.390 2.660 1.289 1.658 1.980 2.358 2.617 1.282 1.645 1.960 2.326 2.576

.001 636.619 31.598 12.941 8.610 6.859 5.959 5.405 5.041 4.781 4.587 4.437 4.318 4.221 4.140 4.073 4.015 3.965 3.922 3.883 3.850 3.819 3.792 3.767 3.745 3.725 3.707 3.690 3.674 3.659 3.646 3.551 3.460 3.373 3.291

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