Submitted to: Prof. Rakesh Joshi

Submitted by: Anil Patidar Ayush Agrawal Darshika Singh Hitesh Kalyani Vishaka Nareshwaliya


IPO: An initial public offering (IPO) is the first sale of stock by a formerly private
company. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises. Many companies that undertake an IPO also request the assistance of an Investment Banking firm acting in the capacity of an underwriter to help them correctly assess the value of their shares, that is, the share price.

OFFER DOCUMENT: Offer document means Prospectus in case of a public issue or
offer for sale and Letter of Offer in case of a rights issue which is filed with the Registrar of Companies (ROC) and Stock Exchanges (SEs). An offer document covers all the relevant information to help an investor to make his /her decisions.

DRAFT OFFER DOCUMENT: Draft Offer document' means the offer document in
draft stage. The draft offer documents are filed with SEBI, at least 21 days prior to the filing of the Offer Document with ROC/SEs. SEBI may specify changes, if any, in the draft Offer Document and the issuer or the lead merchant banker shall carry out such changes in the draft offer document before filing the Offer Document with ROC/SEs. The Draft Offer Document is available on the SEBI website for public comments for a period of 21 days from the filing of the Draft Offer Document with SEBI.

MERCHANT BANKERS: Merchant Banks undertake a number of activities such as
undertaking the issue of stocks, fund raising and management .They also provide advisory services and counsel on mergers and acquisitions etc.They are licensed by the capital market regulators.

In the primary market securities are offered to the public for subscription for the purpose of raising capital or fund. The issue of securities, shares or bonds in the primary market is subject to the fulfillment of a number of pre-issue guidelines by SEBI and compliance to various provisions of the Company Act. The primary market is classified into public issue market and private placements market. There are a no of intermediaries in the primary market such as merchant banker, issue manager, lead arranger, etc.


The Government of India enacted the SEBI Act 1992 ,on 4 April 1992 to provide for the establishment of a board, called the Securities and Exchange Board of India (abbreviated SEBI) to protect the interests of investors in securities and to promote the development of and to regulate ,the securities market and for matters connected therewith or incidental thereto .


 The Rules, Regulations and procedures relating to public issues in India are governed by the Securities and Exchange Board of India (SEBI).  Any company going public in India should get approval from SEBI before opening its IPO. Issuer Company’s lead managers submit the public issue prospectus to SEBI, provide clarification, make changes to the prospectus suggested by SEBI and get it approve.

 In simple words SEBI validate the IPO prospectus and make sure all the declaration made in this document are correct and also make sure that document has enough information to help investors to take decision before applying shares in an IPO.  Any company making a public issue of value of more than Rs 50 lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further only after getting observations from SEBI. The company has to open its issue within three months from the date of SEBI’s observation letter.

 Through public issues, SEBI has laid down eligibility norms for entities accessing the primary market. The entry norms are only for companies making a public issue IPO or FPO. The entry norms are as follows: ENTRY NORM (EN1) The Company shall meet the following requirements Net Tangible Assets of at least Rs. 3 crores for 3 full years. Distributable profits in at least three years. Net worth of at least Rs. 1 crore in three years. If change in name, at least 50% revenue for preceding 1 year should be from the new activity. The issue size does not exceed 5 times the pre- issue net worth. SEBI has provided two other alternative routes to company not satisfying any of the above conditions to provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, for accessing the primary Market. They are as under ENTRY NORM (EN2) Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs). The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years. OR ENTRY NORM 3(EN-3) The "project" is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s). The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.

Note :- The company should also satisfy the criteria of having at least 1000 prospective allotees.

SEBI does not play any role in the price fixation. An issuer company is allowed to freely price the issue .The basis of issue price is disclosed in the offer document where the issuer discloses in detail about the qualitative and quantitative factors justifying the issue price. The issuer company can mention a price band of 20 percent in the draft offer documents filed with SEBI and the actual price can be determined at a later date before filing of the final offer documents with SEBI /ROCs. IPO GRADING : IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa as below.

IPO grade 1: Poor fundamentals IPO grade 2: Below-average fundamentals IPO grade 3: Average fundamentals IPO grade 4: Above-average fundamentals IPO grade 5: Strong fundamentals

IPO grading has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO.


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