Investment is a current sacrifice {Commitment of Funds} in the anticipation of a future benefit {Rate of Return or Growth in Value} An investment is one

operation which, upon thorough analysis, promises safety of principal and an adequate return.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 2

ƒ ƒ

Physical Assets Real Estate; Bullion; Commodities; Art etc Financial Assets Bank and Post Office Deposits; Insurance; Capital Market Instruments; Derivatives, Mutual Funds, etc

Due to better literacy rates and accessibility there s a well developed equity market in India. Our topic resides there.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 3

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

4

ƒ

ƒ

ƒ

PRIMARY MARKET in equity is where the companies raise funds through Public, Rights or Preferential issues. SECONDARY MARKET is the clearing house {Stock Exchange} where the scrips of listed companies are traded. INITIAL PUBLIC OFFER {IPO} is a preliminary before getting listed in a stock exchange
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 5

ƒ

Among the Different avenues, Equity investments are forming the favorite meal to the risk appetite of many investors. But, IPOs, by their very nature, are inherently riskier than the secondary market as the companies making IPOs have no previous public record of performance. IPO investing is good primarily for boom times, on other occasions it need not meet the expectations. Fundamental Strengths matter when it comes to long term performance
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 6

ƒ

ƒ

ƒ

To put in technically simple, it·s BULLISH when the market moves up; and it·s BEARISH when the market falls« {Ceteris Paribus«i.e. Other things remaining the same««..!!!!!!!!!}
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 7

ƒ

ƒ

Listing means admission of securities of an issuer to trading privileges (dealings) on a stock exchange The prime objective of admission to dealings on the exchange is to provide liquidity and marketability to securities, as also to provide a mechanism for effective control and supervision of trading.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 8

ƒ ƒ

ƒ

Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism when the IPO is open, bids are collected from investors at various prices within a price band (i.e. A Floor Price and A Ceiling Price e.g. Rs 200 Rs 400). The offer price is determined after the bid closing date.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 9

ƒ

The 313 IPOs made during 2005 - 2009 has been taken as the universe for the study. They are assessed on the basis of 1 year price performance at Bombay Stock Exchange [BSE]. One year holding period would be exhibiting the average behaviour of the technical's and fundamentals of the scrip.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 10

ƒ

Return on the Security in % =
Where;

P1 ± P0 P0

X 100

P1 = Price at the end of holding period P0 = Price at the beginning (here, IPO price)

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

11

Equities that registered a positive rate of return over one year was ONLY 21 OUT OF 62. ƒ Equities with more than 50% return include
ƒ BOMBAY AYON 260.36 PBA INFRA 130.67 AURIONPRO OL 83.78 AMAR REMEDIES 109.64 VIVIMED LABS 138.43 IDFC 70.88 YES BANK 74.89 ALLSEC TECH 97.81 SAKSOFT 299.00 SHOPPERS STOP 122.50 GATEWAY DISTRI 180.78 {11 ut f 21)

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

12

Equities that registered a positive rate of return over one year was ONLY 33 OUT OF 87. ƒ Equities with more than 50% return include
ƒ XL ENERGY 263.03 ESS DEE 243.11 INFO EDGE 112. DCB 315.38 HANUNG OYS 73.68 USHER AGRO 284 DEEP INDUS RIES 193.19 VOL AMP RANS 286.65 ECH MAHINDRA 231.27 AN IA CONS 161 GODAWARI POER 50.99 INFO ECH RANS 99.81 GUJ S A E PE RO 70.19 EN NE WORK IND 95.46 EDUCOMP SOL 58.38 BAR RONICS 68.40 RADHA MADHAV 147.25 RAMSARUP IND 173 {18 out of 33)
13

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

Equities that registered a positive rate of return over one year was ONLY 30 OUT OF 104. ƒ Equities with more than 50% return include
ƒ
RELIGARE EN ERP 71.78 KOU ONS RE AIL 52.98 POWER GRID CORP 68.65 SEL MANUFAC URI 227.17 REFEX REFRIGERA 323.62 EVERONN EDU 251.89 ALLIED DIGI AL 125.83 SPICE COMM 58.15 ANKI ME AL 81.53 VISHAL RE AIL 92.59 BHAGWA I BANQUE 116.50 ICRA 105.09 ORBI CORPORA I 100.50 INDIAN BANK 102.47 POWER FINANCE 123.53 ACKRU I CI Y 129.38 CAMBRIDGE ECH 67.50 CAIRN INDIA 51.13 PYRAMID SAIMIRA 91.42 ANLA SOLU IONS 273.90 {20 out of 30}
14

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

ƒ

THE GLOBAL FINANCIAL TSUNAMI SHOWED ITS COLOUR ON INDIAN MARKETS TOO !!!
Equities that registered a positive rate of return over one year was ONLY 1 OUT OF 43. Equity with a positive rate return was ALKALI ME ALS 38.59%
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 15

ƒ

ƒ

STRONG FUNDAs LEAD INDIA s RECOVERY The fear is evident from the number of IPOs itself ƒ Equities that registered a positive rate of return over one year was ONLY 9 OUT OF 17. ƒ Equities with more than 50% return include
ƒ ƒ COX AND KINGS 62.45 GLOBUS SPIRI S 77.10 JINDAL CO EX 103.07 MAHINDRA HOLIDA 77.93 EDSERV SOF SYS 340.83 {5 out of 9}

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

16

ƒ

ƒ

ƒ

Out of the 62 IPOs made in 2005, only 21 (34%) have registered a positive rate of return for a one year holding period. Out of the 87 IPOs made in 2006, only 33 (38%) have registered a positive rate of return for a one year holding period. Out of the 104 IPOs made in 2007, only 30 (29%) have registered a positive rate of return for a one year holding period.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 17

ƒ

ƒ

ƒ

Out of the 43 IPOs made in 2008, only 1 (2%) have registered a positive rate of return for a one year holding period. Out of the 17 IPOs made in 2009, only 9 (53%) have registered a positive rate of return for a one year holding period. i.e. Out of the 313 IPOs made during the

Five Year period ( 005- 009), only 94 (30%) have registered a positive rate of return for a one year holding period.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 18

H0: There is no relation with the market returns and price performance of IPOs. ƒ i.e. The beta coefficient ( ) is less than 1 ƒ For testing the Null Hypothesis, a 12 month beta coefficient has been computed for the 4 top performing securities in relation to the BSE index. > 1 denotes Aggressive stocks 0 < <1 denotes moderate relation to the market < 0 denotes Defensive stocks
ƒ
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 19

EQUI Y GLOBUS SPIRITS JINDAL COTEX MAHINDRA HOLIDAYS AND RESORTS EDSERVE SOFTSYSTEMS ƒ

12 MON H BE A COEFFICIEN ( )

-1.8956 -1.60 8 -0.70 9 - 0.711

As the beta coefficients are found to be less than 1, the Null Hypothesis is accepted and conclusion derived that the IPO price performance has no relation with the market returns.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 20

BASE YOUR INVES MEN S ON HE FUNDAs ³Only buy something that you¶d be perfectly happy to hold if the market shut down for 10 years.´ ± Warren Buffett

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

21

ƒ

ƒ

The Securities and Exchange Board of India (SEBI) was the 1st regulator in the world to introduce and implement IPO GRADING as a mandatory requirement. Yet .. There is overvaluation How??
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 22

ƒ ƒ ƒ ƒ ƒ

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

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

23

ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

A. Business Prospects and Competitive Position (i) Industry Prospects (ii) Company Prospects B. Financial Position C. Management Quality D. Corporate Governance Practices E. Compliance and Litigation History F. New Projects Risks and Prospects
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 24

ƒ

ƒ

Despite of all the factors being assessed, IPO grading is done without taking into account the price at which the security is offered in the IPO. Since IPO grading does not consider the issue price, the investor needs to make an independent judgment regarding the price at which to bid for/subscribe to the shares offered through the IPO.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 25

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

26

It s far better to buy

a wonderful company at a fair price
Than

a fair company at a wonderful price.
- Warren Buffett

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

27

ƒ

As the IPO GRADES are just a formality when the promoter of a company with an Average Grade can price their issue at whatever price band, provided they are able to properly market the issue.

ƒ

We could observe that almost all of the PSU IPOs and FPOs have registered positive returns, meanwhile majority of Private Sector IPOs

registered negative rate of returns.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 28

Yet, an interesting finding is that the top performers in the IPOs are from the private sector. ƒ Hence, there are good notes and fake notes. We shall not harm the good ones, but by strengthening our evaluation and monitoring system, we could easily prevent the fake ones that overprice their issue.
ƒ
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 29

ƒ

PRIMARY MARKET should be for the accumulation of scattered savings into Capital Stock of the Economy. There shall be a proper rate of return for the individuals who put their hard earned money trusting the regulatory framework.
KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com) 30

ƒ

KM Vineeth(vineethkmenon@gmail.com), KR Shabu (shabukr@gmail.com)

31