IPO PRICING IN INDIA AND GLOBAL SCENARIO OF IPO

DISSERTATION SUBMITTED TO THE GOA UNIVERSITY IN PARTIAL FULFILLMENT OF REQUIRMENT FOR THE AWARD OF THE DEGREE OFMBA (FINANCIAL SERVICES) SEMESTER IVBYMr. SWAPNIL S. SAGLANIROLL NO. 19-2010

UNDER THE GUIDANCE OFDr. K. B. SUBHASHASSOCIATE PROFESSOR

DEPARTMENT OF COMMERCEGOA UNIVERSITYTALEIGAO- PLATEAU,GOAAPRIL 2012 CERTIFICATEThis is to certify that this project report titled IPO PRICING IN INDIA AND GLOBAL SCENARIO OF IPO is a proof by Mr. Swapnil S. Saglani himself during the period of the study, under my guidance, and to the best of my knowledge formed the basis for the award of any degree or any other similar title in the Goa University or elsewhere.

DATE: April 2012PLACE: Goa University Taleigao Goa

Dr. K. B. SUBHASH ASSOCIATE PROFESSOR

DECLARATIONI the undersigned Swapnil S. Saglani, do hereby declare that the project entitled IPO PRICING IN INDIA AND GLOBAL SCENARIO OF IPO has been composed by me towards partial fulfilment of the degree of Master of Business Administration (Financial Services) and that no part therefore has been previously formed the basis for the award of any degree or diploma or any other similar title in Goa University or elsewhere.

PLACE: Taleigao GoaDATE: April 2012COURSE: MBA (Financial Services)NAME OF THE STUDENT: Swapnil S. SaglaniROLL NO: 19-2010SIGNATURE:

ACKNOWLEDGEMENTIt gives me immense pleasure to present this project IPO PRICING IN INDIA AND GLOBAL SCENARIO OF IPO before you. I place on record my deep sense of gratitude to all those who helped me in making this project.

My Sincere Thanks to Mr. Hari K., Mr. Jhonson Joseph for allowing me to work as Intern at my dream destination National Stock Exchange.

I am grateful to Mr. Nagesh Pai without whose help this project would not be completed.

I owe a great deal of gratitude to the IPO team Mr. Prayag Vijay, Mr. Rajesh Modani and Mr. K Bhargava. It would not be possible to finish my project without them and I take this opportunity to Thank You for providing me data and sharing your Knowledge which helped to do my Project.

Further I am Thankful to Dr. Subhash K. B., Associate Professor, Department of Commerce, Goa University, for his constant guidance, encouragement and patience throughout the course of my project. I am also great thankful to Dr. Y. V Reddy, Dean and H.O.D. Department of Commerce, Goa University, for his support and encouragement to work in a positive direction.

Finally I thank my Parents and Almighty God for being with me in all my endeavours.

INDEXChapter No.Chapter NamePage No.

ONEINTRODUCTION1

1.1Meaning , Scope & Importance1

1.2Purpose1

1.3Objectives2

1.4Methodology 2

1.5Literature Review 4

TWOIPO PRICING IN INDIA13

2.1Introduction13

2.2Fixed Price14

2.3Book Building15

2.4Risk Associated with IPO Pricing18

2.5Pricing Overview19

2.6Valuation of IPO20

THREEGLOBAL IPO MARKETS21

3.1Introduction21

3.22011 Asian IPO outlook21

3.32011 Americans IPO outlook22

3.42011 European IPO outlook22

FOUROUTLOOK OF DIFFERENT STOCK EXCHANGE27

4.1Introduction27

4.2China28

4.3India30

4.4Japan31

4.5United States31

4.6Brazil33

4.7Europe33

4.8Middle East and Africa35

FIVEANALYSIS OF PRE & POST IPO PRICING36

5.1IPO trend 2004-201138

5.2Before & After39

5.3The Study (case studies of 12 companies)40

5.4Pre-IPO Analysis40

5.5Financial Analysis45

5.6Pre-IPO Sector Wise Analysis46

5.7Post-IPO Analysis56

5.8Post-IPO Sector wise Analysis57

SIXSUMMERY, FINDINGS AND CONCLUSION70

6.1Summery70

6.2Findings71

6.3Conclusion81

References83

TABLES & CHARTSTable No.ParticularsPage No.

2.1Working of Book Building16

2.2Inflow of funds in different categories17

2.3Steps Involved in Book Building Process18

2.4Pricing process19

2.5Time-line for the IPO Pricing Process20

2.6Valuation Method for IPOs20

3.1Global IPOs by number of deals and capital raised23

3.22009 and 2010 global IPOs by region24

3.3Top 10 Domicile Countries by number of deals25

3.4Top 10 Domicile Countries by Capital raised26

3.52010 global IPOs by industry26

4.1Top 10 Stock Exchange by number of deals28

4.2Top 10 Stock Exchange by Capital raised28

4.3Greater China IPOs by year29

4.4Indian IPO activity by year 2004-201030

4.5Japan IPO activity by year31

4.6US IPO activity by year32

4.7Brazil IPO activity by year33

4.8Europe IPO activity by year34

4.9Middle East and Africa IPO activity by year35

5.1IPO DATA OF INDIAN STOCK MARKET37

5.2NIFTY MARKET ACTIVITY 2004-201138

5.3NSE IPO Activity 2004-201139

5.4Table showing the companies which will be analysed41

5.5Date of Filling of DRHP42

5.6Merchant bankers Involved in sample issues43

5.7List of IPO's handled by selected Lead Manager Ashika Capitals Limited44

5.8List of IPO's handled by selected Lead Manager Citigroup Global Markets India Pvt Ltd.44

5.9Table showing summery of Pre-IPO details of the issues45

5.10CNX Pharma Closing 2004-201147

5.11CNX Energy Close 2004-201149

5.12CNX IT Close 2004-201151

5.13CNX Reality Close 2004-201154

5.14Top 10 oversubscription during the period of 2004-201157

5.15Dishman trend at NSE from the Listing date 24.April.04-30.Dec.1158

5.16Brooks trend at NSE from the Listing date 05.Se.11-30.Dec.1159

5.17Table showing the details of Post IPO of Pharma Sector59

5.18Cairn India trend at NSE from the Listing date 09.Jan.07-30.Dec.1160

5.19Oil India trend at NSE from the Listing date 30.Sep.09-30.Dec.1161

5.20Table Showing Details of POST-IPO of Energy/Oil Sector61

5.21TCS trend at NSE from the Listing date 25.Aug.04-30.Dec.1162

5.223i Infotech trend at NSE from the Listing date 25.April.05-30.Dec.1163

5.23Table showing details of POST IPO of IT Sector63

5.24Rpower trend at NSE from the Listing date 11.Feb.08-30.Dec.1164

5.25NHPC trend at NSE from the Listing date 01.Sep.09-30.Dec.1165

5.26Table Showing details of POST-IPO of Power Sector65

5.27Punj Lloyd trend at NSE from the Listing date 06.Jan.06-30.Dec.1166

5.28Ramky Infra trend at NSE from the Listing date 08.Oct.10-30.Dec.1167

5.29Table showing details of POST-IPO of Reality Sector67

5.30Adhunik Metaliks trend at NSE from Listing date 05.April.06-30.Dec.1168

5.31Vaswani trend at NSE from the Listing date 24.Oct.11-30.Dec.1169

5.32Table showing details of Post IPO of Steel Sector69

6.1Chart Showing the No, of Listed Companies at NSE 1995-201170

6.2Table showing the funds inflow at NSE 201171

6.3Global IPO Activity: Distribution of IPOs by World region (by no. deals)72

6.4Q211 Global IPO Activity: Distribution of IPOs by World region (by no. deals)72

6.5Global number of IPOs by Price range74

6.62010 top 20 global IPOs by capital raised75

6.7Table showing No. of IPOs in Positive & Negative on list day76

6.8Inflow of Funds 2004-201176

6.9TOP 10 Companies with Issue Size from 2004-201177

6.10Chart Showing the Return on Stocks on the first day listing 2004-201177

6.11Top 10 IPO Gainers for the period of 2004-201178

6.12Top 10 IPO Losers for the period of 2004-201178

6.13PRE IPO CONCLUSION79

6.14POST- IPO CONCLUSION80

CHAPTER ONE: INTRODUCTIONIn 2011, global IPO markets continue to recover and gain momentum. Global Investors seeking to capitalize on the emerging markets growth story have been fuelling stock market rallies and new listings world-wide. The lack of exit routes, shortage of capital-raising opportunities and numerous IPO postponements since 2007 has led to a growing IPO pipeline worldwide. Many key drivers of 2011 global IPO markets reflect a continuation of 2010s key trends including emerging markets growth, state privatizations, multinational company spin-offs, and fast-growth companies in the energy, industrial, materials and technology sectors.

1.1- MEANING, SCOPE AND IMPORTANCE: The Present Study shows the Global trend of IPO Industry around the Globe. The study also intends to examine the price performance of the Indian IPOs listed on National Stock Exchange (NSE), using a sample of IPOs that tapped the NSE market during 2004-2011 by taking in consideration of their prices. The short run as well as long run analysis of their price performance have been done by taking the gap of time intervals of 10, 20 & 30 days and also know its current value of share as on 30th December 2011. Study shows a difference between Indian Stock Exchange and other exchanges around the globe. In addition to that an analysis has also been conducted to know the influence of the factors viz. subscription level, Issue size, Listing Lead time and Age, on the price performance of the IPOs. The study shows that under pricing is present in the Indian Capital market. Also, under pricing is more prevalent in the short run than in the long run. The study further shows that IPOs come to their intrinsic value over a period of time. The regulatory framework of IPOs with special reference to SEBI guidelines has also been done.

An Initial Public Offering (IPO) is the sale of a companys stock to the public for the first time. The primary impetus for an IPO is generally either to raise capital or to offer an exit strategy to some of the firms existing owners, but a number of other motivations and considerations also influence a firms decision to go public. This decision process illuminates a firms goals in issuing an IPO, which are important to evaluate the potential reasons for the under pricing we observe.

1.2- PURPOSE: For years Banks and Financial Institutions were main players of resource mobilization, for savings and allocation in Indian Economy. Due to pressure of globalisation and slow growth of economy the process of economic liberalisation and deregulation was initiated in the year 1980, but gained momentum from 1992. It resulted into expansion and growth of Indian Capital Market both at primary and secondary segments level. There was a clear shift away from banks and other financial institutions towards equity participation. It was an entirely new experience for general public to invest their savings in new equities and was an opportunity for entrepreneurs as well as bunglers/ squanders to mobilize resources for their new ventures. Present paper is concerned with pre & post listing pricing behaviour of some of the equities listed on National Stock Exchange.

1.3- OBJECTIVES: To Understand the Prospective Growth in Primary market and also know the Trend of IPO Worldwide. The study also tries to understand the frame work of IPO in India and other exchanges around the Globe. In the present investigation it have been attempted to discover in valuation of an Issue Price and trends of returns, both short term and long term on the sampled IPOs listed on Indias prime stock exchange .i.e. National Stock Exchanges. To evaluate IPO Performance of Stocks with its Opening price with its preceding Closings. To analyze the effect of IPO during the two time window i.e. Pre & Post IPO.

1.4- METHODOLOGY: The study is based on the secondary data. Secondary data has been collected from the National Stock Exchange of India, SEBI, CapitalLine etc. The Period of Data is from 2004-2011 with the sample size of 364 companies. The tool and Technique will be used on the grounds of regression and co-relation to know the short term under pricing of the stocks of the companies which came up with an IPO over the years. The study will also calculate the Mean, Standard deviation & Beta to know its Systematic Risk and also understand its Mean Value of scrips

The initial return on IPOs has been computed as the difference between the closing price on the first day of trading and the offer price, divided by the offer price

Where R_Ret. = subscribers initial return (hereafter raw return)P1 = closing price on the first day of tradingPo = Offer price

The return measured by Equation (i) would be valid in a perfect market, where there is no time gap between the application closing date and the first day of trading, no opportunity cost of money deposited with the application (or demand for shares does not exceed the supply of shares and hence no rationing takes place), and no other costs associated with lodging an application. If the first condition is not fulfilled, returns should be adjusted for changes in market conditions during this period. In most cases the gap between the application closing date and the first day of trading would be very small and is likely to have a negligible effect.

But, in India this gap is quite long. During this period, a major change could occur in market conditions and the observed premium (discount) measured by equation (i) could be caused by a change in market conditions rather than initial mispricing. Therefore, the raw return estimated by equation (1) has been adjusted for market return.

Where MAER = Market adjusted excess returnM1 = Closing value of Market Index on the first trading dayMo = Closing value of Market Index on the offer closing date.

Since for different companies, the time taken to list varies, so to normalize for this, annualized returns will be calculated by multiplying Raw and MAER by the following factor.

The returns for the different time period gaps considered is calculated by taking closing prices of the given stock after the specified time gap (i.e 10, 20 & 30 days) from the listing day. So the formula used in equation (i) is adjusted as follows:

Where R_Ret.t = raw return of the stock at time t after listing dayPt = closing price at time tPo = closing price on Listing day

Similarly, the market adjusted excess returns are calculated for the given time periods, by using the following formula

Where MAER = Market adjusted excess return at the end of time period tMt = Closing value of the index at time period tMo = Closing value of the index on Listing dayThe average of R_Rett values, for all securities gives the return on dayst for the sample.1.5- LITERATURE REVIEW: Over the years many authors have analysed and done study on IPO Under pricing and also have done the research over the Global Outlook of the IPO. Various Methodologies have been adopted inorder to come to a conclusion. Since first documented by Ibbotson in1975, initial public offering (IPO) underpricing, has been investigated for decades and continues to puzzle financial researchers around the world. According to Ritter (2006), the average underpricing in Chinese stock market is as high as 256.9% from 1990 to 2000 which is still much higher than other developing markets, such as Malaysia (104.1%), and Brazil (78.5%) around the same period.As bookbuilding method gradually takes the place of pro rata allocation method in many markets, a hypothesis has been put forward based on the asymmetric information between investment banker and investors (Benveniste & spindt, 1989). Loughran and Ritter (2002) employed the theory to explain that the issuers are excited with the wealths mounting up induced by the ample price jump on the first trading day.Mok and Hui (1998) found an average marketadjusted IPOs underpricing of 289% (the initial return is 362.3%) by employing a sample of 87 IPOs from December 19, 1990 to December 31, 1993. They attributed the principal determinants to the high percentage of nonnegotiable stocks, the long time lag between offering and listing (average over 200 days) and exante uncertainty of new issuers value. Institutional theories hold that underpricing is a way for lawsuit avoidance, price stabilization or tax advantage. Control theories believe that higher underpricing is helpful to attract excess demands which results in a greater ownership dispersion (Brennan & Frank, 1997). Behavioural theories, which are characterized by informational cascade and prospect theory, are based on the existence of irrational investor and issuer under behavioural biases. Informational cascade (Welch, 1992), in other words, bandwagon effects, argues that investors rely more on other investors action than their own information when making a decision, the market demands always present two extremenesses, oversubscribed and undersubscribed. Loughran and Ritter (2002) employed the theory to explain that the issuers are excited with the wealths mounting up induced by the ample price jump on the first trading day. Most of earlier studies glue their eyes to the theories based on asymmetric information while more and more researchers begin to pay their attentions on policies, regulations and overpriced secondary market. Compared to other markets, the extremely higher IPO underpricing cant be well clarified by ignoring Chinese specific characters arisen from the unique economic system. Blum (1973) examined the issues of relative performance of the over-the-counter market with the initial common stock offerings, underpricing, and the risk involved thereof. The total period had been covered by the study w.e.f Jan 19, 1965 to June 30, 1970 with a random sample of 400 initial common stock offerings. The market returns and risks associated with these 400 issues have been calculated for 16 time periods, ranging from one week to one year after the offering date. The study conducted so far suggests that the investment bankers have either underpriced or pushed in the after-market those IPOs in which they held greatest financial interest.Ritter (1984) analysed the hot issue market of 1980 by considering 1028 issues in 1977-82 period in the U.S. The study calculated the initial percentage returns that were not adjusted for market movements. For each month in the period January 1977 to December 1982, an equally weighted average initial return was calculated by taking the simple arithmetic average of the initial returns of all unseasoned new issues having offering dates in that calendar month. For the 1960-76 periods, a monthly time series of the number of issues and average initial returns has been collected, allowing an analysis of the time series behaviour of initial public offerings for the 23 years period i.e. for the 1960-82. The results of the study depict that there has been 3 or 4 periods during 1960-82 in which monthly average initial returns on unseasoned new issues has been extremely high for prolonged periods. During the hot issue market of 1980, for 15-month period the initial return is 48.4%, as compared to with the average initial return in the period 16.3% of 1977-82 periods, the cold issue market. The study also presents a theoretical framework which explains the phenomenon of underpricing i.e. Rocks theory of underpricing of Initial Public Offerings.Mauer and Senbet (1992) analysed the role of secondary market in pricing and underpricing of IPOs. The study considered 1002 IPOs during the period 1977- 1984. IPOs are above $ 1.5 million, underwritten and subsequently traded on NASDAQ, AMEX or NYSE. The analysis is done with the use of Pearson correlation coefficients calculated between initial returns, Dimon Beta, Residual risk, Offering size, age and time of offering. They had argued that incomplete spanning of the primary issues in the secondary market and limited investors access play an important role in the pricing of IPOs. The results derives price differential between primary and secondary market which are consistent with IPO underpricing.The study reveals that the IPO initial returns are positively related to IPO residual risk, negatively related to offering size and company age, and are not related to systematic or beta risk.

Jegadeesh, et al. (1993) had tested the signaling model of underpricing. The sample period is from 1980 to1986. The study has included all IPOs of the given sample period but it has considered only firm commitment IPOs and has excluded the best effort offerings. The results of the study show that there is a positive relation between IPO underpricing and the probability and size of subsequent seasoned offering. But contrary to the basic implication of the signaling hypothesis, the evidence shows that issuers do not have to rely on the costly underpricing mechanism to signal to the market information relevant for future equity issues. Therefore the support for the signaling hypothesis as a major determinant of IPO underpricing is weak.

Shah (1995) has analysed the stylized empirical regularities about Indias IPO market, via dataset of 2056, IPOs between time periods of 1991-1995. The present researcher has used time series regression analysis. The empirical findings of the research study highlight that the price at first listing was 105.6% above the offer price on an average. Secondly, listing delay affects the IPO underpricing and is strongly related with the issue size. And finally, Underpricing gently increases with offer price. But the shortcoming of the study is that stock market return may also affect the very IPO planning process via longer lags but the sample period runs too short to identify this.

Madhusoodanan and Thiripalraju (1997) analyze the Indian IPO market for the short term as well as long term underpricing. They also examine the impact of the issue size on the extent of underpricing in these offerings and the performance of the merchant bankers in pricing these issues. The study indicates that, in general, the underpricing in the Indian IPOs in the short run is higher than the experiences of other countries. In the long-run too, Indian offerings have given high returns compared to negative returns reported from other countries. The study also reveals that none of the merchant bankers showed any better pricing capabilities.

Chen, et al. (2000) investigates the post-issue market performance of 277 A-share and 65 B-share IPOs listed on Chinas new stock market during the period 1992-1995. The results highlight that A-share IPOs are more severely underpriced than B-share IPOs during initial return period; and B-share IPOs underperform for post three years period in the market. It is found that on an average both gross proceeds and pre-IPO book value of equity is greater for B-share IPOs than for A-share IPOs. All the returns data used in this study were adjusted for stock splits, stock dividends and rights offerings. They have bifurcated the study into two parts for evaluating the aftermarket performance of IPOs, which are (1) the initial returns, for the period of offering date to the Its trading date (2) the aftermarket period return, for one, two and three years after IPOs. The performance measures used were: - (1) the Initial Returns (2) Market adjusted Buy and Hold Return, (3) the wealth relative. Multivariate regression analysis was used to examine cross-sectional determinants of the aftermarket performance of Chinas IPOs, the results showed that long run performance of IPOs was inversely related to initial returns.The results showed that the initial returns on A-shares are extremely high and exceeded those reported in other countries. The sample being taken thereof shows that the aftermarket performance is positive in first year after listing but thereafter returns declines. The results of multivariate regression analyses have showed that economic factors affected the IPO underpricing.

Lowry and Schwert (2000) analyzed the aggregate IPO market activity and also have examined the initial returns at the firm level. The research also studies strong cycles in the number of IPOs by calculating the average initial returns realized by investors from 1960 to 1997.The statistical measures being used in the study are mean, median, standard deviation and auto-correlations. The results show that IPOs cycles occurs and has subsequent effect on returns and underperformance. The study also shows that clustering of IPOs happens in the market and is also associated with predictably different initial returns. And also the information about the value of an IPO which is being available during registration period has an effect on the prices and offering decisions of other firms.

Gompers and Lerner (2001) analyzed the performance of nearly 3661 IPOs in the United States from 1935 to 1975 for 5 years. The study considers a Pre-NASDAQ period. The results display the evidence of underperformance when event time buy and hold abnormal returns are used. However the underperformance disappears when cumulative abnormal returns are used. The study also indicates that the initial returns of recent IPOs contained information on the markets valuation of future IPOs.

Ritter and Welch (2002) examined three main aspects i.e. why firms go public, why they reward first day investors with considerable underpricing and how IPOs perform in the long-run. The study explains the Life cycle theories and Market timing theories. This study presents both theoretical and empirical evidence for short run and long run underperformance of IPOs and shows that the underpricing is sensitive to methodology and to the time period being chosen. Second, Fama-French Multifactor regressions could produce odd results.

Krishnamurti (2002) provides an evidence for the wide spread underpricing of Indian IPOs by analysing386 IPOs in post liberalizing era, from the period July 1992 to Dec 1994.The empirical evidence confirms the underpricing phenomenon in Indian Market by using Raw returns, Market Adjusted Returns. It also analyzed the factors responsible for pervasive and persistent occurrence of underpricing in the IPO market.The researcher briefly describes the status of investment banking industry in India and has also outlined the regulations and procedures involved in the new issue process in India. The researcher has pointed out that the top and established lead managers in the industry manages approximately 56% of the issues and thus he tried to convey that the market is being held by the top merchant bankers and they enjoy the lions share in the market by analyzing the overview of the investment banking industry.

The research findings, after empirical analysis, highlight that underpricing comes down with increasing offer prices and believed that the offer is the proxy for the size of the firm. Secondly smaller firms are more risky because there exists a greater degree of information asymmetry between insiders of the firm and outside investors. (A main reason considered for underpricing)

The initial listing returns of IPOs are related to subscription levels and raw returns. Market adjusted returns are strongly related with subscription levels. Underpricing is due to the merchant bankers inability the extent of demand for the issue at the offer price. Large time lags between setting up of the offer price and the offer opening date cause underpricing. In India, the lag period is typically three to four months long. Adverse market movements during the time lag may create miss-pricing.

Singh (2003) has reported that the internationally observable phenomenon of IPO market is characterized by pervasive underpricing in the short run and underperformance in the long run. Indian investors get very high returns up to a period of six months and thereafter the returns declines. The long-term investors, who continue to hold their investments for a period of twothree years, experiences negative returns.

Pastor and Veronesi (2003) analyzed IPOs from the period Jan 1960 to Dec 2002 and observed 16 IPO waves and used regression analysis for analyzing IPO performance. The researchers have used Market Returns (MKT), Market Volatility (MVOL), and Aggregate M/B ratio and time series analysis. The study presents a theoretical framework on different aspects such as IPO waves, Optimal IPO timing, and IPO valuations. Empirical evidence shows that the results are inconsistent with the long run underperformance of IPOs.

Vaidayanathan (2007) studies the price performance of IPOs in the NSE. The study suggests that the demand generated for an issue during book building and the listing delay positively impact the first day under pricing whereas the effect of money spent on the marketing of theIPO is insignificant.

The study considers the data from March 2004 to Oct 2006 and takes into account 55 companies for analysis. The researcher has verified that the demand generated for an issue during book building and the listing delay positively impact the first day underpricing whereas the effect of money spent on the marketing of the IPO is insignificant. The researcher has found that the degree of underpricing in the sample is varying from -33.04% to 82.5% with a mean value of 22.62%. There are only 27.27% which got listed at a discount to their offer price (i.e. overpricing of issues), whereas 72.73% firms showed underpricing phenomenon.

The present researcher has also thrown light on the fact that the average underpricing has gone down up to 22.62% during the period in context, as compared to 105.6% (reported by Shah, 1995) during the period 1991 to 1995. This is due to change in regulation whereby the allocations to informed investors are allowed, which makes the market more efficient. The important limitation of the study is that due to non availability of one size fits all model for studying IPO underpricing phenomenon, the present study can give contradictory results with the other studies. Secondly, the time horizon taken is considered short by the researcher.

Kumar (2007) has analysed the long run as well as short run price performance with respect to the book building process in India and has verified the presence of underpricing phenomenon in Indian IPOs up to the time span of twenty four months from the date of listing.

The study examines 156 firms (which issued their IPOs through book building route on the NSE) over the period of 1999 to May 2007. The researcher has used the analysed the short run performance by applying the simple returns and market adjusted returns to capture the market movements during the period between the offer closures to listing. The long run performance analysis is done by studying the buy and hold adjusted returns (BHAR) and monthly market adjusted returns (MMAR) at regular monthly intervals from the second day of their listing. The index Nifty has been used for calculating the market adjustments.

The empirical evidence shows that 156 IPOs sampled in this paper on an average IPOs got listed with 26.35% premium over the offer price and the median premium of around 18%. The researcher has applied a regression technique which shows that the offer to open returns explain the variation in offer to close returns to an extent of 80%. Also cross sectional regression is used in this study with initial returns (dependent variable) and size, before market condition, offer price quotient to explain underpricing (independent variable). The results suggest that the larger the issue price, the lesser is the underpricing. If the general market conditions are optimistic, the issue attracts more investors thus leading to higher premium in returns.

The empirical research of long run analysis shows that the IPOs give better performance up to two years but after that they start underperforming and a comparison with international evidence shows the aftermarket performance over three years period is -14.69%. An important finding of the paper is that with the introduction of book building process in India the extent of IPO underpricing has gone down. The researcher has also thrown light on the limitation of the study that is the size of the sample is found small for the studying the impact of underpricing beyond the time frame of 24 months.

Janakiramanan (2007) has examined the evidence of the long run underperformance in the Indian market using the data set of firms over the period of 2000-02, by using CAPM and three factor models as benchmarks. The researcher has taken a sample of 116 companies from various industries. The sample of the study consists of 116 IPOs issued by companies in the Indian market during the period from 2000 to2001. The aftermarket performance is taken for five years.

The researcher has used total return, market adjusted abnormal return for short run as well as for long run. The study employs the basic capital asset pricing model (CAPM), the Fama and French three factor model and the average return model. The results for the three factor model imply a greater positive return as compared to the CAPM in the long run. The results depict that the three factor model may be better suited for explaining long-run underperformance. The long term performance of these companies shows that investment in Indian IPOs provides positive abnormal return by the end of 60 days. The abnormal return is greater for investment in smaller companies to investment in larger companies.

Khurshed, et al. (2008) has examined the timing and subscription pattern of different groups of investors viz. retail investors, QIBs, NIIs. Authors have divided the study into two parts, the Pre-listing period and Post-listing period underpricing. The sample period for the study is March 1999 to March 2008 and the sample size is 239 IPOs. The authors have used descriptive analysis, correlation techniques and multivariate regression. The results indicate that subscription level of non-institutional investors and retail investors is significantly influenced by the subscription pattern of qualified institutional buyers. Moreover, the findings show that the transparency of the book-building process in Indian IPOs helps to nullify the winners curse problem for the non-institutional and retail investors.

Singh and Kumar (2008) have analysed short and long run underpricing of IPOs in the Indian Capital markets by looking at different factors affecting them. The study proposed a model of underpricing taking oversubscription variables along with age and issue size. They have performed industry wise analysis from the time period of Jan. 2006 to Oct.2006 by taking 116 IPOs. The study shows that Indian Capital markets are found to follow industry specific waves. The sectors which are performing well are more underpriced in short run as well as perform well in long run.

Limitations: Due to lack of time, each security will be not examined with respects to its Valuation over the book value. Unavailable Insider Information which could have an impact over the conclusion of under pricing. Un-uniform method of Calculating Pre IPO Price (Price Band), as for each company, Merchant Banker uses different Valuation Method. The volatility and the changing market conditions, which do have an impact on theprices of the shares and thus the returns generated thereof, could not be avoided. The other limitation of this study was the shortage of time for completing such a vasttopic, due to which the sample of limited companies on NSE has been taken.

CHAPTER TWO: IPO PRICING IN INDIA2.1 - INTRODUCTION:-The pricing of Initial Public Offerings (IPOs) is one of the more puzzling phenomena in finance. Initial Public offer (IPO) is a process through which an unlisted Company can be listed to a Stock exchange by offering its securities to the public. The object of an IPO may depend upon Company to Company. It may be for expansion of existing activities of the Company or setting up of new projects or just to get its existing equity shares listed by diluting the stake of existing equity shareholders through offer for sale or any other object as may be specified by the Company in its offer document. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. Company raising money through IPO is also called as company going public'.Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price. There are two types of issues, one where company and Lead Merchant Banker fix a price (called fixed price) and other, where the company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process).

TYPE OF ISSUE

BOOK BUILIDNGFIXED PRICE

IPO Pricing in India is done on the grounds of Book value of the firm and it is decided by a Merchant Banker appointed by the issued company and a Due Diligence is conducted. However over the period of years there is a no reliable of the said price been decided by the company and merchant banker. Its on each individual investors discretion to do it on set of valuation and decide to invest or not. There is a Price Band being decided, the lower range and higher range. And accordingly the company has to quote this method is in terms of Book Building process.

PARTIES INVOLVED IN IPO PROCESS

2.2 FIXED PRICE:In Fixed price the company with help of Merchant Banker decides directly without giving an opportunity to investor to quote. In case of such issue the price is pre decided on the basis of Fair Book Value divided by Number of Equity Shares. In India mostly company plays a fair role and hence it opts of Book Building for valuation and allowing the public to participate. In Fixed Price its a compulsory for an investor to apply shares at a specific price, in such case if there is over subscription the allotment is done by adopting different methods viz: First Come First Basis, picking up lots, as per quantity, or any other method mentioned by company in its Prospectus.

The traditional fixed price method of tapping individual investors suffered from two defects: (a) delays in the IPO process and (b) under-pricing of issue. In fixed price method, public offers do not have any flexibility in terms of price as well as number of issues. From experience it can be stated that a majority of the public issues coming through the fixed price method are either under-priced or over-priced. Individual investors (i.e. retail investors), as such, are unable to distinguish good issues from bad one. This is because the issuer Company and the merchant banker as lead manager do not have the exact idea on the fixed pricing of public issues. Thus it is required to find out a new mechanism for fair price discovery and to help the least informed investors. Thats why, Book Building mechanism, a new process of price discovery, has been introduced to overcome this limitation and determine issue price effectively.

Public offers in fixed price method involve a pre issue cost of 2-3% and carry the risk of failure if it does not receive 90% of the total subscription. Institutional investors normally are not interested to participate in fixed price public issues due to uncertainty of allotment and lack of opportunity cost.2.3 BOOK BUILDING:To keep pace with the globalisation and liberalization process, the government of India was very keen to bring the capital market in line with international practices through gradual deregulation of the economy. It led to liberalisation of capital market in the country with more expectations from primary market to meet the growing needs for funds for investment in trade and industry. Therefore, there was a vital need to strengthen the capital market which, it felt, could only be achieved through structural modifications, introducing new mechanism and instruments, and by taking steps for safeguarding the interest of the investors through more disclosures and transparency.

As such, an important mechanism named as Book building in the system of initial public offerings (IPOs) was recognised by SEBI in India after having the recommendations of the committee under the chairmanship of Y. H. Malegam in October, 1995. SEBI guidelines recognised book building as an alternative mechanism of pricing. Under this approach, a portion of the issue is reserved for institutional and corporate investors.

Book building acts as scientific method through which a consensus price of IPOs may be determined on the basis of feedback received from most informed investors who are institutional and corporate investors like, UTI, LICI, GICI, FIIs, SFCI etc. The method helps to make a correct evaluation of a companys potential and the price of its shares. In Book Building the price is determined on the basis of demand received or at price above or equal to the floor price whereas in fixed price option the price of issues is fixed first and then the securities are offered to the investors. In case of Book Building process book is built by Book Runner Lead Manager (BRLM) to know the every-day demand whereas in case of fixed price of public issues, the demand is known at the close of the issue.

Working of Book Building:The main parties who are directly associated with book building process are the issuer company, the Book Runner Lead Manager (BRLM) and the syndicate members. The Book Runner Lead Manager (i.e. merchant banker) and the syndicate members who are the intermediaries are both eligible to act as underwriters.

Issuer

Stock ExchangeLead Manager/ Registrar

SEBI

INVESTORS

Retail InvestorQIBsHNINRIFIIMF2.1 - Working of Book BuildingThe steps which are usually followed in the book building process can be summarised below:1. The issuer company proposing an IPO appoints a lead merchant banker as a BRLM.2. Initially, the issuer company consults with the BRLM in drawing up a draft prospectus (i.e. offer document) which does not mention the price of the issues, but includes other details about the size of the issue, past history of the company, and a price band. The securities available to the public are separately identified as net offer to the public.3. The draft prospectus is filed with SEBI which gives it a legal standing.4. A definite period is fixed as the bid period and BRLM conducts awareness campaigns like advertisement, road shows etc.5. The BRLM appoints a syndicate member, a SEBI registered intermediary to underwrite the issues to the extent of net offer to the public.6. The BRLM is entitled to remuneration for conducting the Book Building process.7. The copy of the draft prospectus may be circulated by the BRLM to the institutional investors as well as to the syndicate members.8. The syndicate members create demand and ask each investor for the number of shares and the offer price.9. The BRLM receives the feedback about the investors bids through syndicate members.10. The prospective investors may revise their bids at any time during the bid period.11. The BRLM on receipts of the feedback from the syndicate members about the bid price and the quantity of shares applied has to build up an order book showing the demand for the shares of the company at various prices. The syndicate members must also maintain a record book for orders received from institutional investors for subscribing to the issue out of the placement portion.12. On receipts of the above information, the BRLM and the issuer company determine the issue price. This is known as the market-clearing price.13. The BRLM then closes the book in consultation with the issuer company and determine the issue size of (a) placement portion and (b) public offer portion.14. Once the final price is determined, the allocation of securities should be made by the BRLM based on prior commitment, investors quality, price aggression, earliness of bids etc. The bid of an institutional bidder, even if he has paid full amount may be rejected without being assigned any reason as the Book Building portion of institutional investors is left entirely at the discretion of the issuer company and the BRLM.15. The Final prospectus is filed with the registrar of companies within 2 days of determination of issue price and receipts of acknowledgement card from SEBI.16. Two different accounts for collection of application money, one for the private placement portion and the other for the public subscription should be opened by the issuer company.17. The placement portion is closed a day before the opening of the public issue through fixed price method. The BRLM is required to have the application forms along with the application money from the institutional buyers and the underwriters to the private placement portion.18. The allotment for the private placement portion shall be made on the 2nd day from the closure of the issue and the private placement portion is ready to be listed.19. The allotment and listing of issues under the public portion (i.e. fixed price portion) must be as per the existing statutory requirements.20. Finally, the SEBI has the right to inspect such records and books which are maintained by the BRLM and other intermediaries involved in the Book Building process.Table 2.2: Inflow of Funds in different categoriesCompanyIssue SizeSubscribedQIBNIIRII

Tecpro Systems Ltd267.9120.26135.001.71063.8283

Va Tech Wabag Ltd472.597.611310.0036.1266100.9835

L&T Finance Holdings Ltd1245.005.3459.001.92536.1844

Persistent Systems Ltd168.0192.91310.00144.4276107.7328

Coal India Ltd15199.4415.20245.0024.695925.4014

Source: Capital Line & internal source at NSE

2.3 -Steps Involved in Book Building Process

2.4- RISK ASSOCIATED WITH IPO PRICING: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.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

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.2.5- PRCINING OVERVIEW:Once the intended pricing date has been determined, investors are informed of the day and time on which the book will be closed (i.e., the deadline for submitting indications of interest) Once the book has been closed, the lead manager, in consultation with the co-managers, reviews the book of demand in order to assess:- Strength of demand- Price sensitivity- Investors allocation expectations- Likelihood of aftermarket buying/selling

At the time of pricing, the lead manager reviews the book with the Issuer and recommends an offering price which, in his judgement, will maximize the offering proceeds to the Issuer consistent with a favourable aftermarket performance. Once the Issuer and the managers have agreed on an offering price, the underwriting agreement and the inter syndicate agreements are signed

Book: -Size, Quality, Price Sensitivity & Likely After Market Demand

Agreement on Price/Size

Allocations to InvestorsAnalysisExternal Factor: -Stock Price Level, Market in general, Industry, Comparables & New issues

2.4 Pricing process

2.6- VALUATION OF IPO:For anyone involved in the field of corporate finance, understanding the mechanism of company valuation is very important not only because of valuation of mergers and acquisitions, in choosing investment for a portfolio, in deciding on the appropriate price to pay or receive in takeover, but also in restructuring the corporation. The process of determining the present value of a company is called valuations.It becomes a difficult task to decide a fair value of a companys equity value, hence there is whole inspection throughout its life, at each stage one can evaluate the performance of the company, before it comes to public one can check its books of accounts and decide on the basis of Growth Rate of the company or Return on Equity. Once the company is listed on exchange since the data is readily available on can focus on its Industry P/E or its EPS.

We further divide the valuation of an IPO or Examine of the company in two major portions PRE_IPO & POST_IPO. We can draw a Time Line for the IPO Pricing.

IRP2.5 -Time-line for the IPO Pricing Process (P: Price Update, IR: Initial Return)As per this time line window one can value company or know its actual equity value through PRE & POST IPO. In case of Pre-IPO one can use Discounted Cash Flow method which is most commonly used. And in case of Post IPO the actual stock price with subtracting its Offer price one would know its actual return whether its Under Priced or Over Priced .

2.6-Valuation Method for IPOs:1- Dividend Discount Model

2- Discounting Cash Flow Based Model

3- Balance Sheet Based Model

4- Income Statement Based Model

5- Valuation Using Multiples

6- Value Creation Methods

7- Option Pricing Methods

CHAPTER THREE: GLOBAL IPO MARKETS3.1 INTRODUCTION:Global IPO markets continue to make a robust recovery in 2011. Global investors seeking to capitalize on the emerging markets growth story have been fuelling stock market rallies and new listings world-wide. The shortage of exit routes, lack of capital-raising and numerous listing postponements since the financial crisis in 2007 have created a growing IPO pipeline worldwide. Even so, the current upward trajectory of global IPO markets in 2011 may not necessarily be smooth as global macroeconomic risks such as the sovereign debt crisis could yield market volatility. However, barring another unforeseeable crisis, 2011 global IPO markets are expected to be even more dynamic than in 2010.

Many key drivers of 2011 global IPO markets reflect many of last years top themes including emerging markets growth, state privatizations, multinational company spin-offs, and companies in the energy, industrial, materials and technology sectors. Secondary market momentum is also expected to continue as companies ramp up their capitalization to record levels, particularly to support future acquisitions. Reflecting growing investor confidence around equity valuations and sharpened risk appetites, IPOs are expected in an even greater variety of sectors and geographies.

3.2 - 2011 Asian IPO outlook:Greater China: In 2011, Greater China looks set to maintain its five-year-long leadership of global IPO markets. Although growing inflation and the absence of jumbo IPOs may moderate Chinese IPO volumes, Hong Kong, the most active exchange in 2010, is expected to remain the world leader and raise over US$50 billion in 2011. More large non-Asian companies, especially in the natural resources sector, are also expected to list in Hong Kong. Financial, consumer products, industrials and resources listings will be most prevalent in Hong Kong and Shanghai.

India: Propelled by Indias 8% GDP growth rate and healthy corporate earnings and prospects, Indias IPO markets will continue their dramatic recovery. More than 100 companies are expected to pursue IPOs and follow-on offerings, spurred by the countrys US$10 billion Government privatization program and its massive US$1 trillion infrastructure investment plan.

3.3 - 2011 Americas IPO outlook:US: At the end of February 2011, the growing US backlog contained about 150 companies slated to raise around US$40 billion. The pipeline includes private equity (PE) and venture capital (VC) backed companies, fast-growth companies in technology, health care and real estate, companies based in China, large company spin-offs and US companies backed by money from the Troubled Asset Relief Program (TARP).

Brazil and Latin America: In 2011, Brazil expects about 30 IPOs with an average deal size of US$500 million, in the retail, oil and gas and mining sectors in particular. Brazils IPO markets have been fuelled by its 5% GDP growth rate, foreign capital inflows, the Governments infrastructure investment plan and high domestic consumption levels. Mexico, Argentina and Chile will also see new issuances.

3.4 - 2011 European IPO outlook:UK: The UK pipeline of potential IPO candidates remains strong. Numerous cross border listings on the London Stock Exchange (LSE) Main Market are expected, most notably from emerging market-facing companies. Europes financial institutions, including spin-offs from over-leveraged banks, could be the source of the largest IPO prospects.

Germany: Germany anticipates approximately 20 small cap IPOs from diverse industries to list on the Entry Standard segment of the Deutsche Borse.

Eastern Europe and Russia: The Governments of Poland and Czech Republic will continue to sell off state-owned assets to generate revenue. After Russias severe economic contraction in 200809, surging oil prices, state privatizations and a capital market revival may also lead to a return in Russian listings, on the LSE in particular.

3.1 - Global IPOs by number of deals and capital raised

Source: Dealogic, Thomson Financial, Ernst & Young

In 2010, global IPO activity recovered to pre-financial crisis levels (US$284.6 billion, 1,393 IPOs) and reached the second-highest fund-raising amount ever, after 2007. After two years of quiescent IPO markets during the global financial crisis and recession, 2010s healthy IPO volumes represent more than double the amount raised during either 2008 or 2009. Global IPO markets saw a choppy revival in the first three quarters of 2010, followed by a record fourth quarter. In the first three quarters, investor worries over Eurozone sovereign debt, sweeping regulatory changes, government reductions of stimulus packages and limited access to credit led to numerous IPO withdrawals, postponements and highly discounted pricing worldwide. However, investor confidence improved over the course of the year. Driven by Asian growth, pent-up demand for capital, sales of government-held assets and financial and industrial institution spin-offs, Q4 saw the highest quarterly total capital raised on record (US$131.5 billion, 484 deals).

2010 saw the worlds largest IPO ever and other high-profile jumbo IPOs. The largest IPO ever was the US$22.1 billion offering of the state-owned commercial bank Agricultural Bank of China followed in size by the second-largest IPO ever the US$20.5 billion listing of AIA, the main Asian life insurance unit of AIG Group. And the return to the public markets of US automaker General Motors for US$18.1 billion marked the third-largest IPO globally in 2010. The vast majority (86%) of global IPOs priced within their initial filing range in 2010, compared with a historical 10-year average of 74.3%.

Only 11% of IPOs priced below their initial prices while just 3% priced above, Nonetheless, investors remained extremely price sensitive, especially with regard to highly leveraged companies. Citing difficult market conditions, many companies had to withdraw or postpone their offerings in 2010 while others were sold in dual-track sale processes.

Financial and infrastructural sectors prevailed, although IPOs were quite diverse. Investors continued to assess IPOs on a company-specific basis. The financial sector led by volume, at US$80 billion, with 28% of the global capital raised, thanks largely to 3 jumbo Asian insurance companies that made up three of the top 10 IPOs. They included the AIA listing; the US $11.1 billion Dai-ichi Life Insurance listing, the second-largest Japanese IPO on record; and the US$4.4 billion Samsung Life Insurance Co. Ltd., South Koreas largest IPO ever. Propelled by continuing emerging market demand for commodities and global demand for energy, the industrial and materials sectors were also very active. Emerging market IPO volume made up 69% of global volume (US$195.3 billion via 983 deals). This includes 87 government sell-offs of numerous state-owned enterprises, worth US$81.8 billion, in order to raise cash. The vast majority of IPOs (67) came from China, with several top IPOs from India, Poland and Indonesia.

3.2 - 2009 and 2010 global IPOs by region Source: Dealogic, Thomson Financial, Ernst & Young

US IPO markets were rejuvenated by small-cap high-tech and energy companies and the return of PE and VC exits. US exchanges launched the highest total since 2007 (US$43.5 billion in 163 IPOs), albeit with a smaller-than-average deal size (US$267 million). Almost two-thirds of IPOs were backed by PE or VC firms. Historically the global IPO leader, the US raised just 15% of global capital, well below its past 10-year average levels of 28%. Europe saw a choppy IPO revival due to Euro zone sovereign debt concerns. Even so, by the end of 2010, IPOs on European exchanges raised the highest volume since 2007 (US$36.7 billion in 252 deals), a huge 395% fund-raising increase from 2009. European IPOs were revitalized by Polish state privatizations, London cross-border listings, PE-backed IPOs and robust emerging market demand for commodities. Europe represented a 13% global IPO market share, compared with its past 10-year average level of 25%.

PE-backed IPOs made a comeback (US$35 billion raised in 155 deals), particularly in the US and Europe. The amount was more than double the US$16.8 billion raised in 2009, and almost three times what sponsors raised in the trough of the recession in 2008. Nonetheless, activity is still behind the peak of the cycle, when PE firms raised more than US$58 billion taking companies public in 2007. On average, PE-backed IPOs returned 27.2% in 2010. The PE-backed IPO after-market stock performance and pipeline are likely to remain strong in 2011. Among world exchanges; Hong Kong was the most active exchange for the second consecutive year (US$57.4 billion), up 162% from 2009. It was followed in volume by Shenzhens SME and ChiNext boards, Chinas venue for small, high-growth companies, (US$44.3 billion) and the New York Stock Exchange (US$34.7 billion).3.3- Top 10 Domicile Countries by number of dealsCountryNo. of Deals% of Global total

China*50934.88

India*1369.32

United States1157.88

Poland926.30

Australia886.03

Canada775.27

South Korea694.72

Malaysia332.26

United Kingdom312.12

Singapore241.64

Rest of World*28519.53

Total1459100

Source: Financial, Ernst & Young & Capital Line

Secondary market played an increasingly significant role in raising company profiles and increasing investor bases. Compared to global IPOs, which made up 31% of total capital market activity, follow-on offerings represented more than half (57%), with US$515.5 billion raised in 4,062 deals, down 26% in funds raised from 2009. 2010 saw the worlds largest follow-on offering ever the US$70.1 billion listing of Brazilian oil and gas firm Petrobras.3.4 - Top 10 Domicile Countries by Capital raisedCountryCapital raised (US $M)% of Global total

China*131, 76546.3

United States37, 04113

Japan14,6035.1

India*10,7163.8

South Korea8,3612.9

Australia7,5782.7

Malaysia6, 9772.5

Canada6,5962.3

Brazil6,4302.3

Singapore5,9002.1

Rest of World*48,64117.1

Total284,607100

*Greater China includes China, Hong Kong and Taiwan.*India Includes BSE & NSE.*Rest of world includes countries with 1% or less of IPO activity by number of deals or capital raised.

Source: Financial, Ernst & Young & Capital Line

3.5 - 2010 global IPOs by industry

Source: Dealogic, Thomson Financial, Ernst & Young

The most important trend in 2011 was the IPO market reopening in a new direction with the FIIs Inflows in the market, with healthy volumes. This was true around the world, particularly in Asia, where two of the biggest IPOs in history completed very successfully Agricultural Bank of China and AIA. At various points in the year, equity markets were challenged by concerns about sovereign debt in Europe or a double-dip recession, and this impacted the IPO pipeline.

CHAPTER FOUR: OUT LOOK OF DIFFERENT STOCK EXCHANGE4.1 INTRODUCTION:Each exchange have its own criteria and board through which it first have to take an approval, like in India Security Exchange Board of India (SEBI) is a regulator for such issues and it has prescribed certain rules and regulation under ICDR, other hand in China, China securities regulatory commission (CSRC) plays a definitive role on IPO in the whole IPO history. CSRC determines when the offering is put into practice as per the consideration of the combination of primary market and secondary market. Afterward, its up to exchanges, which is also controlled by CSRC, to arrange the companys listing time.As an emerging market, the related laws and regulations always lag behind the fast developing market. Investors like to see companies with powerful long-term growth stories. Those arent easy to find. For a given company, investors want the asset to be unique or have characteristics that arent already represented in their portfolios. They want the asset to have been stress-tested by the recession and to have stood up well. Also, global investors want to see a model thats scalable.

Numerous cross-border listings reflected increased globalization of capital markets. Attracted by higher valuations and strong liquidity, non-Asian companies began to make primary listings in Hong Kong, including the US$2.2 billion IPO of the worlds largest aluminium producer, Russias RUSAL. At the same time, 41 Chinese companies listed on US exchanges, the majority of which were very well-received. The world exchange industry continued to consolidate, with many prospective mergers underway.

Although the consolidation is not likely to have a direct impact on the number of IPOs, 2010 saw new exchanges emerge that would offer new opportunities and sources of finance. The proposed partnerships of the NYSE Euronext/Deutsche Brse, the Australian/Singapore Stock Exchanges and the London/Toronto/Mongolia Stock Exchanges would improve the liquidity of the newly combined exchanges and their global competitiveness.

4.1- Top 10 Stock Exchange by number of dealsCountryNo. of Deals% of Global total

Shenzhen*32122.49

Australian926.44

Hong Kong876.09

New York825.74

NASDAQ765.32

Warsaw- NewConnect714.97

BSE704.90

NSE664.62

KOSDAQ563.92

Toronto422.94

All other stock exchanges46432.51

Total1427100

*Shenzhen Stock Exchange includes listings on Mainboard (SME) and ChiNext

Source: Financial, Ernst & Young & Capital Line

4.2- Top 10 Stock Exchange by Capital raisedCountryCapital raised (US $b)% of Global total

Hong kong57,38320.2

Shenzhen44,29515.6

New York34,71712.2

Shanghai27,8799.8

Tokyo14,2685.0

London8,8613.1

NASDAQ8,7263.1

BSE8,3042.9

NSE8,1002.8

Australian7,9052.7

All other exchange64,50622.68

Total2,84,944100

Source: Financial, Ernst & Young & Capital Line4.2- CHINA:Greater China maintains its five-year leadership of global IPOsIn 2012, Greater China looks set to maintain its five-year leadership of global IPO activity. Its robust pipeline contains small-and mid-sized enterprises in the consumer, infrastructure, clean technology and pharmaceutical sectors, as well as some large state-owned enterprises (SOEs). On the Hong Kong Stock Exchange, (HKEx), total fund-raising is expected to exceed US$50 billion, and the HKEx will also continue to attract more cross-border listings, particularly natural resources companies.

The Shenzhen Exchange also has a full pipeline, including many PE- and VC-backed IPOs, as local governments in China introduce policies to encourage quality enterprises to list locally. Finally, the Shanghai Stock Exchange International Board could possibly launch in 2011, providing an opportunity for A-share investors to buy into quality foreign company shares. Large multinational corporations are expected to be the first batch of companies listing on the International Board. Greater Chinas vibrant IPO markets reached record fund-raising levels, accounting for 46% of global funds raised in 2010. Greater Chinas exchanges raised US$129.8 billion in 440 deals, a huge 152% rise in total value from 2009. 2010 saw the worlds largest IPO ever, the US$22.1 billion Chinese IPO of Agricultural Bank of China, the last of Chinas big state-owned commercial banks to list. The second-largest Chinese IPO was the US$20.5 billion listing of AIA, the Asian life insurance business spun off from the American International Group (AIG).

Hong Kong was the leading global stock exchange for funds raised for the second year in a row. Profiting from attractive valuations and heavy trading volumes, HKEx raised US$57.4 billion in 87 IPOs. As the only Chinese exchange fully open to foreign investors, HKEx has become a great platform for China-based companies with international ambitions, in part because of its access to global funds and its flexibility in subsequent fund-raising activities. Due to great demand for growthstage companies, the Shenzhen Stock Exchange (SME Board and ChiNext) saw the most deals (321 IPOs)

Numerous fast-growth Chinese companies listed on US exchanges (US$4.1 billion, 41 IPOs). Eager to participate in the economic growth of China, US investors have shown strong appetite for Chinese listings on US exchanges, primarily earlystage, small-cap companies in fast growth sectors.4.3 - Greater China IPOs by year

Source: Dealogic, Thomson Financial, Ernst & YoungThe IPO market for Hong Kong in 2011 should be not only very strong but also diversified. In addition to the mining, consumer, infrastructure, clean tech and pharmaceutical sectors in China, there would be growing interests from companies around the world in seeking a listing on the Hong Kong Stock Exchange. 2010 was a very volatile year in terms of IPO markets. For instance, Hong Kong had 94 successful IPOs. But there were also 16 Chinese IPOs that failed registered deals called off either during or after the investor road show. Thats quite a high failure rate.

4.3 INDIA:India saw a dramatic recovery in its IPO markets in 2010. This revival has been a domestic consumption ledgrowth story, driven by an influx of capital from Western economies and a booming local stock market. India saw a growth of 215% in the number of IPOs compared to 2009.

2010 saw a string of IPOs and follow-on offerings from many previously state-owned enterprises in the materials sector such as steel, oil and gas all of which helped the Indian Government raise funds to build roads, ports and power plants. This materials sector activity stems from Indias US$10 billion divestment program that spawned the largest IPO in India ever, the listing of the worlds largest coal producer, US$3.4 billion Coal India, a former state-owned enterprise.

4.4 - Indian IPO activity by year 2004-2010

Source: Dealogic, Thomson Financial, Ernst & YoungDriving industrial IPO activity is Indias investment plan to modernize its infrastructure worth US$1 trillion. This program has led to many new listings in the energy and power, natural resources, building and construction sectors, in particular.

4.4 JAPAN:In 2010, Japans IPO market conditions improved with proceeds of US$14.6 billion in 22 IPOs, buoyed by an upswing in the Japanese stock market. Japans IPO fundraising rose 2,406% from 2009 (US$583 million), However, total proceeds are still 21% less than Japans most recent IPO peak in 2006. Even so, among all countries in 2010, Japan raised the fourth highest global proceeds, representing 5% of total global funds raised (compared with a 10-year average of 6%).

4.5 - Japan IPO activity by year

Source: Dealogic, Thomson Financial, Ernst & YoungTwo high-profile listings in Tokyo dominated and accounted for most of the 2010 activity. The 2010 demutualization of Japanese life insurance company Dai-ichi represented 76% of Japanese IPO volume. Raising US$11.1 billion, the Dai-Ichi Life Insurance listing was the largest IPO in Japan since the US$18.4 billion listing of NTT Mobile Communications Network in 1998. The second largest IPO in Japan was the US$2.8 billion listing of major drug and food maker Otsuka Holdings Co. Global institutional investors have been wary of Japanese IPOs due to the countrys lackluster economic growth, the absence of new companies, the lack of a VC market to help start-up companies grow, small listing sizes and high volatility in the small-cap market.

4.5- UNITED STATES:Pent-up demand for capital by fast-growth companies is still driving US IPOs in 2011, including many PE- or VC-backed companies or small cap China-based listings. More high-profile deals worth over US$1 billion are also expected, including the US$4.3 billion PE-backed hospital chain HCA Holdings, the worlds biggest LBO. In addition, some companies backed by funds from the US governments Troubled Asset Relief Program (TARP) are looking to go public and use IPO proceeds to repay TARP loans.

The growing US backlog contained 150 companies at the end of February 2011, slated to raise around US$40 billion. The top sectors include technology, real estate (particularly REITS) and health care (e.g., pharmaceuticals and medical devices). The trend of financial-sponsored offerings is likely to continue as well; the 2011 listing of energy company, Kinder Morgan, worth US$3.3 billion was the largest PE-backed IPO ever seen so far in the US. As markets grow more receptive, the average US deal is taking about three months to progress from registration to IPO.

Many smaller US IPOs achieved strong first-day performance, delivering a 10% average first-day return. Of the 142 IPO deals with funds raised above US$50 million, 48% priced within range, 14% priced above range and 38% priced below their initial filing range. The best performing US stock debut came from Youku.com, a Chinese internet video site that closed its first day up over 160%.

The US industrial and high-tech sector IPOs drew headlines. Due to the GM IPO and those of other transportation and infrastructure companies, the industrial sector dominated the market (US$22.0 billion, 17 IPOs). A flurry of 35 small high-tech companies raised US$4.9 billion, which, with their potentially high returns, suggested a return of US investors risk appetite. US exchanges saw numerous Chinese listings.4.6 - US IPO activity by year

Source: Dealogic, Thomson Financial, Ernst & Young

US investors eagerly sought higher returns from emerging market companies. Out of 54 cross-border listings on US exchanges, 41 were China-based companies, mostly early-stage, fast-growth, small-cap companies (US$4.1 billion in 41 deals). In 2010, US secondary markets raised US$169.2 billion, particularly as financial sponsors sought further returns following their public offerings. Although 2010 raised less than the record amount (US$230.6 billion) raised in 2009, 2011 looks set to be an active year for follow-on offerings, especially as the U.S. Treasury is likely to continue to sell off much of its remaining stake in GM, which will be among the largest US share sales.4.6 BRAZIL:In 2011, Brazil expects a surge of about 30 new listings with an average deal size of US$500 million, despite rising inflation. An anticipated 5% GDP growth rate continues to fuel foreign capital inflows. Domestic-oriented sectors (e.g., real estate, consumer products, clean tech) will predominate in 2011, driven by the high domestic consumption levels of Brazils lower and middle classes. Numerous infrastructure listings will be spurred by the Governments US$344 billion infrastructure investment plan and other initiatives.

In 2010, Brazilian IPOs raised US$6.4 billion in 11 deals. Total proceeds made up 2% of total global volume, although still far below Brazils peak year of 2007 (when 63 companies raised US$27.6 billion).

In 2010, the industrial and energy sectors were the most active, including the largest IPO in Brazil the US$1.5 billion listing of oil and Natural Gas Company HRT Participacoes em Petroleo, which capitalized on the recent discovery of huge oil reserves in Brazil. Other top Brazilian IPOs reflected the continuing emerging market demand for Brazils raw materials. The Brazilian oil company, Petrobras launched a US$70.1 billion follow-on offering, the largest equity capital markets deal ever seen.4.7 - Brazil IPO activity by year

Source: Dealogic, Thomson Financial, Ernst & Young

4.7 EUROPE:The 2011 pipeline of potential IPO candidates is quite strong in the UK, Germany and Russia. In the UK, spinouts from banks both in the UK and overseas could lead to some of the largest IPOs. The LSE Main market will also launch cross-border listings from emerging market-facing companies with businesses in the BRICs, Kazakhstan, Latin America and Africa. With short-term commodity prices remaining robust, more mining, oil and gas companies will also list. Germanys IPO markets are expected to pick up, with approximately 20 small cap IPOs in diverse industries expected to list on the less-regulated Entry Standard segment of the Deutsche Borse. In Russia, after a severe economic contraction in 2008-09, the countrys budding capital market revival, surging oil prices and state privatizations may also lead to a return in listings, especially on the LSE.

In 2010, European IPOs began to revive, and achieved their highest volume since 2007 (US$36.7 billion in 252 deals). In 1H 2010, continued market dislocation and sovereign debt crisis resulted in numerous withdrawals, postponements and highly discounted pricing. However, gradually in 2H 2010, European investors regained their risk appetite, buoyed by improving returns, a supportive interest rate environment and higher fund inflows into equities. Q4 saw a large surge in IPOs combined with strong aftermarket performance. Even so, while 2010 volumes represented a 395% rise from 2009, European IPO fundraising remained far below the pre-crisis IPO levels in 2007 (US$100.4 billion). Europe accounted for just 13% of global capital raised, far less than the 10-year average of 25%.4.8- Europe IPO activity by year

Source: Dealogic, Thomson Financial, Ernst & Young

Market volatility led to discounted valuations and pricing pressure in 2010, by the end of the year, the average 1 week aftermarket increase for $100 million-plus listings in European exchanges stood at 4.47% for the year, while the FTSE 100 rose about 8.5% in the same period. In Europe, the UK and Polish exchanges led IPO markets. The UK led in funds raised (US$8.9 billion) while Polish exchanges saw the most deals (95 deals), including the US$2.7 billion privatization of Polands largest insurance company, PZU SA in Warsaw. Europes largest IPO in 2010 was the US$3.4 billion listing of an Italian spin-off, renewable energy company Enel Green Power SpA in Milan.

4.8 - MIDDLE EAST AND AFRICA:The 2011 Middle East IPO outlook remains dim. Companies in many Middle East countries are wary of listing, frustrated by poor valuations, sluggish GDP growth prospects and political unrest. Other factors deflating IPO activity are depressed corporate earnings, low trading volumes, negative investor sentiment and insufficient demand for IPOs. The Middle East IPO markets saw a flat trend in 2010, with 35 IPOs worth a total of US$3.3 billion, a 59% increase from 2009 by capital raised. Conventional bank financing, bonds and sukuks3 are likely to be the preferred mode of raising funds for regional corporations until the profitability of issuers and investor sentiment improve.

Companies in Saudi Arabia have consistently been far more willing to go public compared to other Middle East countries. Among other advantages, Saudi Arabian issuers have mandatory listing regulations, are able to take advantage of the low cost of capital secured through the market route and enjoy more positive investor reception.

4.9 - Middle East and Africa IPO activity by year

Source: Dealogic, Thomson Financial, Ernst & Young

In 2010, Africa saw a 406% jump in total proceeds, with 13 IPOs worth US$1.6 million. African IPO markets, driven by four South African deals in the health care and mining sectors. The Middle East IPO markets normally recover after the secondary markets and we have been seeing a gradual recovery in the stock markets around the region.

CHAPTER FIVE: ANALYSIS OF PRE & POST IPO PRCINGIPO analysis is categories in multiple sections to make it easy to read and understand. IPO recommendations (Investment Strategy) at the end of these reviews are based on detail analysis by our team of experts. These IPO recommendations are presented to keep both short and long term investors in mind.IPO market in India has seen many ups and down during the last decade. It has seen a steep rise in the initial years of the post liberalization. The Growth observed during the first half of the 90s is mostly attributed to the financial liberalization of the economy. Capital market reforms like abolition of the office of controller of capital issues (CCI), constitution of SEBI under the new security and regulation act and relaxation in pricing of capital issues played an important role in such upsurge. The IPO market has witnessed an exploding growth from 158 issues during 1991-1992 amounting to Rs. 724 crore to 1357 IPOs for Rs. 10924.11 crore during 1995-1996.

There was a marked decline in the number of IPOs and amount raised through them in 1996- 1997, largely as a result of stricter eligibility criteria for public issues imposed by SEBI. The number of IPOs declined to 717 amounting to Rs. 5958.60crore during 1996-1997 (Annual Report, SEBI, 1996-97). The number of IPOs further declined in 1997-98 to 52 amounting to Rs1047.52 crore. The decline in the share of IPOs can be partly attributed to the decline in industrial activity in the country and partly due to strict entry point norms, which prevented green field projects without track record from accessing the market (Annual Report, SEBI, 1997-98).

For the financial year 1998-99, only 18 IPOs for Rs. 404.21 crores were floated. The absence of issues of good quality, lack of confidence of investors in new companies and depressed secondary market, were some of the factors, which hindered the growth of IPOs (Annual Report, SEBI, 1998-99). There was a marked increase in the number of IPOs during 1999-00to 51 from 18 IPOs and their successful subscription indicated the restored willingness and confidence of investors to invest in new companies especially in knowledge based industries particularly in information technology and healthcare IPOs which came to the market in a big way. This was also a worldwide trend. And this trend continued for 2000-01 when number of IPOs increased to 114 amounting to Rs. 2722.38 crore. The number again tumbled down to 746 IPOs amounting Rs. 1201.8 crore during 2001-02. But it was back to spring time again by the end of 2004-05.

5.1 - IPO DATA OF INDIAN STOCK MARKETYearNo. Of IPO

199920

2000138

200122

20027

200310

200432

200565

200695

2007106

200844

200917

201075

201141

Source: Capital line, BSE & NSE website.The prolonged weakness in the capital market has wiped out Rs 4,000 crore of the wealth of investors in the initial public offering (IPO) market in 2011. The IPO market has been a big wealth destroyer with only 9 public issues out of 39 public issues that came during 2011 trading above their issue prices. A whopping number of 30 public issues are trading below their issue prices, destroying the wealth of investors. The total amount raised during the year through public issues is to the tune of about Rs 14,112 crore. As markets have severely corrected, on an aggregate basis, the current mark-to-market value of these public issues came down to Rs 10,014 crore; Hence, the public issue market of the calendar year 2011 has seen wealth erosion of Rs 4,098 crore, representing a mark-to-market loss of 29 per cent, according to SMC Global Securities. Such wealth erosion has made investors shy away from the public issue market, leading to shelving of several IPOs including the government PSU disinvestment plans. This huge wealth erosion may be attributable to tendencies of high pricing in public issues; and lower quality of public issues, said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities. For example, Taksheel Solutions which came out with a Rs 83 crore IPO is now worth Rs 7 crore, a decline of 92 per cent. RDB Rasayans IPO of Rs 36 crore is now worth only Rs 4 crore -- a fall of 90 per cent. 5.1 - IPO TREND FROM 2004-2011:With interest rates and inflation soaring and land acquisition becoming a major headache for mega projects, corporate have already slammed the brakes on big investment plans. Bankers say theres very little interest in new projects. Wherever a substantial commitment or outlay has been made, it is going ahead but there is very little fresh enthusiasm at this point of time. It is a combination of factors. While the cost of funds is one reason, it is more driven by the political and policy uncertainties, said a senior banker with a leading private sector bank. Companies are keeping away from the equity route with the primary market witnessing a steep fall in fund mobilization. The first half ended with a total mobilization of Rs 31,500 crore from 41 issues against Rs 62,400 crore in the same period of last year. Though around 85 companies had approached the Securities and Exchange Board of India to mobilize over Rs 65,000 crore by 2010 end, many of them are yet to see the light of the day. The steep decline in share sales by public sector companies was another reason for the slump in mobilization. Analysts attribute the general slowdown in project investments and the volatility in the stock market for the fall in fund mobilization. India Incs borrowing for the 2011 first half totaled $ 36.5 billion. This was a 17 per cent decrease from $44.2 billion in the first half of 2010.5.2 - NIFTY MARKET ACTIVITY 2004-2011

Source: www.nseindia.comAs you can see the market activity its being an upward trend 2007-2008 and then steep decline in 2008-2009, hence you could see more of companies coming up to raise funds, and there were number of IPO in 2007. However in 2010 it manages to stay stable and get an equivalent high as on 2007. 5.3 NSE IPO Activity 2004-2011

Source: capital line & internal source of NSE

4.2 - BEFORE & AFTER:A company that is thinking about going public should start acting like a public company as much as two years in advance of the desired IPO. Several steps experts recommend include preparing detailed financial results on a regular basis and developing a business plan. Once a company decides to go public, it needs to pick its IPO team, consisting of the lead investment bank, an accountant, and a law firm.The IPO process officially begins with In Principal Approval waiting from SEBI and Stock Exchanges. During this Period, which usually takes place six to eight weeks before a company officially registers with the Securities and Exchange Board of India (SEBI), all the members of the IPO team plan a timetable for going public and assign certain duties to each member.

4.3 - THE STUDY:In order to study the IPO activity on the National Stock Exchange, Two Companies are been taken from six specific sectors and analyzed with a window of Pre & Post IPO activity in the market.In order to study and analysis the IPO activity at National Stock Exchange six specific sector have been taken viz. Energy, Power, IT, Pharma, Realty and Steel. Further from each specific sector 2 companies are selected in order to evaluate the Pre & Post IPO trend of such issues. However in the long run most of companies have failed to give good returns.4.4 - PRE-IPO Analysis:Once the company decides to come with a Public Issue it has to undergo the process of Vetting where the issuer company with the help of Book Running Lead Manager (BRLM) for the public issue. The issuer is required to submit the DRHP, which shall be prepared as per the SEBI (DIP) guidelines, with the Exchange. DRHP is the book/document having information of the issuer. It is prepared for an investor who needs to know about the public issue. It mainly contain information about the company, its business, management, risk involved in applying to this issue, company financials and the reason why company is raising money through IPO etc.

5.4 Table showing the companies which will be analysedDate of ListingCompany/SymbolSectorIssue TypeIssue Size (crore)Face Value

22-Apr-2004Dishman Pharmaceuticals and Chemicals Ltd/ (DISHMAN)PharmaBook Building60.0910

25-Aug-2004Tata Consultancy Services Limited / (TCS)ITBook Building4713.471

22-Apr-20053i Infotech Limited / (3IINFOTECH)ITBook Building200.0010

6-Jan-2006Punj Lloyd Limited / (PUNJLLOYD)RealityBook Building584.8610

5-Apr-2006AdhunikMetaliks Limited / (ADHUNIK)SteelBook Building100.0010

9-Jan-2007Cairn India / (CAIRN)Oil & energyBook Building5260.7910

11-Feb-2008Reliance Power Limited / (RPOWER)PowerBook Building11700.0010

1-Sep-2009NHPC Limited / (NHPC)PowerBook Building6038.5510

30-Sep-2009Oil India / (OIL)Oil & energyBook Building2777.2510

8-Oct-2010Ramky Infrastructure Limited / (RAMKY)RealityBook Building530.0010

20-Sep-2011Vaswani Industries Limited / (VASWANI)SteelBook Building49.0010

5-Sep-2011Brooks Laboratories Limited / (BROOKS)PharmaBook Building63.0010

Source: capital line & internal source at NSEThe following are the important points to be checked from the checklist and from DRHP:Check whether the SEBI eligibility criteria are fulfilled by the issuer.Verification of watch out investors for the disciplinary action/Litigation.Promoters track record to be verified from the DRHP.Risk factors mentioned in DRHP.Financial details of the company.Auditors report.Object of the issue.Disciplinary actions/ litigation details mentioned in the DRHP.Various undertakings/confirmations mentioned in the checklist.Designated stock Exchange approval, if other Exchange is designated exchange for the issue.5.5 - Date of Filling of DRHPCompany/SymbolDate of Filing DRHPDate of Listing

Dishman Pharmaceuticals and Chemicals Ltd (DISHMAN)09-Jan-0422-Apr-2004

Tata Consultancy Services Limited / (TCS)09-Jun-0425-Aug-2004

3i Infotech Limited / (3IINFOTECH)11-Feb-0522-Apr-2005

Punj Lloyd Limited / (PUNJLLOYD)07-Oct-056-Jan-2006

Adhunik Metaliks Limited / (ADHUNIK)13-Jan-065-Apr-2006

Cairn India / (CAIRN)12-Oct-069-Jan-2007

Reliance Power Limited / (RPOWER)03-Oct-0711-Feb-2008

NHPC Limited / (NHPC)05-Aug-081-Sep-2009

Oil India / (OIL)14-Dec-0730-Sep-2009

Ramky Infrastructure Limited / (RAMKY)29-Mar-108-Oct-2010

Vaswani Industries Limited / (VASWANI)23-Sep-1020-Sep-2011

Brooks Laboratories Limited / (BROOKS)25-Nov-115-Sep-2011

Source: capital line & internal source of NSEOnce the Company files the DRHP, it is available to the Public on the Exchange which is going to get list & SEBI website for inspection. SEBI & Exchange gives Observation on the basis of information given on DRHP. One should see the Merchant Banker who is coming with an IPO and check its past Issues. Since Merchant Banker plays a major role in preparing the DRHP of the company the BRLM have all the information, so it is necessary to know the past perf