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INTRODUCTION OF STOCK MARKET & IPOs
WHAT IS MEANT BY A STOCK EXCHANGE?
The Securities Contract (Regulation) Act, 1956 [SCRA] deines !Stoc" #$change% as an&
'od& o indiiduals, hether incor*orated or not, constituted or the *ur*ose o assisting,
regulating or controlling the 'usiness o 'u&ing, selling or dealing in securities+ Stoc"
e$change could 'e a regional stoc" e$change hose area o o*eration-urisdiction is
s*eciied at the ti.e o its recognition or national e$changes, hich are *er.itted to hae
nationide trading since ince*tion+ /S# as incor*orated as a national stoc" e$change+
BRIEF HISTORY OF STOCK EXCHANGES
o &ou "no that the orlds ore.ost .ar"et*lace /e 2or" Stoc" #$change (/2S#),
started its trading under a tree (no "non as 63 4all Street) oer 00 &ears ago
Si.ilarl&, 7ndias *re.ier stoc" e$change 8o.'a& Stoc" #$change (8S#) can also trace
'ac" its origin to as ar as 15 &ears hen it started as a oluntar& non*roit .a"ing
association+
/es on the stoc" .ar"et a**ears in dierent .edia eer& da&+ 2ou hear a'out it an&
ti.e it reaches a ne high or a ne lo, and &ou also hear a'out it dail& in state.ents
li"e The 8S# Sensitie 7nde$ rose 5: toda&+ ;'iousl&, stoc"s and stoc" .ar"ets are
i.*ortant+ Stoc"s o *u'lic li.ited co.*anies are 'ought and sold at a stoc" e$change+
8ut hat reall& are stoc" e$changes
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co.*etition+ ?ot+ securities are traded outside the trading ring in the or. o oer the
counter sale or *urchase+ The 'argains that are stuc" in the trading ring '& the .e.'er
o the stoc" e$changes are at the airest *rices deter.ined '& the 'asis las o de.and
and su**l&+
The onl& stoc" e$changes o*erating in the 19th centur& ere those o 8o.'a&, set u* in
13@5 and Ah.ada'ad set u* in 139+ These ere organi=ed as oluntar& non*roit
.a"ing association o 'ro"ers to regulate and *rotect their interests 'eore the control on
securities, trading 'eca.e a central su'-ect and the 8o.'a& securities+ Bnder this act, the
8o.'a& stoc" e$change as recogni=ed in 19@ and Ah.ada'ad and other centre%s, 'ut
the& ere not recogni=ed+ Soon ater the& 'eco.e a central su'-ect, central legislation
as *ro*osed and a co..ittee, headed '& A+ ?;R4AA ent into the 'ill o securities
contract, hich 'eca.e la in 1956+
GROWTH OF STOCK EXCHANGES IN INDIA
The stoc" .ar"et actiities in 7ndia ere relatiel& on a lo "e& during the 'eginning o
the decade o 30%s .ainl& 'ecause o the allies regi.e till 9@+ Aterards, the
goern.ent o 7ndia concentrated .ore on ad.inistration and less on deelo*.ent and
*ursuit o the *hiloso*h& o *u'lic sector do.inating the econo.& Stoc" e$changes ere
*laced under the e$clusie regulation o the goern.ent through *rocla.ation in 19D0 o
the constitution o 7ndia+
uring the 1950%s E 1960%s 7ndian econo.& as do.inated '& the *u'lic sector, hich
as considerate as the .a-or ehicle or econo.ic and industrial deelo*.ent+ This trend
has changed since .id 30%s ith li'erali=ation o goern.ent *olices and greater reedo.
gien to *riate sector+
This *olic& o *rogressiel& deregulating the econo.& led to the e.ergence o stoc"
.ar"ets as a .a-or instru.ent o inance or industr& and trade+ 7ndia can 'oast o 'eing
one o the oldest stoc" .ar"et in Asia+ The 8o.'a& stoc" e$change (8S#) as ounded in
13@5, hile the ondon stoc" e$change as esta'lished in 1@@D+
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INTRODUCTION TO IPOs
DEFINITION
Initial Public Offering: The irst sale o stoc" '& a co.*an& to the *u'lic+ Co.*anies
oering an 7P; are so.eti.es ne, &oung co.*anies, or so.eti.es co.*anies hich
hae 'een around or .an& &ears 'ut are inall& deciding to go *u'lic+ 7P;s are
oten ris"& inest.ents, 'ut oten hae the *otential or signiicant gains+ 7P;s are oten
used as a a& or a &oung co.*an& to gain necessar& .ar"et ca*ital+
The ter. F7P;F sli**ed into eer&da& s*eech during the tech 'ull .ar"et o the late
1990s+ 8ac" then, it see.ed &ou couldnt go a da& ithout hearing a'out a do=en ne
dotco. .illionaires in Silicon Galle& cashing in on their latest 7P;+ The *heno.enon
s*aned the ter. Fsiliconaire,F hich descri'ed the dotco. entre*reneurs in their earl&
0s and D0s ho suddenl& ound the.seles liing large due to 7P;s ro. their 7nternet
co.*anies+ So, hat is an 7P; an&a& Ho did eer&'od& get so rich so ast And,
.ost i.*ortantl&, is it *ossi'le or .ere .ortals li"e us to get in on an 7P; All these
Iuestions and .ore ill 'e ansered in this tutorial+ 8eore e continue, e suggest &ou
chec" out our stoc" 'asics tutorial as ell as 'ro"ers and online trading i &ou dont hae
a solid understanding o stoc"s and ho the& trade+
What is an IPO?
Selling Stoc" 7P; is an acron&. or 7nitial Pu'lic ;ering+ This is the irst sale o stoc"
'& a co.*an& to the *u'lic+ A co.*an& can raise .one& '& issuing either de't ('onds) or
eIuit&+ 7 the co.*an& has neer issued eIuit& to the *u'lic, its "non as an 7P;+
Co.*anies all into to 'road categoriesJ *riate and *u'lic+
A *riatel& held co.*an& has eer shareholders and its oners dont hae to disclose.uch inor.ation a'out the co.*an&+ An&'od& can go out and incor*orate a co.*an&J
-ust *ut in so.e .one&, ile the right legal docu.ents, and ollo the re*orting rules o
&our -urisdiction+ Kost s.all 'usinesses are *riatel& held+ 8ut large co.*anies can 'e
*riate too+ id &ou "no that 7
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other hand, hae sold at least a *ortion o the.seles to the *u'lic and trade on a stoc"
e$change+ This is h& doing an 7P; is also reerred to as Fgoing *u'lic+F
Pu'lic co.*anies hae thousands o shareholders and are su'-ect to strict rules and
regulations+ The& .ust hae a 'oard o directors and the& .ust re*ort inancial
inor.ation eer& Iuarter+ 7n the Bnited States, *u'lic co.*anies re*ort to the S#C+ 7n
other countries, *u'lic co.*anies are oerseen '& goerning 'odies si.ilar to the S#C+
>ro. an inestors stand*oint, the .ost e$citing thing a'out a *u'lic co.*an& is that the
stoc" is traded in the o*en .ar"et, li"e an& other co..odit&+ 7 &ou hae the cash, &ou
can inest+ The C#; could hate &our guts, 'ut theres nothing he or she could do to sto*
&ou ro. 'u&ing stoc"+ 4h& ?o Pu'lic ?oing *u'lic raises cash, and usuall& a lot o it+
8eing *u'licl& traded also o*ens .an& inancial doorsJ
8ecause o the increased scrutin&, *u'lic co.*anies can usuall& get 'etter rates hen
the& issue de't+
As long as there is .ar"et de.and, a *u'lic co.*an& can ala&s issue .ore stoc"+ Thus,
.ergers and acIuisitions are easier to do 'ecause stoc" can 'e issued as *art o the deal+
Trading in the o*en .ar"ets .eans liIuidit&+ This .a"es it *ossi'le to i.*le.ent things
li"e e.*lo&ee stoc" onershi* *lans, hich hel* to attract to* talent+
8eing on a .a-or stoc" e$change carries a considera'le a.ount o *restige+ 7n the *ast,
onl& *riate co.*anies ith strong unda.entals could Iuali& or an 7P; and it asnt
eas& to get listed+ The 7nternet 'oo. changed all this+ >ir.s no longer needed strong
inancials and a solid histor& to go *u'lic+ 7nstead, 7P;s ere done '& s.aller startu*s
see"ing to e$*and their 'usiness+ Theres nothing rong ith anting to e$*and, 'ut .ost
o these ir.s had neer .ade a *roit and didnt *lan on 'eing *roita'le an& ti.e soon+
>ounded on enture ca*ital unding, the& s*ent li"e Te$ans tr&ing to generate enough
e$cite.ent to .a"e it to the .ar"et 'eore 'urning through all their cash+ 7n cases li"e
this, co.*anies .ight 'e sus*ected o doing an 7P; -ust to .a"e the ounders rich+ 7n GC
tal", this is "non as an e$it strateg&, i.*l&ing that theres no desire to stic" around and
create alue or shareholders+ The 7P; then 'eco.es the end o the road rather than the
'eginning+ Ho can this ha**en Re.e.'erJ an 7P; is -ust selling stoc"+ 7ts all a'out the
sales -o'+ 7 &ou can conince *eo*le to 'u& stoc" in &our co.*an&, &ou can raise a lot o
.one&+ 7n our o*inion, 7P;s li"e this are e$tre.el& ris"& and should 'e aoided+
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NEED OF THE STUDY
This stud& is needed 'ecause no da&s eer& co.*anies ants to e$tent their 'usiness
and the& ants to go or *u'lic+ #er& inestor also loo"ing toards dierent 7P;%s to
inest in large a.ount in 'eginning to retain the .ore earnings in uture+ As a citi=en or
inestor also, i an& 'od& ants to "no a'out the econo.ic *osition o co.*anies as
ell as countries, eer& 'od& .ust 'e hae so.e 'asic "noledge a'out stoc" .ar"et and
other related inor.ation+
This study is needed because;
• To "no the acts o stoc" .ar"et luctuations during 7P;%s issues+
• To understand the 7P;%s and Stoc" .ar"et 'asics+
• To "no a'out the stoc" .ar"et indices+
• To "no a'out inestors .indset during 7P;%s issues+
• To "no h& co.*anies ants to go or *u'lic+
This *ro-ect is needed 'ecauseL all o the a'oe o*tions are neer ended+ As a inancial
student, as a inestor, as a citi=en and eer&'od& .ust 'e haing so.e "noledge to
understand the things+ So researcher%s *ro-ect ill coer the all things+
This *ro-ect is needed 'ecauseL all o the a'oe o*tions are neer ended+ As a inancial
student, as a inestor, as a citi=en and eer&'od& .ust 'e haing so.e "noledge to
understand the things+ So researcher%s *ro-ect ill coer the all things+
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IMPORTANCE OF THE STUDY
The *ros*ectus includes er& i.*ortant inor.ation li"e the historical
*eror.ance o the co.*an& in the *reious &ears, the current *eror.ance o the
co.*an&, the a.ount o shares that the& are oering to the *u'lic, hat the& intend to do
ith the .one& ater the 7P; a.ongst other things+ An& *rudent inestor ill ta"e hisher
ti.e to go through this inor.ation in order to .a"e an inor.ed decision on the a.ount
o shares to ta"e u* or een i to *artici*ate in the oer+ As an inestor this are the thingsto loo" out or in the *ros*ectus and Stoc" Kar"ets conce*ts and ho the indices o stoc"
.ar"ets ill eected '& an 7P;%s+
7t consists ith Co.*anies 7P;%s *eror.ance in the *receding &ears+ This is i.*ortant
or &ou, to deelo* *eror.ance trends and thereore 'e a'le to *redict its uture
*eror.ance all actors held constant+ This is .ainl& done '& loo"ing at the luctuations
in stoc" .ar"ets+
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RESEARCH METHODOLOGY
RESEARCH
Research in co..on reers to a search or "noledge+ 4e can also deine
research as a scientiic and s&ste.atic search or *ertinent inor.ation on a s*eciic to*ic+
+Slesinger and K+Ste*henson deine research as the !.ani*ulation ; things,
conce*ts or s&.'ols or the *ur*ose o generali=ing to e$tend, Correct or eri&
"noledge, hether that the *ractice o an artM+
Research .ethodolog& is a a& to s&ste.aticall& sole the research Pro'le.+ The
ste*s ado*ted '& the researcher to sole the research *ro'le.+
!" D#s$%iti'# R#s#a%$h
escri*tie research is used to o'tain inor.ation concerning the current status o the
*heno.ena to descri'e Nhat e$istsM ith res*ect to aria'les or conditions in a situation+
escri*tie research, also "non as statistical research, descri'es data and characteristics
a'out the *o*ulation or *heno.enon 'eing studied+ escri*tie research ansers the
Iuestions who, what , where, when and how+ Although the data descri*tion is actual,
accurate and s&ste.atic, the research cannot descri'e hat caused a situation+
(" Ana)*ti$a) R#s#a%$h
Anal&tical research ta"es descri*tie research one stage urther '& see"ing to e$*lain
the reasons 'ehind a *articular occurrence '& discoering causal relationshi*s+ ;ncecausal relationshi*s hae 'een discoered, the search then shits to actors that can 'e
changed (aria'les) in order to inluence the chain o causalit&+
TYPE OF RESEARCH DESIGN
The research design is *re *lanned hich is designed or anal&sis+ And also the data as
collected ro. structured and ell thought O out instru.ents+
NATURE OF STUDY
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The stud& as totall& a actinding stud&+ The .ain ai. o this is to identi& and ealuate
the 7P;%s and its eects on stoc" .ar"et+
STUDY AREA
The stud& has 'een conducted in #."a& ?lo'al >inancial Serices Pt+ td++,
Kaha'u'nagar+
DATA
ata%s are the useul inor.ation or an& or.s o docu.ent designed in a s&ste.atic and
standardi=e .anner hich are used or so.e urther *roceedings+ ;ne o the i.*ortant
tools or conducting .ar"eting research is the aaila'ilit& o necessar& and useul data+
So.e ti.e the data are aaila'le readil& in one or. or the other and so.e ti.e the data
are collected aresh+
Th# s+,%$#s +- Data -a)) ,n.#% t/+ $at#0+%i#s1
!2 P%i3a%* Data The Pri.ar& data are those, hich are collected aresh or the irst
Ti.e, and thus ha**ens to 'e original in character+ 4ith reerence to This stud&,
data is collected through Interview method the stud& also includes o'taining
inor.ation ro.
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Ti3# an. )a$# Pro-ect co.*leted ithin a *eriod o 5 da&s+ #."a& ?lo'al >inancial
Serices td+, Kaha'u'nagar 8ranch+
SCOPE OF THE STUDY
The stud& ith the *ri.e o'-ecties o IPOs an. its #--#$t +n st+$: 3a%:#t + 4hat are
the .ain reasons 'ehind stoc" .ar"et luctuations during 7P;s issues This stud& adices
the inestor or uture e$*ectations toards .ar"et indices+
Researcher%s *ro-ect ill hel* ull, to urther stud& related to 7P;s+
Researcher%s *ro-ect ill hel* ull, to all inancial students to gain so.e
inor.ation and "noledge related to 7P;s+
Researcher%s *ro-ect ill hel* ull, to 'ro"ing co.*anies and other related
consultancies to understand the .ar"et situations during 7P;s issued+
Researcher%s *ro-ect ill hel* ull, to 7nestors to gain the "noledge o Stoc"
Kar"et and luctuations during 7P;s issued+ 7t ill 'e hel*ul to ta"e decision
toards inest.ents+
Researcher%s *ro-ect ill hel* ull, to eer& citi=en to understand Stoc" Kar"et
luctuations and 7P; details and its eect on Stoc" Kar"et+
Researcher%s *ro-ect ill hel* ull, eer& 'od& to
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OB;ECTI
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LIMITATIONS OF STUDY
1+ The stud& as to 'e co.*leted in a short ti.eL the ti.e actor *ut a considera'le
li.it on the sco*e and the e$tensieness o the stud&+
+ The unsu**ortie attitude o the res*ondents hile res*onding to the Iuestions,
reIuiring the Iualitatie inor.ation .a& hae aected the inal indings and
outco.es+
D+ 8ecause o the diersit& o nature o res*ondents as ell as due to conduction o
the stud& on er& s.all scale, the indings o the sure& could not 'e generali=ed+
+ 7t as tried er& harder to include the 'est o inor.ation ro. *u'lished and
un*u'lished sources aaila'le on internet, 'oo"s and .aga=ines 'ut so.e o the
data reIuired or the detailed stud& as not aaila'le ree+
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RE!!
B* Na.#% Nai-a%
E@)ainin0 IPOs Un.#% %i$in0 in th# T,nisian Ma%:#t
This article tests our h&*otheses (signaling, .ar"et tendenc&, .ar"et characteristics and
the e$ ante uncertaint& and inor.ation as&..etr&) to e$*lain the initial *u'lic oerings
(7P;s) under *ricing in the Tunisian .ar"et+ Kost o the e.*irical studies ocus .ainl&
on deelo*ed .ar"ets and onl& a e studies anal&=e the cli.ates o 7P;s in e.erging
.ar"ets+ The Tunisian 'usiness eniron.ent is .otiating 'ecause o the institutional
reor.s that hae 'een successull& i.*le.ented since 199+ The stud& anal&ses all the
Tunisian 7P;s ro. Karch 199 to A*ril 003 in order to e$*lain under*ricing in 7P;s+
The indings sho that 7P;s under*ricing is .ainl& e$*lained '& the signalling and the
.ar"et characteristics h&*otheses+ The *heno.enon o under*ricing in 7P;s is i.*ortant
or *ortolio .anagers ho are e$*ected to .a"e o*ti.al (alue.a$i.ising) inancing
choices+ Also, results o this stud& *roide insight into the 'usiness eniron.ent in the
case o the Tunisian .ar"et+
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Kani:a G,tha F#4 (>!!5 INDIAN ;OURNAL OF FINANCE2 the stud&
concerned .ade on the leel o under *ricing o 7ndian 7P;s or to ti.e *eriods+
Re*resenting o**osite .ar"et conditions+ The leel o under *ricing has 'eentested ro. our *ara.eters+
Such asL
• eel o under *ricing
• To see the eect o the .ar"et conditions on the leel o under *ricing+
• To see the eicienc& o the .ar"et+
• To see the eects oer su'scri*tion on under *ricing+
;ne o the Researches as done on 7P;s o Reliance Poer+ The .ain o'-ecties o the
stud& are as ollosL
Pri.ar& ;'-ectie
•Bnderstand the Reliance Poer 7P;s all in *rice+
Secondar& ;'-ectie
• >actors res*onsi'le or the all in *rice o Reliance Poer eIuit&
• Perce*tion o a retail inestor toard Reliance Poer 'eore listing o 7P;+
7n the a'oe stud&, the researcher ta"en onl& one co.*an& 7P;s .eans Reliance
Poer 7P;s+ 7n hisher research the researcher%s consider onl& the o'-ectie Reliance
7P;s all in *rice and actors or all in *rice+
K& research is dierent ro. a'oe research, in .& research+ 7 tr& to ind the
7P;s eects oer stoc" .ar"et+ Ho stoc" .ar"et ill luctuate hen nel& 7P;s issued
in stoc" .ar"et+ This research don '& ta"ing case stud& o C7 7P;s+ 8ut this research
a**lica'le or all ne issues to understand the 7P;s oer Stoc" Kar"et+
So.e other researches ere also done '& the researcher%s such as
7/T7A PB87C ;>>#R A/ B# #7?A/C#, the o'-ecties o this stud& are as
ollosL
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• To stud& and understands the conce*ts and *rocedures inoled in 7P;%s+
• To stud& understand the *rocess o ue iligence and its signiicance in 7P;%s+
• To anal&=e the eect o 7nitial Pu'lic ;ers on the issuing co.*an&, inestors and
stoc" .ar"et+
• To understand the role o an 7nest.ent 'an"er in .anaging 7P;%s+
The issue o an 7P; '& a co.*an& inoled nu.'er o stages, each calling or great
deal eriication+ The releant u*date inor.ation on the co.*an& has to cauteri=e
*recisel& in the *ros*ectus+ The decision '& the inestor on hether to inest in a
co.*an& inluenced signiicantl& '& inor.ation contained in the *ros*ectus+ K&
research also coers the actors hich inluencing the inestors .indset to inest
.one&+
So.e other researcher%s also done the so .an& researches+ 7n their researches the
gien o'-ecties are aaila'le+
• The stud& the conce*t o 7nitial Pu'lic ;er (7P;)+
• To stud& the *rocedure or 7P;s+
• To stud& the 7P;%s o in inrastructure sector the > i.ited, Housing
• eelo*.ent and 7nrastructure i.ited and ;.a$e i.ited on the 'asis o issue,
allot.ent and *eror.ance+
7n this research e can o'sere that, Conce*t o 7P;s and *rocedure o 7P;s onl&+ K&
research also coers the *rocedure o 7P;s ith dierent .ethods o 7P;s *ricing
calculations,
Another Research also done on 7P;%s, the o'-ecties o stud& are as ollos++
• To get the "noledge o 7P;+
• To anal&=e the returns o 7P;s hich ere issued in the 1st Iuarter o 00@+
• To "no the return o those 7P;s or 1 .onth, D .onths, 6 .onths, and 1 &ear+
• To "no the .ar"et rate o return or the sa.e *eriod+
• To "no the *rocedure or calculating the Standard eiation, calculating
Shar*e%s Ratio E the a'nor.al return+
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7n a'oe research stud& e can "no a'out the conce*t o 7P;s and returns on 7P;s+
K& research coers the inor.ation related to returns and this research gies the
"noledge to eer& inestor a'out the .ar"et conditions and ho are the e$*ected
returns in *articular scenario+
8ut, .& research is dierent ro. all the other researches and this research in ne
research+ 7n this research the researcher%s .ain ai. is to ind out the conce*ts 7P;s as
ell as ho the stoc" .ar"et eected '& an 7P;s+ 7n this research, researcher%s done a
case stud& on 7P;s o C;A 7/7A 7K7T#+ Ho the C7 7P;s aect the Stoc"
Kar"ets+
The literature reie on 7P;s can 'e diided in the olloing .ain heads
a2 Reason and timing of going public
?oing *u'lic .ar"s a atershed in the lie c&cle o the ir.+ 4hile increased
eIuit& can su**ort the ir.%s uture *lans o groth, the trade o or the ir. is that o
increased *u'lic scrutin&+
B%#a)* an. M*#%s (>>82 state that in the conte$t o USA the ir.s .a& see"
*riate eIuit& in their initial &ears and onl& later go or *u'lic issues+
Pa0an+5 Pan#tta an. in0a)#s !2 in their stud& o Ita)ian -i%3s, ind that
ir.s going *u'lic are not see"ing .one& or groth 'ut are re'alancing their
accounts ater high inest.ent and groth+
L#%n#% !72 ound that there are ti.es (indos o o**ortunit&) hen the
.ar"ets could 'e e$tre.el& o*ti.istic a'out a *articular industr& and it .a& 'e a
good ti.e or the ir.s in that industr& to go *u'lic+
The *ost 7P; *eriod sees a reduction in leerage as ell as inest.ent+ The& state
that going *u'lic is a conscious choice that so.e ir.s .a"e hile so.e others *reer to
re.ain *riate+ Thus going *u'lic is not a natural ele.ent in the lie c&cle o a ir.+
4 ) Valuation of IPO’s
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• B#n'#nist# an. Sin.t !2 ind that under riters tr& to resole the
inor.ation as&..etr& *ro'le. 'eteen the ir. and the inestors '& *roiding
an incentie to the inestors to reeal their *riate inor.ation a'out the ir.+
Ki3 an. Ritt#% !2 in their stud& o 190 ir.s ind that under riters orecast
the ne$t &ears earnings nu.'ers and .ulti*l& the. ith P# ratios o co.*ara'le
ir.s in the industr& to get the a**ro$i.ate *rice o the 7P;+ Hoeer the& also
ound that P# ratios using historical earnings nu.'ers do not gie accurate results
hereas hen orecasted earnings nu.'ers are used then the aluation is .uch
.ore accurate+
P,%nanan.a3 an. S/a3inathan (>>(2 sa& that 7P;s are *riced 50: higher than industr& *eers+ Also the& ind that .ore the 7P; is oer*riced ith res*ect to
its *eers, orse is its long ter. *eror.ance+
c) Allocation mecanism
The allocation .echanis.s are s*eciied '& the regulators in dierent countries+
L+,0h%an5 Ritt#% an. R*.'ist !72 ind D .ain categories across countries
Auctions, >i$ed *rice oers and 8oo" 8uilding+ Sh#%3an (>>82 inds that 8oo"
'uilding is a su*erior .echanis. or selling 7P;s rather than auctions+
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INITIAL PUBLIC OFFERING IPO2
7nitial *u'lic oering (7P;), also reerred to si.*l& as a F*u'lic oeringF, is hen a
co.*an& issues co..on stoc" or shares to the *u'lic or the irst ti.e+ The& are oten
issued '& s.aller, &ounger co.*anies see"ing ca*ital to e$*and, 'ut can also 'e done '&
large *riatel&oned co.*anies loo"ing to 'eco.e *u'licl& traded+ 7n an 7P;, the issuer
.a& o'tain the assistance o an underriting ir., hich hel*s it deter.ine hat t&*e o
securit& to issue (co..on or *reerred), 'est oering *rice and ti.e to 'ring it to .ar"et+
7nitial Pu'lic ;ering (7P;) in 7ndia .eans the selling o the shares o a co.*an&, or the
irst ti.e, to the *u'lic in the countr&s ca*ital .ar"ets+ This is done '& giing to the
*u'lic, shares that are either oned '& the *ro.oters o the co.*an&
or '& issuing ne shares+ uring an 7nitial Pu'lic ;er (7P;) the shares are gien to the
*u'lic at a discount on the intrinsic alue o the shares and this is the reason that the
inestors 'u& shares during the 7nitial Pu'lic ;ering (7P;) in order to .a"e *roits or
the.seles+
7P; in 7ndia is done through arious .ethods li"e 'oo" 'uilding .ethod, i$ed
*rice .ethod, or a .i$ture o 'oth+ The .ethod o 'oo" 'uilding has 'een introduced in
the countr& in 1999 and it hel*s the co.*an& to ind out the de.and and *rice o its
shares+ A .erchant 'an"er is no.inated as a 'oo" runner '& the 7ssuer o the 7P;+ The
co.*an& that is issuing the 7nitial Pu'lic ;ering (7P;) decides the nu.'er o shares
that it ill issue and also i$es the *rice 'and o the shares+ All these inor.ation are
.entioned in the co.*an&s red herring *ros*ectus+ uring the co.*an&s 7nitial Pu'lic
;ering (7P;) in 7ndia, an electronic 'oo" is o*ened or at least ie da&s+ uring this
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*eriod o ti.e, 'idding ta"es *lace hich .eans that *eo*le ho are interested in 'u&ing
the shares o the Co.*an& .a"es an oer ithin the i$ed *rice 'and+ ;nce the 'oo"
'uilding is closed then the issuer as ell as the 'oo" runner o the 7nitial Pu'lic ;ering
(7P;) ealuate the oers and then deter.ine a i$ed *rice+ The oers or shares that all
'elo the i$ed *rice are re-ected+ The successul 'idders are then allotted the shares
7P;%s can 'e a ris"& inest.ent+ >or the indiidual inestor, it is tough to *redict hat the
stoc" or shares ill do on its initial da& o trading and in the near uture since there is
oten little historical data ith hich to anal&=e the co.*an&+ Also, .ost 7P;%s are o
co.*anies going through a transitor& groth *eriod, and the& are thereore su'-ect to
additional uncertaint& regarding their uture alue
KINDS OF ISSUES
Pri.aril&, issues can 'e classiied as a Pu'lic, Rights or *reerential issues (also "non as
*riate *lace.ents)+ 4hile *u'lic and rights issues inole a detailed *rocedure, *riate
*lace.ents or *reerential issues are relatiel& si.*ler+ The classiication o issues is
illustrated 'eloJ
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Pu'lic issues can 'e urther classiied into 7nitial Pu'lic oerings and urther *u'lic
oerings+ 7n a *u'lic oering, the issuer .a"es an oer or ne inestors to enter its
shareholding a.il&+ The issuer co.*an& .a"es detailed disclosures as *er the 7P
guidelines in its oer docu.ent and oers it or su'scri*tion+ The signiicant eatures are
illustrated 'eloJ
Initia) P,4)i$ O--#%in0 IPO2
7t is hen an unlisted co.*an& .a"es either a resh issue o securities or an oer or sale
o its e$isting securities or 'oth or the irst ti.e to the *u'lic+ This *aes a& or listing
and trading o the issuer%s securities+
F,%th#% ,4)i$ +--#%in0 FPO2
7t is hen an alread& listed co.*an& .a"es either a resh issue o securities to the *u'lic
or an oer or sale to the *u'lic, through an oer docu.ent+ An oer or sale in such
scenario is alloed onl& i it is .ade to satis& listing or continuous listing o'ligations+
Ri0hts Iss,# RI2
7t is hen a listed co.*an& hich *ro*oses to issue resh securities to its e$isting
shareholders as on a record date+ The rights are nor.all& oered in a *articular ratio to
the nu.'er o securities held *rior to the issue+ This route is 'est suited or co.*anies
ho ould li"e to raise ca*ital ithout diluting sta"e o its e$isting shareholders unless
the& do not intend to su'scri'e to their entitle.ents+
P%i'at# )a$#3#nt
7t is an issue o shares or o conerti'le securities '& a co.*an& to a select grou* o
*ersons under Section 31 o the Co.*anies Act, 1956 hich is neither a rights issue nor a
*u'lic issue+ This is a aster a& or a co.*an& to raise eIuit& ca*ital+ A *riate
*lace.ent o shares or o conerti'le securities '& a listed co.*an& is generall& "non
'& na.e o *reerential allot.ent+ A listed co.*an& going or *reerential allot.ent has
to co.*l& ith the reIuire.ents contained in Cha*ter Q777 o S#87 (7P) ?uidelines
*ertaining to *reerential allot.ent in S#87 (7P) guidelines include *ricing, disclosures
in notice etc, in addition to the reIuire.ents s*eciied in the Co.*anies Act+
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Ma=+% R#as+n -+% Listin0 IPO
Th# in$%#as# in th# $aita) An 7P; allos a co.*an& to raise unds or
utili=ing in arious cor*orate o*erational *ur*oses li"e acIuisitions, .ergers,or"ing ca*ital, research and deelo*.ent, e$*anding *lant and eIui*.ent and
.ar"eting+
Li,i.it* The shares once traded hae an assigned .ar"et alue and can 'e
resold+ This is e$tre.el& hel*ul as the co.*an& *roides the e.*lo&ees ith
stoc" incentie *ac"ages and the inestors are *roided ith the o*tion o trading
their shares or a *rice+
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Mana0#% to the 7ssue shall carr& out such changes in the drat Pros*ectus or co.*l& ith
the o'seration issued '& the 8oard 'eore iling the Pros*ectus ith R;C+
C+3ani#s 4a%%#. n+t t+ iss,# s#$,%it*
/o co.*an& shall .a"e an issue o securities i the co.*an& has 'een
*rohi'ited ro. accessing the ca*ital .ar"et under an& order or direction *assed
'& the 8oard+
A)i$ati+n -+% )istin0
/o co.*an& shall .a"e an& *u'lic issue o securities unless it has .ade
an a**lication or listing o those securities in the stoc" e$change
Iss,# +- s#$,%iti#s in .#3at#%ia)i#. -+%3
/o co.*an& shall .a"e *u'lic or rights issue or an oer or sale o
securities, unlessJ
The co.*an& enters into an a0%##3#nt ith a .#+sit+%* or
de.ateriali=ation o securities alread& issued or *ro*osed to 'e issued to the
*u'lic or e$isting shareholdersL and
a+ The co.*an& gies an +ti+n to su'scri'ers shareholders
inestors to %#$#i'# the securit& $#%ti-i$at#s +% hold securities in
.#3at#%ia)i#. -+%3 ith a de*ositor&+
IPO G%a.in0
/o ,n)ist#. $+3an* shall .a"e an 7P; o eIuit& shares unless the
olloing $+n.iti+ns are satisied as on the date o iling o Pros*ectus ith R;CJ
a+ the unlisted co.*an& has +4tain#. grading or the 7P; ro. at
)#ast +n# credit rating agenc&
'+ Dis$)+s,%#s o all the 0%a.#s o'tained, along ith the rationale
descri*tion urnished '& the credit rating agenc&(ies) or each o
the grades o'tained+
E)i0i4i)it* N+%3s -+% IPO
An unlisted co.*an& .a& .a"e an initial *u'lic oering (7P;) o eIuit& shares
onl& i J
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• The co.*an& has net tangi'le assets o at least Rs+ D crores in each o the
*receding D ull &ears (o 1 .onths each), o hich not .ore than 50: is held in
.onetar& assets+
•
The co.*an& has a trac" record o distri'uta'le *roits in ter.s o Section 05 o the Co.*anies Act, 1956, or at least three (D) out o i..ediatel& *receding ie
(5) &ears+
• The co.*an& has a net orth o at least Rs+ 1 crore in each o the *receding D ull
&ears (o 1 .onths each)+
• 7n case the co.*an& has changed its na.e ithin the last one &ear, at least 50: o
the reenue or the *receding 1 ull &ear is earned '& the co.*an& ro. the
actiit& suggested '& the ne na.e+
PROCEDURE FOR IPOs
Fi@#. P%i$in0 '#%s,s T%,# P%i$in0 B++: B,i).in02
The traditional .ethod o doing 7P;s is the i$ed *rice oering+ Here, the issuer and the
.erchant 'an"er agree on an Nissue *riceM+ Then the inestor has a choice o illing in an
a**lication or. at this *rice and su'scri'ing to the issue+ #$tensie research has reealed
that the i$ed *rice oering is a *oor a& o doing 7P;s+ >i$ed *rice oerings, all oer
the orld, suer ro. 7P; under*ricing+ 7n 7ndia, on aerage, the i$ed*rice see.s to
'e around 50: 'elo the *rice at irst listingL i+e+ the issuer o'tains 50: loer issue
*roceeds as co.*ared to hat .ight hae 'een the case+ This aerage .as"s a stead&
strea. o du'ious 7P;s ho get an issue *rice hich is .uch higher than the *rice at irst
listing+ Hence i$ed *rice oerings are ea" in to directionsJ
du'ious issues get oer*riced and
?ood issues get under *riced+
BOOKBUILDING
A .echanis. here, during *eriod or hich the 7P; is o*en, 'ids are collected ro.
inestors at arious *rices hich are a'oe or eIual to the loor *rice (the .ini.u.
*rice)+ The inal *rice o the share is deter.ined ater the 'id closing date, 'ased on
certain ealuation criteria+
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The SEBI Dis$)+s,%# an. In'#st+% P%+t#$ti+n2 G,i.#)in#s5 (>>>, deine the ter.
'oo"'uilding in a rather co.*le$ language as Fa *rocess underta"en '& hich a
de.and or the securities *ro*osed to 'e issued '& a 'od& cor*orate is elicited and 'uilt
u* and the *rice or such securities is assessed or deter.ination o the Iuantu. o such
securities to 'e issued '& .eans o a notice, circular, adertise.ent, docu.ent or
inor.ation .e.oranda or oer docu.ent+
8oo" 'uilding *rocess is a co..on *ractice used in .ost deelo*ed countries or
.ar"eting a *u'lic oer o eIuit& shares o a co.*an&+ Hoeer, 8oo" 'uilding acts as
scientiic as ell as le$i'le *rice discoer& .ethod through hich a consensus *rice o
7P;%s .a& 'e deter.ined '& the issuer co.*an& along ith the 8oo" Running ead
Kanager (i+e+ .erchant 'an"er) on the 'asis o eed'ac" receied ro. indiidual
inestors as ell as .ost inor.ed inestors (ho are institutional and cor*orate inestors
li"e, BT7, 7C7, ?7C7, >77s, and S>C7 etc)+ The .ethod hel*s to .a"e a correct ealuation
o a co.*an&%s *otential and the *rice o its shares+
7n si.*le ter.s, 'oo"'uilding is a .echanis. '& hich the iss,# %i$# is .is$+'#%#. on
the 'asis o 4i.s %#$#i'#. ro. s&ndicate .e.'ers'ro"ers and not '& the
issuers.erchant 'an"ers+
TYPES OF BOOKBUILDING
The issue o securities through 8oo" 'uilding can 'e done in either o the olloing to
a&s+
• @5: 8oo" 'uilding
• 100: 8oo" 'uilding
8 B++: B,i).in0 %+$#ss
Bnder this t&*e o *u'lic oer, the issue o securities has to 'e categori=ed intoJ
Place.ent *ortion categor&
/et oer to the *u'lic
The o*tion o @5: 8oo" 8uilding is aaila'le to all 'od& cor*orate that are
otherise eligi'le to .a"e an issue o ca*ital to the *u'lic+ The securities issued through
the 'oo" 'uilding *rocess are indicated as *lace.ent *ortion categor& and securities
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aaila'le to *u'lic are identiied as net oer to *u'lic+ 7n this o*tion, underriting is
.andator& to the e$tent o the net oer to the *u'lic+ The issue *rice or the *lace.ent
*ortion and oers to *u'lic are reIuired to 'e sa.e
!>> +- th# n#t +--#% t+ th# ,4)i$ th%+,0h B++: B,i).in0 %+$#ss J
The 100: o the net oer to the *u'lic, entire issue is .ade through 8oo"
8uilding *rocess+ Hoeer, there can 'e a reseration or ir. allot.ent to a .a$i.u. o
5: o the issue si=e or the *er.anent e.*lo&ees, shareholders o the co.*an& or grou*
co.*anies, *ersons ho, on the date o iling o the drat oer docu.ent ith the 8oard,
hae 'usiness association, as de*ositors, 'ondholders and su'scri'ers to serices, ith the
issuer .a"ing an initial *u'lic oering+
The nu.'er o 'idding centres, in case o @5: 'oo" 'uilding *rocess should not
'e less than the nu.'er o .andator& collection centres s*eciied '& S#87+ 7n case o
100: 'oo" 'uilding *rocess, the 'idding centres should 'e at all the *laces here the
recognised stoc" e$changes are situated+
PROCESS OF BOOKBUILDING
The 8oo" 'uilding is 'asicall& an auction o share+ 8oo" 'uilding essentiall& .eans that
the !'oo" is 'eing 'uilt+% uring the *rocess on 'oth the /S# E 8S#, inestors can atch
the 'oo" 'eing 'uilt a chart shon indicates the 'id *rice E the nu.'er o shares 'eing
'id or+ This hel*s the inestors to "no the .ar"et *rice+ >olloing .entioned are the
.ain ste*s o 8oo" 'uilding Process+
The co.*an& irst a+ints a 4++: %,nn#%, i+e+ .erchant 'an"er+
The 4++: %,nn#% %#a%#s & s,43its th# .%a-t .+$,3#nts t+ th# SEBI E
o'tains an ac"noledge.ent card+
The iss,#% & 4++: %,nn#% .#$i.# t+ +--#% sha%#s at a %i$# /ithin a s#$i-i#.
%i$# 4an. %an0#2"
;er regarding the .#3an. -+% s#$,%iti#s at .i--#%#nt %i$# )#'#)s a%# in'it#.
-%+3 s*n.i$at# 3#34#%s consisting o eligi'le 'ro"ers, .erchant 'an"ers,
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underriters, inancial institutions, the 'ids+ The adertise.ent should .ention
the o*ening E closing dates or the 'ids+ A 'id is usuall& o*en or .ini.u. 5
or"ing da&s+
8ased on the 'ids receied, the iss,#% a%%i'#s at a -ina) $,t+-- %at# E the
allocation in consultation ith 8RK+
The issuer E the 'oo" runner .a& i.*ose restrictions on the nu.'er o shares
that can 'e allotted to each client so as to aoid an& uture ta"eoer threats+
The -ina) %+s#$t,s is -i)#. /ith th# %#0ist%a% o co.*anies along ith the
*rocure.ent agree.ent+
The *lace.ent *ortion o*ens or su'scri*tion onl& ater the *ros*ectus is iled
ith the R;C+
The *lace.ent *ortion closes a da& 'eore the o*ening o the *u'lic issue *ortion+
The *u'lic *ortion o*ens E the allot.ent E listing o *uts is done+ The *rice
deter.ined in the 8oo" 'uilding *rocess is a**lica'le to the *u'lic *ortion as
ell+ 7 the *u'lic *ortion stands oersu'scri'ed, then the allot.ent is .ade on a
*ro*ortionate 'asis+
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B++: B,i).in0 P%+$#ss in In.ia
The ste*s hich are usuall& olloed in the 'oo" 'uilding *rocess can 'e su..ari=ed
'eloJ
1+ The issuer co.*an& *ro*osing an 7P; a**oints a lead .erchant 'an"er as a
8RK+
+ 7nitiall&, the issuer co.*an& consults ith the 8RK in draing u* a drat
*ros*ectus (i+e+ oer docu.ent) hich does not .ention the *rice o the issues,
'ut includes other details a'out the si=e o the issue, *ast histor& o the co.*an&,
and a *rice 'and+ The securities aaila'le to the *u'lic are se*aratel& identiied as
Nnet oer to the *u'licM+
D+ The drat *ros*ectus is iled ith S#87 hich gies it a legal standing+
+ A deinite *eriod is i$ed as the 'id *eriod and 8RK conducts aareness
ca.*aigns li"e adertise.ent, road shos etc+
5+ The 8RK a**oints a s&ndicate .e.'er, a S#87 registered inter.ediar& to
underrite the issues to the e$tent o Nnet oer to the *u'licM+
6+ The 8RK is entitled to re.uneration or conducting the 8oo" 8uilding *rocess+
@+ The co*& o the drat *ros*ectus .a& 'e circulated '& the 8RK to the
institutional inestors as ell as to the s&ndicate .e.'ers+
3+ The s&ndicate .e.'ers create de.and and as" each inestor or the nu.'er o
shares and the oer *rice+
9+ The 8RK receies the eed'ac" a'out the inestor%s 'ids through s&ndicate
.e.'ers+
10+ The *ros*ectie inestors .a& reise their 'ids at an& ti.e during the 'id *eriod+
11+ The 8RK on recei*ts o the eed'ac" ro. the s&ndicate .e.'ers a'out the 'id
*rice and the Iuantit& o shares a**lied has to 'uild u* an order 'oo" shoing the
de.and or the shares o the co.*an& at arious *rices+ The s&ndicate .e.'ers
.ust also .aintain a record 'oo" or orders receied ro. institutional inestors
or su'scri'ing to the issue out o the *lace.ent *ortion+
1+ ;n recei*ts o the a'oe inor.ation, the 8RK and the issuer co.*an&
deter.ine the issue *rice+ This is "non as the .ar"etclearing *rice+
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1D+ The 8RK then closes the 'oo" in consultation ith the issuer co.*an& and
deter.ine the issue si=e o (a) *lace.ent *ortion and (') *u'lic oer *ortion+
1+ ;nce the inal *rice is deter.ined, the allocation o securities should 'e .ade '&
the 8RK 'ased on *rior co..it.ent, inestor%s Iualit&, *rice aggression,
earliness o 'ids etc+ The 'id o an institutional 'idder, een i he has *aid ull
a.ount .a& 'e re-ected ithout 'eing assigned an& reason as the 8oo" 8uilding
*ortion o institutional inestors is let entirel& at the discretion o the issuer
co.*an& and the 8RK+
15+ The >inal *ros*ectus is iled ith the registrar o co.*anies ithin da&s o
deter.ination o issue *rice and recei*ts o ac"noledge.ent card ro. S#87+
16+ To dierent accounts or collection o a**lication .one&, one or the *riate
*lace.ent *ortion and the other or the *u'lic su'scri*tion should 'e o*ened '&
the issuer co.*an&+
1@+ The *lace.ent *ortion is closed a da& 'eore the o*ening o the *u'lic issue
through i$ed *rice .ethod+ The 8RK is reIuired to hae the a**lication or.s
along ith the a**lication .one& ro. the institutional 'u&ers and the
underriters to the *riate *lace.ent *ortion+
13+ The allot.ent or the *riate *lace.ent *ortion shall 'e .ade on the nd da& ro.
the closure o the issue and the *riate *lace.ent *ortion is read& to 'e listed+
19+ The allot.ent and listing o issues under the *u'lic *ortion (i+e+ i$ed *rice
*ortion) .ust 'e as *er the e$isting statutor& reIuire.ents+
0+ >inall&, the S#87 has the right to ins*ect such records and 'oo"s hich are
.aintained '& the 8RK and other inter.ediaries inoled in the 8oo" 8uilding
*rocess+
P%i$in0
8eore esta'lish.ent o S#87 in 199, the Iualit& o disclosures in the oer docu.ents
as er& *oor+
The .ain dra'ac" o ree *ricing as the *rocess o *ricing o issues+ The issue *rice
as deter.ined around 60@0 da&s 'eore the o*ening o the issue and the issuer had no
clear idea a'out the .ar"et *erce*tion o the *rice deter.ined+
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7n 8oo" 8uilding the *rice is deter.ined on the 'asis o de.and receied or at *rice
a'oe or eIual to the loor *rice+
Th# A))+t3#nt P%+$#ss th%+,0h B++:4,i).in0
Ste#$% The &om#any will 'discover' its #rice
#arlier, the co.*an& deter.ined a i$ed *rice or the stoc" issue+ The issue as .ar"eted
to the general *u'lic through adertise.ents and a .edia ca.*aign+
Toda&, co.*anies *reer a 'oo" 'uilding *rocess+ 8oo" 'uilding is the *rocess o *rice
discoer&+ That .eans there is no i$ed *rice or the share+ 7nstead, the co.*an& issuing
the shares co.es u* ith a *rice 'and+ The loest *rice is reerred to as the loor and the
highest, the ca*+ 8ids are then inited or the shares+ #ach inestor states ho .an&
shares she ants and hat she is illing to *a& or those shares (de*ending on the *rice
'and)+ The actual *rice is then discoered 'ased on these 'ids+
Ste#( % Players of the game
Three classes o inestors can 'id or the sharesJ
ualiied 7nstitutional 8u&ersJ 78s include .utual unds and >oreign
7nstitutional 7nestors+ At least 50: o the shares are resered or this categor&+
Retail inestorsJ An&one ho 'ids or shares under Rs 50,000 is a retail inestor+
At least 5: is resered or this categor&+
The 'alance 'ids are oered to high net orth indiiduals and e.*lo&ees o the
co.*an&+
OB;ECTS OF THE OFFERING NEW IPO
>unds ReIuire.ent
>unding Plan (Keans o >inance)
A**raisal
Schedule o 7.*le.entation
>unds e*lo&ed
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Sources o >inancing o >unds alread& de*lo&ed
etails o 8alance >und ReIuire.ent
7nteri. Bse o >unds
8asic Ter.s o 7ssue
8asis or issue *rice
Ta$ 8eneits
AD
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share o the co.*an&+ The& hae their indiidual de.ands to 'e .et as the& on a certain
*ercentage o sta"es in the co.*an&+ The S#C regulations reIuire notiications ro. the
shareholders o the co.*an&, .eetings, and also a**roals ro. the. hile .a"ing
i.*ortant 'usiness decisions+
A .a-or ris" ith shareholders is that, the& can sell o their stoc"s an& ti.e the& ant, in
case the& see the *rice 'and o the sta"es o that co.*an& is going don+ This ill lead to
a urther dro* o the alue o shares in the .ar"et hich in turn ill decrease the oerall
alue o the co.*an&+
IPO G%a.in0
IPO 0%a.in0 (initial *u'lic oering grading) is a serice ai.ed at acilitating the
assess.ent o eIuit& issues oered to *u'lic+ The grade assigned to an& indiidual issue
re*resents a relatie assess.ent o the !unda.entals% o that issue in relation to the other
listed eIuit& securities in 7ndia+ 7P; grading is *ositioned as a serice that *roides !an
inde*endent assess.ent o unda.entals% to aid co.*aratie assess.ent that ould *roe
useul as an inor.ation and inest.ent tool or inestors+ Koreoer, such a serice
ould 'e *articularl& useul or assessing the oerings o co.*anies accessing the eIuit&.ar"ets or the irst ti.e here there is no trac" record o their .ar"et *eror.ance+
7P; grade assigned to an& issue re*resents a relatie assess.ent o the !unda.entals% o
that issue in relation to the unierse o other listed eIuit& securities in 7ndia+ This grading
can 'e used '& the inestor as tool to .a"e inest.ent decision+ The 7P; grading ill
hel* the inestor 'etter a**reciate the .eaning o the disclosures in the issue docu.ents
to the e$tent that the& aect the issue%s unda.entals+ Thus, 7P; grading is an additional
inestor inor.ation and inest.ent guidance tool+
Credit Rating agencies (CRAs) li"e 7CRA, CR7S7, CAR# and >itch Ratings ho are
registered ith S#87 ill carr& out 7P; grading+ S#87 does not *la& an& role in the
assess.ent .ade '& the grading agenc&+ The grading is intended to 'e an inde*endent and
un'iased o*inion o that agenc&+ 7P; grading is not .andator& 'ut is o*tional and the
assigned grade ould 'e a one ti.e assess.ent done at the ti.e o the 7P; and .eant to
aid inestors ho are interested in inesting in the 7P;+ The grade ill not hae an&ongoing alidit&+
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SEBI GUIDELINES ON IPO GRADING
/o unlisted co.*an& shall .a"e an 7P; o eIuit& shares or an& other securit&
hich .a& 'e conerted into or e$changed ith eIuit& shares at a later date,
unless the olloing conditions are satisied as on the date o iling o Pros*ectus
(in case o i$ed *rice issue) or Red Herring Pros*ectus (in case o 'oo" 'uilt
issue) ith R;CJ
• The unlisted co.*an& has o'tained grading or the 7P; ro. at least one
credit rating agenc&L
• isclosures o all the grades o'tained, along ith the rationaledescri*tion
urnished '& the credit rating agenc&(ies) or each o the grades o'tained,
hae 'een .ade in the Pros*ectus (in case o i$ed *rice issue) or Red
Herring Pros*ectus (in case o 'oo" 'uilt issue)L and
• The e$*enses incurred or grading 7P; hae 'een 'orne '& the unlisted
co.*an& o'taining grading or 7P;+
Kost o the .ar"et anal&sts hae elco.ed this .oe o S#87 as it ill hel* the
inestors in a olatile .ar"et to "no hether the .erchant 'an"er has carried the
e$ercise in deter.ining the *rice o an issue in a *ro*er .anner or not+ 7t ill also hel*
the inestors in "noing hether the *rice o the issue is -ustiied or not+ The& een said
that .anage.ent o a good co.*an& ill neer get araid o getting graded o their 7P;s
i the& are good+ The onl& de.erit o this ste* '& the S#87 as said '& .an& e$*erts is that
there ill 'e a slodon in the nu.'er o 7P;s co.ing out as grading ill 'e a 'it
length& *rocess and there ill 'e a costactor attached to it also+
FEATURES OF IPO GRADING
7P; grading coers 'oth internal and e$ternal as*ects o a co.*an& see"ing to
.a"e an 7P; in general+ The internal actors include co.*etence and eectieness o the
.anage.ent, *roile o *ro.oters, .ar"eting strategies, si=e and groth o reenues,
co.*etitie edge, technolog&, o*erating eicienc&, liIuidit& and inancial le$i'ilit&, asset
Iualit&, accounting Iualit&, *roita'ilit& and hedging o ris"s+ A.ong e$ternal actors, the
"e& one is the industr& and econo.ic'usiness eniron.ent or the issuer+ Here, it is
i.*ortant to note that internationall&, the glo'al rating agencies such as Standard E Poorsand Kood&s do not *eror. grading o 7P;s at all+ 4hile Standard E Poors is the
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.a-orit& sta"eholder in CR7S7 td, Kood&s is the single 'iggest sta"eholder in 7CRA
td+ Si.ilarl&, the third glo'al *la&er >itch 78CA (hich acIuired another rating agenc&
un E 8radstreet in 000) also does not grade 7P;s as &et+ The 7P; grading is indicated
on a ie *oint scale and a higher score indicating stronger unda.entals+
AN IPO GRADING SCALE
IPO 0%a.# Ass#ss3#nt
55 Strong unda.entals
5 A'oe aerage unda.entals
D5 Aerage unda.entals
5 8elo aerage unda.entals
15 Poor unda.entals
The *rocess ill ideall& reIuire D ee"s or co.*letion, so it .a& 'e a good
idea or co.*anies to initiate the grading *rocess a'out 63 ee"s 'eore the
targeted 7P; date to *roide suicient ti.e or an& contingencies+
C+st In'+)'#. In IPO G%a.in0
Though nothing has 'een declared oiciall& 'ut .ost o the credit rating has said
that 7P;grading ould not cost .uch to the issuers+ The& ould 'e charging 10 'asis
*oints o the a.ount to 'e raised ith a ceiling o a'out Rs 1015 la"hs+ Thus, een in the
case o a .ega 7P;, there ould 'e a ca* on ees, he noted+ Around 100 7P;s hit the
.ar"et on an aerage eer& &ear+ Hoeer, des*ite this see.ingl& 'ig nu.'er, the total
recei*ts or the entire rating industr& on account o grading ees ould 'e onl& a'out Rs
1015 crore+
B#n#-its +- IPO G%a.in0
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There are arious *ositie sides o an 7P; grading+ The .ost signiicant actors
that go in aor o 7P; grading areJ
(a) P%+-#ssi+na) an. In.##n.#nt A%aisa) 7P; grading ill create aareness
a'out the unda.entals o the co.*an&%s 7P; and ill *roide ocused co.*an&
inor.ation as a "e& in*ut to *ros*ectie inestors that ill 'e hel*ul in ta"ing an
inest.ent decision, in a .anner si.ilar to hat a credit rating is or de't
inestors+
(') R#3+'a) +- In-+%3ati+n B,%.#n 4here disclosures o issues are large and
co.*le$, a serice anal&=ing and inter*reting these disclosures inde*endentl& and
Iuic"l& ill 'e e$tre.el& useul in cutting through the clutter+ Thus, the
useulness o 7P; grading ould 'e *articularl& high or s.all inestors as it ill
sere as a guide a'out the co.*an& co.ing out ith the issue+
(c) I3#.i3#nt -+% W#a: C+3ani#s 4hile unda.entall& sound co.*anies ill
gain ro. the .ar"et, co.*anies hose unda.entals are not er& strong ill 'e
i.*eded in 'uilding u* s*eculatie de.and a.ong inestors+ Such ea"
co.*anies ill need to oer *ricing, hich ill adeIuatel& co.*ensate inestors
or the ris"s the& ta"e+ Thereore, 7P; grading *roides disincenties or ea"
co.*anies *lanning to co.e to the .ar"et to raise eas& ca*ital+
ROLE OF MERCHANT BANKERS IN IPO
7nter.ediar&%s hel* cor*orations design securities that ill 'e attractie to
inestors, 'u& these securities ro. the cor*orations, and then resell the. to saers in the
*ri.ar& .ar"ets+
M#%$hant Ban:#%sJ L#a. Mana0#%
Kerchant 'an"ers *la& an i.*ortant role in issue .anage.ent *rocess+ ead
.anagers hae to ensure correctness o the inor.ation urnished in the oer docu.ent+
The& hae to ensure co.*liance ith S#87 rules and regulations as also ?uidelines or
isclosures and 7nestor Protection+ To this eect, the& are reIuired to su'.it to S#87 a
due diligence certiicate conir.ing that the disclosures .ade in the drat *ros*ectus or
letter o oer are true, air and adeIuate to ena'le the *ros*ectie inestors to .a"e a
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ell inor.ed inest.ent decision+ The role o .erchant 'an"ers in *eror.ing their due
diligence unctions has 'eco.e een .ore i.*ortant ith the strengthening o disclosure
reIuire.ents and ith S#87 giing u* the etting o *ros*ectuses+ Their unctions areJ
To act as inter.ediaries 'eteen the co.*an& see"ing to raise .one& and the
inestors+ The& .ust *ossess a alid registration ro. S#87 ena'ling the. to do
this -o'+
The& are res*onsi'le or co.*l&ing ith the or.alities o an issue, li"e draing
u* the *ros*ectus and .ar"eting the issue+
7 it is a 'oo" 'uilding *rocess, the lead .anager is also in charge o it+ 7n such a
case, the& are also called 8oo" Running ead Kanagers+
Post issue actiities, li"e inti.ation o allot.ents and reunds, are their res*onsi'ilit& as
ell+
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ORIGIN OF INDIAN STOCK MARKET
The origin o the stoc" .ar"et in 7ndia goes 'ac" to the end o the eighteenth centur&
hen longter. negotia'le securities ere irst issued+ Hoeer, or all *ractical
*ur*oses, the real 'eginning occurred in the .iddle o the nineteenth centur& ater the
enact.ent o the co.*anies Act in 1350, hich introduced the eatures o li.ited lia'ilit&
and generated inestor interest in cor*orate securities+
An i.*ortant earl& eent in the deelo*.ent o the stoc" .ar"et in 7ndia as the
or.ation o the natie share and st+$: 4%+:#%s Association at 8o.'a& in 13@5, the
*recursor o the *resent da& 8o.'a& Stoc" #$change+ This as olloed '& the
or.ation o associationse$changes in Ah.ada'ad (139), Calcutta (1903), and Kadras
(19D@)+ 7n addition, a large nu.'er o e*he.eral e$changes e.erged .ainl& in 'uo&ant
*eriods to recede into o'liion during de*ressing ti.es su'seIuentl&+
Stoc" e$changes are intricac& interoen in the a'ric o a nations econo.ic lie+
4ithout a stoc" e$change, the saing o the co..unit& the sines o econo.ic *rogress
and *roductie eicienc& ould re.ain underutili=ed+ The tas" o .o'ili=ation and
allocation o saings could 'e atte.*ted in the old da&s '& a .uch less s*eciali=ed
institution than the stoc" e$changes+ 8ut as 'usiness and industr& e$*anded and the
econo.& assu.ed .ore co.*le$ nature, the need or #%3an#nt -inan$# arose+
#ntre*reneurs needed .one& or long ter. hereas inestors de.anded liIuidit& O the
acilit& to conert their inest.ent into cash at an& gien ti.e+ The anser as a read&
.ar"et or inest.ents and this as ho the stoc" e$change ca.e into 'eing+
Stoc" e$change .eans an& 'od& o indiiduals, hether incor*orated or not, constituted
or the *ur*ose o regulating or controlling the 'usiness o 'u&ing, selling or dealing in
securities+ These securities includeJ
(i) Shares, scri*, stoc"s, 'onds, de'entures stoc" or other .ar"eta'le securities o a li"e
nature in or o an& incor*orated co.*an& or other 'od& cor*orateL
(ii) ?oern.ent securitiesL and
(iii) Rights or interest in securities+
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The 8o.'a& Stoc" #$change (8S#) and the /ational Stoc" #$change o 7ndia td (/S#)
are the to *ri.ar& e$changes in 7ndia+ 7n addition, there are Regional Stoc"
#$changes+ Hoeer, the 8S# and /S# hae esta'lished the.seles as the to leading
e$changes and account or a'out 30 *er cent o the eIuit& olu.e traded in 7ndia+ The
/S# and 8S# are eIual in si=e in ter.s o dail& traded olu.e+ The aerage dail&
turnoer at the e$changes has increased ro. Rs 351 crore in 199@93 to Rs 1,3 crore
in 199399 and urther to Rs ,@D crore in 1999000 (A*ril August 1999)+ /S# has
around 1500 shares listed ith a total .ar"et ca*itali=ation o around Rs 9, 1,500 crore+
The 8S# has oer 6000 stoc"s listed and has a .ar"et ca*itali=ation o around Rs 9,
63,000 crore+ Kost "e& stoc"s are traded on 'oth the e$changes and hence the inestor
could 'u& the. on either e$change+ 8oth e$changes hae a dierent settle.ent c&cle,
hich allos inestors to shit their *ositions on the 'ourses+ The *ri.ar& inde$ o 8S#
is 8S# Sense$ co.*rising D0 stoc"s+ /S# has the SEP /S# 50 7nde$ (/it&) hich
consists o it& stoc"s+ The 8S# Sense$ is the older and .ore idel& olloed inde$+
8oth these indices are calculated on the 'asis o .ar"et ca*itali=ation and contain the
heail& traded shares ro. "e& sectors+ Th# 3a%:#ts a%# $)+s#. +n Sat,%.a*s an.
S,n.a*s" 8oth the e$changes hae sitched oer ro. the o*en outcr& trading s&ste. to
a ull& auto.ated co.*uteri=ed .ode o trading "non as 8;T (8S# on ine Trading)
and /#AT (/ational #$change Auto.ated Trading) S&ste.+
7t acilitates .ore eicient *rocessing, auto.atic order .atching, aster e$ecution o
trades and trans*arenc&L the scri*s traded on the 8S# hae 'een classiied into A, 81,
8, C, > and grou*s+ The A grou* shares re*resent those, hich are in the carr&
orard s&ste. Ba.)a2+ The > grou* re*resents the de't .ar"et (i$ed inco.e
securities) seg.ent+ The grou* scri*s are the 'lac"listed co.*anies+ The C grou*
coers the odd lot securities in A, 81 E 8 grou*s and Rights renunciations+ The "e&
regulator goerning Stoc" #$changes, 8ro"ers, e*ositories, e*ositor& *artici*ants,
Kutual >unds, >77s and other *artici*ants in 7ndian secondar& and *ri.ar& .ar"et is the
Securities and #$change 8oard o 7ndia (S#87) td+
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ABOUT BSE
8S# i.ited is the oldest stoc" e$change in Asia 4hat is no *o*ularl& "non as the
8S# as esta'lished as FThe /atie Share E Stoc" 8ro"ers AssociationF in 13@5+
;er the *ast 1D5 &ears, 8S# has acilitated the groth o the 7ndian cor*orate sector '&
*roiding it ith an eicient ca*ital raising *lator.+
Toda&, 8S# is the orlds nu.'er 1 e$change in the orld in ter.s o the nu.'er o
listed co.*anies (oer 900)+ 7t is the orlds 5th .ost actie in ter.s o nu.'er o
transactions handled through its electronic trading s&ste.+ And it is in the to* ten o
glo'al e$changes in ter.s o the .ar"et ca*itali=ation o its listed co.*anies (as o
ece.'er D1, 009)+ The co.*anies listed on 8S# co..and a total .ar"et ca*itali=ation
o BS Trillion 1+3 as o >e', 010+
8S# is the irst e$change in 7ndia and the second in the orld to o'tain an 7S; 9001J000
certiication+ 7t is also the irst #$change in the countr& and second in the orld to receie
7nor.ation Securit& Kanage.ent S&ste. Standard 8S @@9900 certiication or its
8S# ;nine trading S&ste. (8;T)+ Presentl&, e are 7S; @001J005 certiied, hich
is a 7S; ersion o 8S @@99 or 7nor.ation Securit&+
The 8S# 7nde$, S#/S#Q, is 7ndias irst and .ost *o*ular Stoc" Kar"et 'ench.ar"
inde$+ #$change traded unds (#T>) on S#/S#Q, are listed on 8S# and in Hong utures and o*tions on the inde$ are also traded at 8S#+
BSE CONTINUES TO INNO
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• AcIuired a 15: sta"e in Bnited Stoc" #$change (BS#) to drie the deelo*.ent
and groth o the currenc& and interest rate deriaties .ar"ets
• aunched 8S# STAR K> Kutual und trading *lator., hich ena'les e$change
.e.'ers to use its e$isting inrastructure or transaction in K> sche.es+
• 8S# no oers AK>7 Certiication or Kutual >und Adisors through 8S#
Training 7nstitute (8T7)
• Colocation acilities or Algorith.ic trading
• 8S# also successull& launched the 8S# 7P; inde$ and PSB e'site
• 8S# rea.*ed its e'site ith ide range o ne eatures li"e ie strea.ing
Iuotes or S#/S#Q co.*anies, Adanced Stoc" Reach, S#/S#Q Gie,
Kar"et ?ala$&, and Ke.'ers
• aunched 8S# S#/S#Q K;87# STR#AK#R
4ith its tradition o sering the co..unit&, 8S# has 'een underta"ing Cor*orate
Social Res*onsi'ilit& (CSR) initiaties ith a ocus on #ducation, Health and
#niron.ent+ 8S# has 'een aarded '& the 4orld Council o Cor*orate ?oernance the
?olden Peacoc" ?lo'al CSR Aard or its initiaties in Cor*orate Social Res*onsi'ilit&
(CSR)+
>or .ore details E inor.ation, *lease isit our e'siteJ +'seindia+co.
LOGO
Initial Public Offers and its effect on Stock Market Page
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ABOUT NSE
A4+,t th# Nati+na) St+$: E@$han0# +- In.ia
7n the ast groing 7ndian inancial .ar"et, there are D stoc" e$changes trading
securities+ The /ational Stoc" #$change o 7ndia (/S#) situated in Ku.'ai is the
largest and .ost adanced e$change ith 1016 co.*anies listed and @6 trading
.e.'ers+
The /S# is oned '& the grou* o leading inancial institutions such as 7ndian 8an" or
ie 7nsurance Cor*oration o 7ndia+ Hoeer, in the totall& de.utualised #$change, theonershi* as ell as the .anage.ent does not hae a right to trade on the #$change+
;nl& Iualiied traders can 'e inoled in the securities trading+
The /S# is one o the e e$changes in the orld trading all t&*es o securities on a
single *lator., hich is diided into three seg.entsJ 4holesale e't Kar"et (4K),
Ca*ital Kar"et (CK), and >utures E ;*tions (>E;) Kar"et+ #ach seg.ent has
e$*erienced a signiicant groth throughout a e &ears o their launch+ 4hile the 4K
seg.ent has accu.ulated the annual groth o oer D6: since its o*ening in 199, the
CK seg.ent has increased '& een 61: during the sa.e *eriod+
The /ational Stoc" #$change o 7ndia has stringent reIuire.ents and criteria or the
co.*anies listed on the #$change+ Kini.u. ca*ital reIuire.ents, *ro-ect a**raisal, and
co.*an&s trac" record are -ust a e o the criteria+ 7n addition, listed co.*anies *a&
aria'le listing ees 'ased on their cor*orate ca*ital si=e+
The /ational Stoc" #$change o 7ndia td+ *roides its clients ith a single, ull&
electronic trading *lator. that is o*erated through a GSAT netor"+ Bnli"e .ost orld
e$changes, the /S# uses the satellite co..unication s&ste. that connects traders ro.
D5 7ndian cities+ The adanced technologies ena'le u* to 6 .illion trades to 'e o*erated
dail& on the /S# trading *lator.+
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NSE HISTORY
The /ational Stoc" #$change (/S#) is 7ndias leading stoc" e$change coering arious
cities and tons across the countr&+ /S# as set u* '& leading institutions to *roide a
.odern, ull& auto.ated screen'ased trading s&ste. ith national reach+ The #$change
has 'rought a'out un*aralleled trans*arenc&, s*eed E eicienc&, saet& and .ar"et
integrit&+ 7t has set u* acilities that sere as a .odel or the securities industr& in ter.s o
s&ste.s, *ractices and *rocedures+
/S# has *la&ed a catal&tic role in reor.ing the 7ndian securities .ar"et in ter.s o
.icrostructure, .ar"et *ractices and trading olu.es+ The .ar"et toda& uses stateoart
inor.ation technolog& to *roide an eicient and trans*arent trading, clearing andsettle.ent .echanis., and has itnessed seeral innoations in *roducts E serices i=+
de.utuali=ation o stoc" e$change goernance, screen 'ased trading, co.*ression o
settle.ent c&cles, de.ateriali=ation and electronic transer o securities, securities
lending and 'orroing, *roessionalisation o trading .e.'ers, inetuned ris"
.anage.ent s&ste.s, e.ergence o clearing cor*orations to assu.e counter*art& ris"s,
.ar"et o de't and deriatie instru.ents and intensie use o inor.ation technolog&+
NSES MISSION
/S#s .ission is setting the agenda or change in the securities .ar"ets in 7ndia+ The
/S# as setu* ith the .ain o'-ecties oJ
• #sta'lishing a nationide trading acilit& or eIuities, de't instru.ents and h&'rids,
• #nsuring eIual access to inestors all oer the countr& through an a**ro*riate
co..unication netor",• Proiding a air, eicient and trans*arent securities .ar"et to inestors using
electronic trading s&ste.s,
• #na'ling shorter settle.ent c&cles and 'oo" entr& settle.ents s&ste.s, and
• Keeting the current international standards o securities .ar"ets+
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The standards set '& /S# in ter.s o .ar"et *ractices and technolog& hae 'eco.e
industr& 'ench.ar"s and are 'eing e.ulated '& other .ar"et *artici*ants+ /S# is .ore
than a .ere .ar"et acilitator+ 7ts that orce hich is guiding the industr& toards ne
hori=ons and greater o**ortunities+
LOGO
The logo o the /S# s&.'oli=es a single nationide securities trading acilit& ensuring
eIual and air access to inestors, trading .e.'ers and issuers all oer the countr&+ The
initials o the #$change i=+, /, S and # hae 'een etched on the logo and are distinctl&
isi'le+ The logo s&.'oli=es use o state o the art inor.ation technolog& and satellite
connectiit& to 'ring a'out the change ithin the securities industr&+ The logo s&.'oli=es
i'ranc& and unleashing o creatie energ& to constantl& 'ring a'out change through
innoation+
INDEX IN SHARE MARKET
7nde$ consists o grou* o shares+ 7nde$ denotes the direction o the entire .ar"et+ i"e
hen *eo*le sa& .ar"et is going u* or don then that .eans 7nde$ is going u* or don+
7nde$ consists o high .ar"et ca*itali=ation and high liIuidit& shares+
Hi0h Ma%:#t $aita)iati+n sha%#s Co.*anies haing highest nu.'er o shares and
highest *rice o each share+
Kar"et ca*itali=ation is calculated '& .ulti*l&ing current share *rice and nu.'er o
shares in the .ar"et+
Hi0h Li,i.it* sha%#s Shares in the .ar"et ith high olu.es+
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T/+ t*#s +- In.i$#s
1+ /it& and
+ Sense$
Ni-t* Ni-t* $+nsist +- a 0%+, +- 8> sha%#s"
S#ns#@ S#ns#@ $+nsist +- a 0%+, +- 6> sha%#s"
Stoc" e$changes .ainl& there are to e$changes in 7ndia+
$" )SE *)ational stock e+change, % )ifty is listed with )SE"
(" -SE *-ombay stock e+change, % Sense+ is listed with -SE"
/S# and 8S# are countries econo.ic 'aro.eter+
Stoc" e$changes li"e /S# and 8S# are the *laces here the trading o shares ta"es *lace+
ABOUT BULLS AND BEARS
What a%# B#a%?
B#a% An o*erator ho e$*ects the share *rice to all
B#a% Ma%:#t A ea" and alling .ar"et here 'u&ers are a'sent
What a%# B,))s?
B,)) An o*erator ho e$*ects the share *rice to rise and ta"es *osition in the
.ar"et to sell at a later date+
B,)) Ma%:#t A rising .ar"et here 'u&ers ar outnu.'er the sellers
A 'ull .ar"et is one here *rices are rising, hereas a 'ear .ar"et is one here
*rices are alling+ The to ter.s are also used to descri'e t&*es o inestors+
A stoc" .ar"et 'ull is so.eone ho has a er& o*ti.istic ie o the .ar"etL the& .a&
'e stoc"holders or .a&'e inestors ho aggressiel& 'u& and sell stoc"s Iuic"l&+ A 'ear
inestor, on the other hand, is *essi.istic a'out the .ar"et and .a& .a"e .ore
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conseratie stoc" choices+ So.eti.es, the ter.s are used to reer to s*eciic unds or
stoc"s+ 8ear .ar"et unds, or e$a.*le, are those that are alling and aring *oorl&+
7nestors so.eti.es reer to 'ull stoc"s to descri'e securities that are aggressiel& rising
and .a"ing their inestors .one&+
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une.*lo&.ent .a"es *eo*le ar less illing to ga.'le on the stoc" .ar"et+ So.eti.es,
a *anic caused '& dire *redictions a'out the .ar"et can also create 'earish conditions+
WHAT DOES BULL AND BEAR MEAN IN STOCK MARKET?
!" 7n the si.*lest ter.s, a 'ear .ar"et is a donard trend that is long ter., usuall&
.easured in .onths+ The ter. is generall& a**lied to the stoc" .ar"et and .a&
include so.e ariations, 'ut the lo *oints are not historicall& lo and the high
*oints are not historicall& high+
(" A 'ull .ar"et, in contrast, is a trend o si.ilar duration 'ut in an u*ard direction+
Again, the high *oints are not at historic leels and the lo *oints are not the
loest in .ar"et histor&+ >or 'oth a 'ear and a 'ull .ar"et, other deinitions .a& 'e .ore general or .ore s*eciic, de*ending on the econo.ist or stud& issuing the
state.ent+
6" The ani.al na.es assigned to these trends are acce*ted as accurate, or the .ost
*art, 'ecause a *ositie .ar"et in hich *eo*le are .ore aggressie is co.*ared
to the traits o a health&, actie 'ull+ 8ears, on the other hand, are so.eti.es seen
as .oing .ore slol&, es*eciall& in certain eather situations+
7" 2et another e$*lanation has to do ith the trading o real 'ear s"ins, ith traders
in the .iddle 'etting on the *rice dro**ing as the& sold s"ins the& didn%t *ossess
at the ti.e+ These .en ere so.eti.es called 'ears+ ;thers hae e$*lained the
to ter.s as co.ing ro. the classic 'attles o earlier ti.es that *itted a 'ull
against a 'ear+
8" Uust a'out eer&one ho reads a nes*a*er or atches teleision nes is a.iliar
ith 'ull .ar"ets and 'ear .ar"ets+ Kost *eo*le don%t concern the.seles ith
the origins o the ords and their a**lication to trading in co.*an& stoc"+
7nestors act on the 'elie (or aith) that the .ar"et ill continue to i.*roe,
giing the. incentie to 'eco.e actie+
9" ;n the other side o the coin, hen inestors eel that *rices are going to dro* or
see that the& are in a donard trend, the& do not hold the sa.e *ositie outloo"
and lose aith in the .ar"et te.*oraril&+ Relia'le inest.ent counselors and
inancial adisers are Iuic" to e$*lain that 'ear and 'ull .ar"et assess.ents don%t
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adhere to an& hardandast rules+ As ith .an& inancial and econo.ic actions,
there is *s&cholog& o the indiidual to consider+
" 7n other ords, a *erson or grou* .ight act as i the& are in a 'ear or 'ull .ar"et
'ased on their on assess.ent+ 7 a signiicant nu.'er o inestors act, the
co.'ined eight o the action .ight *ush the .ar"et in a *articular direction+
This could enhance a 'ear trend or 'ull trend, i not actuall& create the .o.entu.
to start such a .ar"et+ This could onl& 'e deter.ined oer a longer *eriod o ti.e
hoeer, so hindsight is ala&s 'etter hen assigning these ter.s+
" The ?reat e*ression as certainl& an e$tre.e e$a.*le o a 'ear .ar"et 'ecause
the aerage *rice o stoc"s dro**ed al.ost out o sight oer a three&ear *eriod+
#cono.ists consider the *eriod ro. the earl& 1990s to 000 the longest 'ull
.ar"et+ /u.erous techniIues are used to soten the 'los o a 'ear .ar"et or to
ta"e adantage o a 'ull .ar"et+
HOW TO PREDICT BEAR AND BULL MARKETS?
The easiest a& to *redict 'oth t&*es o .ar"ets is to reali=e that hat goes u* .ust co.e
don+ That is, i the .ar"et is rising, then &ou "no that at so.e *oint it ill start to all
again+ Si.ilarl&, i the .ar"et is currentl& alling, &ou can 'e certain that eentuall& it
ill *ic" u* again+ There are no *recise a&s to *redict either 'ull or 'ear .ar"ets,although general social econo.ic situations can hel* &ou to deter.ine hat ill ha**en+
A countr& hich ages a ar ill e$*erience 'ullish .ar"et conditions as goern.ent
contracts create .ore -o's and 'oost inestor conidence i their e$*ectation is to in+
Sudden international crises *ush the .ar"et donard and create 'earish conditions+
/es is er& oten a good indicator o here inestors are headed+ The re*orts ill
inor. a'out loss o inestor conidence as ell as sudden econo.ic donturns that .a&
aect the .ar"et+ 7 &ou notice ro. stoc" .ar"et research that seeral inde$es hae
changed '& 15: to 0:, &ou can 'e sure that .ar"et direction is changing+ 4hen &ou
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notice such changes, it is ti.e to sit u* and ta"e notice+ 2ou .a& 'e headed or a 'ullish
or 'earish .ar"et+
MARKET CONDITIONS IN BOTH CASES
4hile reerring to .ar"ets is either 'ull or 'ear is er& general, there are certain t&*es o
s*eciic .ar"ets conditions that e$ist in 'oth .ar"ets+ >or e$a.*le, a 'ullish .ar"et is
oten acco.*anied '& a sudden increase de.and or securities and s.aller su**lies o the
sa.e securities+ This is 'ecause .ore inestors are illing to 'u& securities hile eer
ish to sell+ This, o course, onl& *ushes *rices higher+ The er& o**osite is true in a
'earish .ar"et+
The inestors 'ehaior is another condition *realent in 'oth .ar"ets+ 7n 'ullish .ar"ets,
theres a sudden increase interest in the stoc" .ar"et+ Kore *eo*le are ho*eul a'out
*ossi'le *roits on the stoc" .ar"et and .ost *eo*le are o*ti.istic a'out econo.ic
conditions+ 7n a 'earish .ar"et, inestors are not er& conident and thereore inest less+
IN
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t&*es o inest.ent+ eensie stoc"s are another good o*tion that re.ain sta'le during
'earish conditions+ ;n the other hand, so.e inestors see 'earish .ar"et conditions as an
ideal ti.e to inest in .ore stoc"s+ Since .an& *eo*le are selling o their stoc"s
including alua'le 'luechi* stoc"s at lo *rices, it is *ossi'le to set u* longter.
inest.ents that ill *roe alua'le during 'ullish ti.es+
4hile eer& inestor loes to see the u*sing in *rices during a 'ull .ar"et, the ise
inestor ill 'e a'le to handle a 'ear .ar"et as ell+ 4hether &ou are -ust 'eginning to
inest or are an e$*erienced inestor, learning to deal ith arious .ar"et conditions &ou
need not *anic 'ut decide *atientl& on inest.ent+
ABOUT SEBI
WHAT IS SEBI ?
Securities and #$change 8oard o 7ndia (S#87) is an a*e$ 'od& or oerall deelo*.ent
and regulation o the securities .ar"et+ 7t as set u* on A*ril 1, 1933+ To start ith,
S#87 as set u* as a nonstatutor& 'od&+ ater on it 'eca.e a statutor& 'od& under the
Securities #$change 8oard o 7ndia Act, 199+ The Act entrusted S#87 ith
co.*rehensie *oers oer *racticall& all the as*ects o ca*ital .ar"et o*erations+
ROLE J FUNCTIONS OF SEBI
1+ To *rotect the interests o inestors through *ro*er education and guidance as
regards their inest.ent in securities+ >or this, S#87 has .ade rules and
regulation to 'e olloed '& the inancial inter.ediaries such as 'ro"ers, etc+
S#87 loo"s ater the co.*laints receied ro. inestors or air settle.ent+ 7t also
issues 'oo"lets or the guidance and *rotection o s.all inestors+
+ To regulate and control the 'usiness on stoc" e$changes and other securit&
.ar"ets+ >or this, S#87 "ee*s su*erision on 'ro"ers+ Registration o 'ro"ers and
su''ro"ers is .ade co.*ulsor& and the& are e$*ected to ollo certain rules and
regulations+ #ectie control is also .aintained '& S#87 on the or"ing o stoc"
e$changes+
D+ To .a"e registration and to regulate the unctioning o inter.ediaries such as
stoc" 'ro"ers, su''ro"ers, share transer agents, .erchant 'an"ers and other
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inter.ediaries o*erating on the securities .ar"et+ 7n addition, to *roide suita'le
training to inter.ediaries+ This unction is useul or health& at.os*here on the
stoc" e$change and or the *rotection o s.all inestors+
+ To register and regulate the or"ing o .utual unds including BT7 (Bnit Trust o
7ndia)+ S#87 has .ade rules and regulations to 'e olloed '& .utual unds+ The
*ur*ose is to .aintain eectie su*erision on their o*erations E aoid their
unair E antiinestor actiities+
5+ To *ro.ote selregulator& organi=ation o inter.ediaries+ S#87 is gien ide
statutor& *oers+ Hoeer, selregulation is 'etter than e$ternal regulation+ Here,
the unction o S#87 is to encourage inter.ediaries to or. their *roessional
associations and control undesira'le actiities o their .e.'ers+ S#87 can also
use its *oers hen reIuired or *rotection o s.all inestors+
6+ To regulate .ergers, ta"eoers and acIuisitions o co.*anies in order to *rotect
the interest o inestors+ >or this, S#87 has issued suita'le guidelines so that such
.ergers and ta"eoers ill not 'e at the cost o s.all inestors+
@+ To *rohi'it raudulent and unair *ractices o inter.ediaries o*erating on
securities .ar"ets+ S#87 is not or interering in the nor.al or"ing o these
inter.ediaries+ 7ts unction is to regulate and control their o'-ectional *ractices
hich .a& har. the inestors and health& groth o ca*ital .ar"et+
3+ To issue guidelines to co.*anies regarding ca*ital issues+ Se*arate guidelines are
*re*ared or irst *u'lic issue o ne co.*anies, or *u'lic issue '& e$isting listed
co.*anies and or irst *u'lic issue '& e$isting *riate co.*anies+ S#87 is
e$*ected to conduct research and *u'lish inor.ation useul to all .ar"et *la&ers
(i+e all 'u&ers and sellers)+
9+ To conduct ins*ection, inIuiries E audits o stoc" e$changes, inter.ediaries and
selregulating organi=ations E to ta"e suita'le re.edial .easures hereer
necessar&+ This unction is underta"en or orderl& or"ing o stoc" e$changes E
inter.ediaries+
10+ To restrict insider trading actiit& through suita'le .easures+ This unction is
useul or aoiding undesira'le actiities o 'ro"ers and securities sca.s+
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STOCK & EXCHANGE BOARD OF INDIA
R#0,)ati+n O- B,sin#ss In Th# St+$: E@$han0#s
Bnder the S#87 Act, 199, the S#87 has 'een e.*oered to conduct ins*ection o stoc"
e$changes+ The S#87 has 'een ins*ecting the stoc" e$changes once eer& &ear since
199596+ uring these ins*ections, a reie o the .ar"et o*erations, organi=ational
structure and ad.inistratie control o the e$change is .ade to ascertain hetherJ
• the e$change *roides a air, eIuita'le and groing .ar"et to inestors
• the e$changes organi=ation, s&ste.s and *ractices are in accordance ith the
Securities Contracts (Regulation) Act (SC(R) Act), 1956 and rules ra.ed there
under
• the e$change has i.*le.ented the directions, guidelines and instructions issued
'& the S#87 ro. ti.e to ti.e
• The e$change has co.*lied ith the conditions, i an&, i.*osed on it at the ti.e
o reneal grant o its recognition under section o the SC(R) Act, 1956+
uring the &ear 199@93, ins*ection o stoc" e$changes as carried out ith a s*ecial
ocus on the .easures ta"en '& the stoc" e$changes or inestors *rotection+ Stoc"
e$changes ere, through ins*ection re*orts, adised to eectiel& ollou* and redress
the inestors co.*laints against .e.'erslisted co.*anies+ The stoc" e$changes ere
also adised to e$*edite the dis*osal o ar'itration cases ithin our .onths ro. the date
o iling+
uring the earlier &ears ins*ections, co..on deiciencies o'sered in the unctioning o
the e$changes ere dela&s in *ost trading settle.ent, reIuent clu''ing o settle.ents,
dela& in conducting auctions, inadeIuate .onitoring o *a&.ent o .argins '& 'ro"ers,
nonadherence to Ca*ital AdeIuac& /or.s etc+ 7t as o'sered during the ins*ections
conducted in 199@93 that there has 'een considera'le i.*roe.ent in .ost o the areas,
es*eciall& in trading, settle.ent, collection o .argins etc
+
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Stan.a%. & P++%s R#)ati+n /ith St+$: Ma%:#t
The co.*an& traces its histor& 'ac" to 1360, ith the *u'lication '& Henr& Garnu.
Poor o Histor& o Railroads and Canals in the Bnited States+ This 'oo" as an atte.*t to
co.