A
PROJECT REPORT
ON
“PERFORMANCE OF INITIAL PUBLIC OFFER"
AT
GURUKRUPA INVESTMENTS
BARDOLI.
SUBMITTED BY
KRUNAL.B.PATEL
06 MBA 33
GUIDED BY
MR.GOVIND DHINAIYA
MBA PROGRAMME
(YEAR 2006- 2008)
SHRIMAD RAJCHANDRA INSTITUTE OF
MANAGEMENT AND COMPUTER APPLICATION
DECLARATION
I, undersigned Mr.krunal .B. Patel, student of Shrimad Rajchandra Institute
Of Management & Computer Application, Bardoli, affiliated to Veer
Narmad South Gujarat University, Surat declare that report on
“PERFORMANCE OF IPO” is my own work. The research was carried out by
me as a part of summer training in the company for being evaluated for
the MBA degree.
Place:
Date:
__________
(Patel Krunal .B)
(06 MBA 33)
ACKNOWLEDGEMENT
I, the student of management, feel proud on successfully
completing the project on “PERFORMANCE OF IPO” at “GURUKRUPA
INVESTMENT” of Bardoli.
A project of this nature involves the support of many people. I
believe that I would be lacking in my duty if I did not express my sincere
gratitude to them.
I m heartily thankful to Mr. Nitin Prajapati for allow me to
undertake project work in his esteemed organization.
I would especially like to thank Mr. Paresh Patel, company
mentor, who has provides me the valuable guidance and support during
my training.
I am extremely thankful to Dr. Bankim Patel, director, and
Mr.Govind Dhinaiya, my project mentor for providing good guidance
and other facilities during my training program.
Krunal Patel
EXECUTIVE SUMMARY
This summer project report is prepared at Gurukrupa Investment Ltd.
Bardoli on “Performance of IPO” as a part of curriculum of the MBA
program.
I have selected this topic to measure the performance of IPO during
the period of 2004 – 2007. The performance is measured in terms of their
average return. Even I have tested that those IPO’s were efficient in
nature or not. The efficient market hypothesis states that it is not possible
to consistently outperform the market by using any information that the
market already knows, except through luck. Under the efficient market
hypothesis, any time you buy and sell securities, you’re engaging in a
game of chance, not skill. If markets are efficient and current, it means
that prices always reflects all information, so there are no way you will be
able to buy a stock at a bargain price.
Objectives:
To study the performance of IPO in India during 2004 -2007.
To evaluate top 5 IPO based on its performance (return).
To analyze likely trends of the price movement in IPO.
To analyze number of IPO’s were efficient.
To achieve these objectives, I have found out secondary data of closing
prices. These secondary data is gathered from various websites, majority
of data have been taken from NSE site. After collection of data I have
found out the logarithm return series of closing price, and derived top five
IPO’s. Then, I have applied RUN Test of Weak – form efficiency, which is
on the basis that no historical information is at all useful for the investors
to predict the future trend.
The hypotheses for RUNS Test are:
Null Hypothesis (HO) is the stock price series are random and the
alternative hypothesis (H1) is the stock price series are not random. I
have used SPPS software for the analysis.
Major Findings are:
Out of 55 IPO's 11 were not efficient i.e. there are not following random walk, so price of these 11 companies can be predicted using historical price movements. The technical analyst can get an abnormal return using these scripts.
For 44 companies the share prices are random it means that the Ho is accepted in these 44 companies so, these stocks can not be predicted by the historical price movements. Technical analyst not at all useful for predicting future trend.
We derived top 5 IPO’s on the basis of their average return of two year ended prices.
1. India Bulls - 50.4%
2. Tech.Mah. - 47.24%
3. Tulip - 36.38%
4. Shopper Stop - 34.55%
5. Provogue - 34.45%
We also come to know that those top 5 IPO’s who generate higher return are random in nature.
It was found that maximum number of IPO in list that does not follow randomness is from banking sector.
Thus my report conclude that majority of IPO’s (44) during the period
of 2004- 2007 were efficient in nature and the historical information is not
at all useful for predicting future trend while only 11 IPO’s are not efficient
so we can predict there future trend using the historical data.
INDEX
Chapter no. TOPIC Page no.
1 Industry profile 1
2 Company profile 5
3 Introduction 8
4 Research Methodology 20
5 Data analysis & Inferences 24
6 Findings 44
7 Conclusion 46
8 Recommendation 48
9 Bibliography 50
10 Annexure 52
INDUSTRY
PROFILE
INDUSTRY PROFILE
Capital Market:
The Capital market for financial assets which have a long or indefinite
maturity. Generally, it deals with long term securities which have a
maturity period of above one year. Capital market may be further divided
into three namely:
Industrial securities market
Government securities market
Long term loans market
(1) Industrial security market:
As the very name implies, it is a market for industrial securities namely
(1) Equity shares or ordinary shares, (2) Preference Shares (3) Debentures
or bonds.It is market where industrial concerns raise their capital or debt
by issuing appropriate instruments. It can be further subdivided into two.
They are,
(a)Primary market or New issue market
(b)Secondary market or Stock exchange
Primary market:
Primary market is a market for new issues or new or financial
claims. Hence, it is also called New Issue market. The primary market
deals with those securities which are issued to the public for the first time.
In the primary market, borrowers exchange new financial securities for
long-term funds. Thus, primary market facilitates capital formation.
There are three ways by which a company may raise capital in a primary
market. They are:
Public issue
Rights issue
Private placement
The most common method of raising capital by new companies is
through sale of securities to the public. It is called public issue. When
an existing company wants to raise additional capital, securities are
first offered to the existing shareholders on a pre-emptive basis. It is
called rights issue. Private placement is a way of selling securities
privately to a small group of investors.
Secondary market:
Secondary market is market for secondary sale of securities. In
other words, securities which have already passed through the new issue
market are traded in this market. Generally, such securities are quoted in
the stock exchange and it provides a continuous and regular market for
buying and selling of securities. This market consist of all stock exchanges
recognized by the government of India. The stock exchanges in India are
regulated under the securities contract (regulation) Act, 1956.the Bombay
stock exchange is the principle stock exchange in India which sets the
tone of the other stock market.
(2) Government Securities Market:
It is otherwise called Gilt- Edged securities market. It is market
where government securities are traded. In India there are many kinds of
government securities- short term and long-term. Long term securities
are traded in this market while short term securities are traded in money
market.
(3) Long – term Loans market:
Development banks and commercial banks play a significant role in
this market by supplying long term loans to corporate customers. Long-
term loans market may further divided into :
Term loans market
Mortgages market
Financial guarantees market
COMPANY
PROFILE
COMPANY PROFILE
Gurukrupa investment was setup in the year 2001 to serve the
investors, it offered stock broking in initial period.
It was within six months, it had become a ‘One step financial shop’
offering Insurance, Mutual Funds, D-mat, derivatives and commodities
apart from stock broking.
The business of Gurukrupa investment has three fold growths, touch
to the stock market become. Today in less than 4 years, it has more than
thousand countries in stock broking and close to three thousand in mutual
funds, it plans to provide research and portfolio analysis of clients
investment in mutual fund on its website. This would be a unique &
additional service, it plans to provide to customers.
VISION: we will become ‘One-Stop’ investment shop in our target
region by providing flowers transaction impeccable service, reliable
advice and unparallel reach.
OUR VALUES:
We shall go out of way to delight our customer’s- they are the
foundation of our business.
We shall focus on value addition through innovation in product,
process and technology.
We shall build team based organization by sharing knowledge and
empowering people.
We shall work with higher level of integrity and transparency.
We shall treat everyone with personal attention, honesty and
respect they deserve.
THEORETIC
AL
PERSPECTIV
E
About Topic
Initial Public Offer:
Corporate may raise capital in the primary market by way of an
initial public offer, rights issue or private placement. An Initial Public Offer
(IPO) is the selling of securities to the public in the primary market.
An IPO is defined as an exercise when an unlisted company makes
either a fresh issue of securities or an offer for sale of its existing
securities or both for the first time to the public.
The exercise refers the issue of shares to the public by the
promoters of the company. The shares are made available to the
investors at the face value of the share or with a premium as per the
perceived market value of the share by the promoters.
IPO’s can be a risky investment. For the individual investor, it is
tough to predict what the stock will do on its initial day of trading and in
the near future since there is often little historical data with which to
analyze the company. Also, most IPO’s are of companies going through a
transitory period, and therefore subject to additional uncertainty
regarding their future.
Why IPO?
The primary reason for a company going is to raise money, usually
for capital to fund growth of the business or to pay down existing debt.
Usually it is not possible to buy shares in a private company. A
potential investor can approach the owners, but they're not obliged to sell
any shares. However, public companies sell at least a portion of
themselves to the public and they also trade on stock exchanges.
Public companies have thousands of shareholders and are subject to
strict rules and regulations. They must have a board of director and they
must report financial information every quarter. Public companies are
regulated by governing bodies. The stock is traded in the open market
and any investor, who has got money, can invest in them. The CEO and
the owner can not prevent an investor from buying stock.
Going public provides an opportunity to raise cash for the
companies, while opening many financial doors as well. Public companies
can get better rates when they issue debts because of the increased
scrutiny involved. A public company can always issue more stock, as long
as there is market demand. Consequently, mergers and acquisitions
become easier to execute as stock can be issued as part of the deal.
Trading in the open markets also provides liquidity. This makes it
possible to implement things like employee stock ownership plans, which
help to attract top talent. Besides, being on a major stock exchange
carries a considerable amount of prestige. After all, an IPO is entirely a
sales job and if one can convince people to buy stock in the company, a
lot of money can be raised.
IPO Pricing:
Issue pricing is a complex exercise. Price is most important factor
for success of an IPO.
The market value of company’s share and the number of shares
outstanding influence the pricing decision. Setting of a right price is very
important to attract potential investors. A vary high price may make the
shares unaffordable for small investors. So the company may lose out on
many potential shareholders.
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 however required to give full discloses of
the parameters which they had considered while deciding the issue price.
There are two types of issues one where company and Lead Manger(LM)
fix a price(call fix price) and other, where the company and Lead Manger
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).
IPO price should be decided in two ways one is book building
method and another is fixed price method.
Fixed price offer:
An issuer company is allowed to freely price the issue. The basis of
issue price is disclosed in the offer document where the issuer discloses in
detail about the qualitative and quantitative factors justifying the issue
price. The Issuer company can mention a price band of 20% (cap in the
price band should not be more than 20% of the floor price) in the Draft
offer documents filed with SEBI and actual price can be determined at a
later date before filing of the final offer document with
SEBI/ROCs( Registrar of Companies).
Book Building :
It is a process undertaken by which a demand for the securities
proposed to be issued by a body corporate is elicited and built up and the
price for the securities is assessed on the basis of the bids obtained for
the quantum of securities offered for subscription by the issuer. This
method provides an opportunity to the market to discover price for
securities.
This process provides an opportunity to the market to discover price
for the securities on offer. In common words, book building is a method
for public offer of equity shares of a company. The process is named so
because it refers to collection of bids from investors, which is based on a
price range. The issue price is fixed after the closing date of the bid.
In the book building process, underwriting banks, in consultation
with institutional investors and the issuer, estimate a price band for the
stock to be put on sale. If there is oversubscription, allocations are now
made to institutional and retail investors as per quotas on a pro-rata
basis. Allocations in a fixed price IPO are mad on a purely pro-rata.
According to the book building process, three classes of investors
can bid for the shares:
Qualified Institutional Buyers: QIBs include mutual funds and
Foreign Institutional Investors. At least 50% of the shares are
reserved for this category.
Retail investors: Anyone who bids for shares under Rs.1, 00,000 is a
retail investor. At least 35% is reserved for this category.
The balance bids are offered to high net worth individuals and
employees of the company.
Difference between Book-building and Fixed
price offer of shares :
Feature
s
Fixed Price
process
Book Building process
Pricing Price at which the
securities are
offered/allotted is
known in advance to
the investor.
Price at which securities will
be offered/allotted is not
known in advance to the
investor. Only an indicative
price range is known.
Demand Demand for the
securities offered is
known only after the
closure of the issue
Demand for the securities
offered can be known
everyday as the book is built.
Payment Payment if made at
the time of
subscription wherein
refund is given after
allocation.
Payment only after allocation.
Efficient Market Hypothesis:
The Efficient market hypothesis (EMH) asserts that financial markets
are "informationally efficient", or that price on traded assets, e.g., stocks,
bonds, or property, already reflect all known information and therefore
are unbiased in the sense that they reflect the collective beliefs of all
investors about future prospects. Professor Eugene Fama at the University
Of Chicago Graduate School Of Business developed EMH as an academic
concept of study through his published Ph.D. thesis in the early 1960s at
the same school.
The efficient market hypothesis states that it is not possible to
consistently outperform the market by using any information that the
market already knows, except through luck. Information or news in the
EMH is defined as anything that may affect prices that is unknowable in
the present and thus appears randomly in the future.
Beyond the normal utility maximizing agents, the efficient market
hypothesis requires that agents have rational expectations; that on
average the population are correct (even if no one person is) and
whenever new relevant information appears, the agents update their
expectations appropriately.
Note that it is not required that the agents be rational (which is
different from rational expectations; rational agents act coldly and
achieve what they set out to do). EMH allows that when faced with new
information, some investors may overreact and some may under react. All
that is required by the EMH is that investors' reactions be random and
follow a normal distribution pattern so that the net effect on market prices
cannot be reliably exploited to make an abnormal profit, especially when
considering transaction costs (including commissions and spreads).
There are three common forms in which the efficient market hypothesis is
commonly stated — weak form efficiency, semi-strong form efficiency and
strong form efficiency, each of which have different implications for how
markets work.
Weak-form efficiency:
• No excess returns can be earned by using investment strategies
based on historical share prices or other financial data.
• There is no benefit-as far as forecasting the future is concerned-in
examining the historical sequence of prices
• Weak-form efficiency implies that Technical analysis techniques will
not be able to consistently produce excess returns, though some forms of
fundamental analysis may still provide excess returns.
• If there is no value in studying past prices and past prices changes,
there is no value in technical analysis.
• In a weak-form efficient market current share prices are the best,
unbiased, estimate of the value of the security. Theoretical in nature,
weak form efficiency advocates assert that fundamental analysis can be
used to identify stocks that are undervalued and overvalued. Therefore,
keen investors looking for profitable companies can earn profits by
researching financial statements.
• This weak form of the efficient market hypothesis is popularly
known as the random-walk theory.
Semi-strong form efficiency:
• The semi strong form of the efficient market hypothesis says that
current prices of stocks not only reflect all information content of
historical prices but also reflect all publicly available knowledge about the
corporations being studied.
• The semi strong form of the efficient market hypothesis maintains
that as soon as information becomes publicly available, it is absorbed and
reflected in stock prices.
• Even if this adjustment is not the correct one immediately, it will in
a very short time be properly analyzes by the market. Thus the analyst
would have great difficulty trying to profit using fundamental analysis
• Semi-strong form efficiency implies that Fundamental analysis
techniques will not be able to reliably produce excess returns.
• The semi strong form says that efforts by analysts and investors to
acquire and analyze public information will not yield consistently superior
returns to the analyst.
• Examples of the type of public information that will not be of value
on a consistent basis to the analyst are corporate reports, corporate
announcements, and information relating to corporate dividend policy,
forthcoming stock splits, and so forth.
Strong-form efficiency:
• The strong form of the efficient-market hypothesis maintains that
not only is publicly available information useless to the investor or analyst
but all information is useless. Specifically, no information that is available
is it public or “inside”, can be used to earn consistently superior
investment returns.
• Share prices reflect all information and no one can earn excess
returns.
• If there are legal barriers to private information becoming public, as
with insider trading laws, strong-form efficiency is impossible, except in
the case where the laws are universally ignored.
• To test for strong form efficiency, a market needs to exist where
investors cannot consistently earn excess returns over a long period of
time.
• To test the strong form of efficient market hypothesis, event more
indirect methods must be used. For the stronger form as has been already
mentioned, says that no type of information is useful. This implies that not
even security analysts and portfolio managers who have access to
information more quickly than the general investing public are able to use
this information to earn superior returns.
Random walk Theory:
Can a series of historical stock prices or rates of return be an aid in
predicting future stock prices or rates of return? This, in effect, is the
question posed by the random –walk theory.
The random walk hypothesis is a financial theory stating that stock
market prices evolve according to a random walk and thus the prices of
the stock market cannot be predicted. It has been described as 'jibing'
with the efficient market hypothesis. Investors, economists, and other
financial behaviorists have historically accepted the random walk
hypothesis. They have run several tests and continue to believe that stock
prices are completely random because of the efficiency of the market
Runs Test:
Runs test is used to find out whether the series of price movements
have occurred by chance or not. The runs test is a statistical technique
used to detect if a time series is random or not. It is a non-parametric test
so probability distribution of the series data need not be predefined.
One first forms the histogram of the difference between the two
histograms to be compared, or of the difference between the histogram
and the function to be compared, and then one counts the number of runs
in the difference. This numb er is then compared with that expected
under the null hypothesis, which is such that all orderings of sign are
equally probable ( Runs).
Runs test ignore the absolute values of the numbers in the series
and observe only their sign. The researchers then merely count the
number of runs-consecutive sequences of signs-in the same direction. For
example, the sequence - - - + 0 + has four runs. Next, the actual number
of runs observed is compared with the number that is to be expected
from a series of randomly generated price changes. It has been founds
that when this is done, no significant differences are observed. These
results the further strengthen the random work hypothesis.
The first step in the runs test is to compute the sequential
differences (Yi - Yi-1). Positive values indicate an increasing value and
negative values indicate a decreasing value.
The output shows a table of:
1. Runs of length exactly I for I = 1, 2, ..., 10
2. Number of runs of length I
3. Expected number of runs of length I
4. Standard deviation of the number of runs of length I
5. a z-score where the z-score is defined to be
Where,
is the sample mean and
S is the sample standard deviation.
The z-score column is compared to a standard normal table. That is,
at the 5% significance level, a z-score with an absolute value greater than
1.96 indicates non-randomness and Vice- Versa.
Data Distribution: The runs test is a non-parametric test, not assuming
the normal or any other particular distribution.
Research
Methodolog
y
Research Methodology:
Primary Objective:
To study the performance of IPO in India during 2004 -2007.
Secondary objectives:
To evaluate top 5 IPO based on its performance (return).
To analyze likely trends of the price movement in IPO.
To analyze number of IPO’s were efficient.
Research Benefits:
My research can help in following ways:
It provides answer to the question that whether one can predict the
prices of IPO's through historical price movements?
It helps to guide investor to take better decisions regarding their
investments.
It guides investors to go for the securities on the basis of there risk
appetite capacity.
Research Design:
Research design is the plan and structure of investigation so as to
obtain the answer to research questions. The plan is the overall program
of the research. It includes an outline of what the investigation will do
from writing the problems and their implication to final analysis of data.
I have used Descriptive Research Design, as I had try to describe
the situation of the selected IPO's whether there share prices are random
or not.
Data Collection Method:
I have used Secondary data Collection method.
Sample period:
I have taken the listed date price data and year ended data for all
IPO's. The duration consider between, 2004 – 2007.
Tools Used:
I have used SPSS (Statistical Package for Social Science) for RUNS
TEST.
Hypothesis:
In this study the hypothesis will be tested with the help of runs test.
Ho: The stock price series are random.
H1: The stock price series are not random.
Assumptions:
• Financial year consider 1st April to 31st march.
• Closing Price were consider for return findings.
DATA
ANALYSIS
&
INTERPRETATION
Data Analysis & Interpretation
Runs Test Results:
(1) Auto Sector:
Runs Test
TAC
Test Value(a) -.377358992100
Cases < Test Value 61
Cases >= Test Value 61
Total Cases 122
Number of Runs 67
Z .909
Asymp. Sig. (2-tailed) .363
Interpretation:
For analyzing the value of runs test we had taken a 5% significant
level. If Z value is 1.96<= than Ho is accepted i.e. there is random walk,
other wise alternative hypothesis is accepted.
In above table we can find Z value of TAC Scripts is less than 1.96
so we can say that there is random walk in this script and we cannot
predict those script trend using historical data.
(2) Aviation Sector:
Runs Test
Jet Airways Deccan
Test Value(a) -.189061219194 -.706716722309
Cases < Test Value 256 100
Cases >= Test Value 256 101
Total Cases 512 201
Number of Runs 247 111
Z -.885 1.344
Asymp. Sig. (2-tailed) .376 .179
Interpretation:
In the above table, we can say that as z values in both scripts are
less than 1.96 which accepts the Ho hypothesis i.e. there is random walk
prevails in the security prices.
(3) Banking Sector:
Runs Test
Maha - Bank
Orient Bank
Allahabad Bank
Dena Bank
YES Bank
Test Value(a) -.131319782496
-.108627547064
.00000000000
-.138792527485
-.06095702718
5Cases < Test Value
372 241 235 270 213
Cases >= Test Value
374 241 244 271 214
Total Cases 746 482 479 541 427Number of Runs 342 211 197 270 197Z -2.345 -2.827 -3.973 -.129 -1.696Asymp. Sig. (2-tailed)
.019 .005 .000 .897 .090
Interpretation:
From the above table we can interpret that the securities Maha.
Bank, Orient Bank, Allahabad Bank, are not accepting Ho hypothesis as
there Z value is more than 1.96, so we can conclude that there script
price movement will be predicted using historical data, where as the other
two scripts namely Dena bank and Yes bank are satisfying Ho hypothesis
so conclude that there are random walk in that security price movement.
(4) Construction Sector:
Runs Test
Parsvanath Akruti GMRTest Value(a) -
1.2881338534
-.831352125101
.405899623713
Cases < Test Value 40 17 75Cases >= Test Value 40 18 76Total Cases 80 35 151Number of Runs 28 16 70Z -2.925 -.682 -1.061Asymp. Sig. (2-tailed) .003 .495 .289
Interpretation:
In the above table we failed to accept null hypothesis for the
security Parsvanth b'coz its Z value exceeds 1.96, and other two scripts
Akruti and GMR are follows random walk which satisfy the Z value criteria.
(5) Energy Sector:
Runs Test
ONGC Petronet LNG
Gail IBP Cairn IPCL RPL
Test Value(a) .0887057492
88
0 .0000000000
00
-.017734879
008
-.067775337
248
.0835054990
29
-.148588437
442Cases < Test Value
376 378 385 387 27 387 111
Cases >= Test Value
376 378 389 387 27 387 112
Total Cases 752 756 774 774 54 774 223Number of Runs
387 373 391 370 26 375 95
Z .730 -.437 .217 -1.295 -.550 -.935 -2.349Asymp. Sig. (2-tailed)
.466 .662 .829 .195 .583 .350 .019
Interpretation:
In the above table the security RPL fails to accept the null
hypothesis as its Z value is more than 1.96. The remaining all other
scripts are accepts null hypothesis which means that they follows random
walk.
(6) Eng. Sector:
Runs Test
Punj Lloyd Patel eng
Test Value(a) .070655776841 -15.711019785747
Cases < Test Value 152 115
Cases >= Test Value 153 115
Total Cases 305 230
Number of Runs 149 155
Z -.516 5.154
Asymp. Sig. (2-tailed) .606 .000
Interpretation:
From the table above we can infer that the security Patel
Engineering didn’t match with the Z value criteria which rejects the null
hypothesis whereas the security Punj Lloyd accepts null hypothesis as its
Z value matches with desired criteria.
(7) Finance Sector:
Runs Test
India Bulls
IDFC IL & FS SMART
India Info line
M & M
Test Value(a) .211650792200
-.076238778822
-.025621832173
-.059281931578
.144901311352
Cases < Test Value
314 203 208 234 135
Cases >= Test Value
314 203 208 234 136
Total Cases 628 406 416 468 271Number of Runs 316 178 213 238 128Z .080 -2.584 .393 .278 -1.034Asymp. Sig. (2-tailed)
.936 .010 .695 .781 .301
Interpretation:
In the table given above we can derived that the security IDFC fails
to accept null hypothesis and all remaining securities in table accepts Z
value criteria which infer that there are random walk in this security
(8) Media Sector:
Runs TestNDTV PVR Shrin
gerUTV Sun
TVInox Jagra
nCinem-ax
Test Value(a) .064237785
373
-.217959981
667
-.117794836
271
-.087237203
474
.093006908
770
-.264257350
995
.000000000
000
.199042670
599Cases < Test Value
360 153 240 254 118 137 136 15
Cases >= Test Value
360 154 240 255 118 137 139 15
Total Cases 720 307 480 509 236 274 275 30
Number of Runs
353 152 249 276 126 147 136 22
Z -.597 -.286 .731 1.819 .913 1.089 -.300 2.044
Asymp. Sig. (2-tailed)
.551 .775 .465 .069 .361 .276 .764 .041
Interpretation:
In the above table only one company that is Cinemax has reject the
null hypothesis of randomness shows that the price of this company can
be predicted by the historical information as there is not random walk.
While other companies have accepted the null hypothesis means the
share prices of these companies are random.
(9) Pharma Sector:
Runs Test
Indoco Biocon
Test Value(a) -.166477526152 -.114099315718
Cases < Test Value 275 374
Cases >= Test Value 276 374
Total Cases 551 748
Number of Runs 294 349
Z 1.492 -1.903
Asymp. Sig. (2-tailed) .136 .057
Interpretation:
In the table given above we can interpret by using Z value that both
scripts prices are accepting null hypothesis so there are random walk in
there price movement.
(10) Power Sector:
Runs Test
NTPC Suzlon GVK Power Fin.cor
Info Edge
Test Value(a) .060295449520
-.007826553462
-.122980408348
-.419618816129
-.086206901891
Cases < Test Value
299 180 136 12 43
Cases >= Test Value
300 180 136 12 44
Total Cases 599 360 272 24 87Number of Runs 328 174 126 15 49Z 2.249 -.739 -1.336 .626 .972Asymp. Sig. (2-tailed)
.025 .460 .181 .531 .331
Interpretation:
In the table above the company NTPC fails to accepts null
hypothesis as its Z value criteria arte not matched, all reaming security in
table are accepting null hypothesis which shows that there are random
walk in that security price movement.
(11) Retailing Sector:
Runs Test
Piramyd Provogue
Shopper Stop
Emami
Test Value(a) -.43844447252
-.243384667386
.055830162497
-.241229256915
Cases < Test Value 164 164 232 81
Cases >= Test Value
164 164 232 81
Total Cases 328 328 464 162
Number of Runs 175 156 246 96
Z 1.106 -.995 1.208 2.207
Asymp. Sig. (2-tailed)
.269 .320 .227 .027
Interpretation:
In the table above the security Emami has rejected the null
hypothesis of randomness so we can infer from the Z value that we can
predict the price movement of that security using historical prices , all
other security are accepting null hypothesis which shows there are
random walk in that security.
(12) Shipping Sector:
Runs Test
Bharti Shipyard
Test Value(a) .12049645993Cases < Test Value 205Cases >= Test Value 206Total Cases 411Number of Runs 215Z .840Asymp. Sig. (2-tailed) .401
Interpretation:
In the above table, given the security Bharti shipyard matches the Z
value criteria , it means it accepts null hypothesis so we can infer that the
security prices are random.
(13) Software Sector:
Runs Test
TCS CMC Patni Computer
Tulip Prithvi
3i Infot
ec
Tanla
Tech Mah
First Sourc
e
Test Value(a)
.167619005805
-.01548373622
3
-.098723652
331
.004537834755
-.11904763310
8
-.08133388004
3
-.93439599764
7
.051367454998
.6265684658
93
Cases < Test Value
325 387 389 153 171 242 28 73 12
Cases >= Test Value
325 387 390 153 172 243 28 73 13
Total Cases 650 774 779 306 343 485 56 146 25
Number of Runs
329 374 374 167 186 250 9 75 16
Z .236 -1.007
-1.183 1.489 1.460 .591 -5.394
.166 .827
Asymp. Sig. (2-tailed)
.814 .314 .237 .137 .144 .555 .000 .868 .408
Interpretation:
In the table given above, Tanla fails to match with the Z value
criteria which means its failed to accept null hypothesis so we can predict
the security prices using historical data, where as rest of security are
matches with the Z value criteria so we can infer that those security
prices are random in nature.
(14) Textile sector:
Runs Test
House Perl
Test Value(a) -1.814108707065
Cases < Test Value 14
Cases >= Test Value 15
Total Cases 29
Number of Runs 12
Z -1.129
Asymp. Sig. (2-tailed) .259
Interpretation:
The security House Perl in the table matches with the criteria of Z
value so its accept null hypothesis which shows randomness of price
movement in the security.
Interpretation Of RUNS TEST
The results of Runs test shows that 11 out of total 55 IPO's have
statistically not significant Z value at 5% level. The lists of the companies
are given below:
The not significant stocks at 5% level are:
1. Bank of Maharashtra
2. Oriental Bank of Commerce
3. Allahabad Bank
4. Parsvnath Developers Ltd.
5. Reliance Petroleum Ltd.
6. Patel Engineering Ltd.
7. IDFC
8. Cinemax India Limited
9. NTPC
10.Emami Ltd.
11.Tanla Solutions
This analysis shows that we can reject the null hypothesis of
random walk in 11 out of 55 stocks form the total number of IPO's
list, it means that the stock prices series follow random has been
rejected. This shows that the share prices of these companies could
be predicted using historical information. Investors can be benefited
from the historical trend of the series. It suggests repetition of past
trends or pattern in future prices of the series which will help the
investors in their investment decision.
However, for the majority of companies 44 out of 55 companies, we
accept null hypothesis as the z value of run tests turn out to be
significant. It means that their stocks prices could not be predicted
using historical information.
For these 44 companies there stock price series are random. Thus,
in these 44 companies historical data would be of no use to design
any profitable investment strategy. In these 44 companies the past
trend can not repeat itself.
Following are the List of Companies following Random walk:
1. TAC Ltd
2. Jet Airways
3. Deccan Aviation Ltd.
4. Dena Bank
5. Yes Bank
6. Akruti Nirman Ltd.
7. GMR Infrastructure Ltd.
8. ONGC
9. Petronet LNG
10. GAIL
11. IBP Co. Ltd.
12. Cairn India
13. IPCL
14. Punj Lloyd Limited
15. Indiabulls
16. IL&FS Investsmart
17. India Infoline Ltd
18. Mahindra & Mahindra Fin. Ser. Ltd.
19. TCS
20. CMC Ltd.
21. Patni Computer
22. Tulip IT Services Ltd.
23. Prithvi Information Solutions Ltd.
24. 3i Infotech Ltd.
25. Tech Mahindra Ltd.
26. Firstsource Solutions Ltd.
27. NDTV
28. PVR Cinemas Ltd.
29. Shringar Cinemas Ltd.
30. UTV
31. Sun TV
32. INOX Leisure Ltd.
33. Jagran Prakashan Ltd.
34. Indoco Remedies Ltd.
35. Biocon Ltd
36. Suzlon Energy Ltd.
37. GVK Power Inf. Ltd.
38. Power Finance Corporation Ltd.
39. Info Edge
40. Piramyd Retail Ltd.
41. Provogue (India) Ltd.
42. Shoppers Stop Ltd
43. Bharati Shipyard Ltd.
44. House of Pearl Fashions Ltd.
Performance of IPO (Top Five IPO's):
Script Date High Low Close Offer price
Growth(%)
Average Return(
%)Indiabulls Sep '
0426.85 22 23.4 19 18.8
Mar ' 05
122.25 93.95 105.4 82 50.4
Tech . Mahindra Ltd
Aug ' 06
569 502 538.45 365 32.21
Mar ' 07
1533.7 1263 1427.1 62.27 47.24
Tulip IT Services Ltd
Jan' 06 261 100 237.3 120 49.43
Mar' 06 332.9 238.55 309.55 23.34 36.385
Shoppers Stop Ltd
may ' 05
419.8 335.5 385.9 238 38.33
Mar ' 06
615 494.9 557.45 30.77 34.55
Provogue (India) Ltd
July ' 05
299 200.5 205.8 150 27.11
Mar ' 06
363 258.2 353.5 41.78 34.445
Mar ' 07
468 431 453.9 22.12
Note:
Growth (%) = Closing Price – Offer Price / Closing Price *100
The detailed list of all is attached in annexure.
Graph:
Top 5 Ipo
50.4
47.24
36.38534.55 34.445
0
10
20
30
40
50
60
Indiabulls Tech . Mahindra Ltd Tulip IT Services Ltd Shoppers Stop Ltd Provogue (india) Ltd
Scripts
Ret
urn
Interpretation:
The above graph shows the list of top 5 IPO's. We can infer from
the graph that India Bulls were given ranked 1st in terms of its highest
return (50.4%). And Subsequent Rank is given out in accordance with
there return.
FINDINGS
FINDINGS
Out of 55 IPO's 11 were not efficient i.e. there are not following
random walk, so price of these 11 companies can be predicted
using historical price movements. The technical analyst can get an
abnormal return using these scripts.
For 44 companies the share prices are random it means that the Ho
is accepted in these 44 companies so, these stocks can not be
predicted by the historical price movements. Technical analyst not
at all useful for predicting future trend.
We derived top 5 IPO’s on the basis of their average return of two
year ended prices.
1. India Bulls - 50.4%
2. Tech.Mah. - 47.24%
3. Tulip - 36.38%
4. Shopper Stop - 34.55%
5. Provogue - 34.45%
We also come to know that those top 5 IPO’s who generate higher
return are random in nature.
It was found that maximum number of IPO in list that does not
follow randomness is from banking sector.
Conclusion
Conclusion
We can conclude that from the total number of IPO’s came in
duration of 2004- 2007, the majority of IPO’s(43) were efficient in
nature. Which implies that the technical analyst were not at all able
to get an abnormal return using there skills because historical
prices are not at all guide them for predicting future trends.
From the result that we had derived we conclude that substantial
amount of IPO's (11) follow random walk. This implies that these
stocks can be predicted by using historical information. In other
words, technical analysis plays an important role in devising
profitable trading strategy on the bases of historical information on
share price.
Even the performance of IPO based on the market timing, initial
offer price and Initial offer size.
Recommendations
Recommendation
We can recommend to the risk averse investors better to invest in
the IPO’s whose are not random in nature and Vice- versa case for
the risk taker investors.
We can recommend to the investor, better to invest in the IPO’s
after considering the sectorial growth.
It can be seen that the majority of the stocks i.e. 44 are pursuing
random-walk. They cannot earn abnormal return from their
investments in those companies. This finding assists them to take
wiser investment decisions.
We can recommend to the investor who wishes to invest in those 11
companies that better to take help of historical trend information to
predict there likely trend.
Bibliography
Bibliography
Books:
1. Punithavathy Pandean, “Security Analysis and Portfolio
Management”, vikas publishing House Pvt. Ltd. p.g.283-29
2. Donald E.Fischer and Ronald J. Jordan, “Security Analysis and
Portfolio Management” By, Sixth Edition (2006) p.g.538-558.
3. S.Kevin, Potfolio Management, second Eddition,Prenice-Hall of India
Private LTD.,New delhi-2007p.g.122-132
Web Links For Data used:
http://www.nseindia.com/
Home > Equities > Market Information > Historical Data > Security-wise
Price Volume Data
Sources of literature used:
1. http://en.wikipedia.org/wiki/Efficient_market_hypothesis
2. http://www.investorhome.com/emh.htm
3. http://en.wikipedia.org/wiki/Efficient_market_hypothesis#Assumptions
Annexure
Annexure
(1) Return Graph of Year 2004:
IPO Perfromance
12.95
23.965
14.655
50.4
-20.515
34.485
0.255
-14.545
31.7
3.96
11.415 12.105
-7.87
9.005
-4.17
-30
-20
-10
0
10
20
30
40
50
60
Scripts
Ret
urn
Return
Return 12.95 23.965 14.655 50.4 -20.515 34.485 0.255 -14.545 31.7 3.96 11.415 12.105 -7.87 9.005 -4.17
Indoco Remedi
es
Bharati shipyar
dNTPC
Indiabulls
TCS NDTVBiocon
LtdONGC
Petronet LNG
GAILBank of Mahara
stra
CMC. Ltd
IBP. Co. Ltd
IPCLPatni
Computer
(2) Return Graph of 2005:
Performance of IPO
-120
-100
-80
-60
-40
-20
0
20
40
60
Scripts
Ret
urn
Return
Return -107 36.39 14.32 24.91 14.27 36.89 -8.79 24.57 23.95 32.86 34.45 34.55 -3.24 30.21 -2.07 6.195 20.87 32.6 14.49 -6.26 7.7
Punj Lloyd Ltd
Tulip IT
Services
PVR Cinemas Ltd
Piramyd
Retail Ltd
Prithvi
Informatio
Suzlon
Energy
TAC Ltd(Talbro
s
IDFC
IL & FS
Investsmar
YES Bank
Provogue (india) Ltd
Shoppers Stop Ltd
Oriental
Bank Of
India Infoline Ltd
Allahabad Bank
Shringer
Cinemas
3i Infote
ch Ltd
Emami Ltd
UTV Jet
Airways
Dena Bank
s
(3) Return Graph Of Year 2006:
Performance of IPO
-40
-30
-20
-10
0
10
20
30
40
50
60
Scripts
Ret
urn
Return
Return -10.52 9.82 -30.1 28.205 47.24 21.28 -32.725 -14.73 8.295 23.555 6.83 -11.725 24.55 -18.73
Cairn india
Tanla Solution
Parsvnath
Developers Ltd
Info Edge
Tech . Mahindr
a Ltd
GMR Infrastructure Ltd
Deccan Aviation
Ltd
Patel Engineering Ltd
Reliance Petroleu
mSun TV
Mahindra &
Mahindra
GVK Power
INF. Ltd
Inox Leisure
Ltd
Jagran Prakashan Ltd
(4) Return Graph of Year 2007:
Performance OF IPO
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
Script
Ret
urn
Return
Return -15.905 -28.52 -10.41 4.905 8.435
Akruti Nirman LtdHouse Of Perl Fashion
LtdCinemax India Ltd Firstsource Solution Ltd
power Finanace Corporation Ltd