Essay: Initial Public Offerings

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  • Initial Public Offerings
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In the early nineties, Initial Public Offerings were considered to be one of the hottest items in the stock market, tempting many new firms to consider this scheme as a means to raise their much needed capital to finance business expansions and to jumpstart new projects. Through the years, however, IPOs seem to have lost their appeal on both the issuing corporations and investors. The number of firms going public as well as the total capital raised from such IPOs has not regained the robust numbers they showed at the time when IPOs were still very attractive to the investing public.
An initial public offering (IPO) is the process through which a privately held company issues shares of stock to the public for the first time. Also known as “going public,” an IPO transforms a small business from a privately owned and operated entity into one that is owned by public stockholders. Initial public offering or stock market launch is a type of public offering in which shares of a company usually are sold to institutional investors that in turn, sell to the general public, on a securities exchange, for the first time. Through this process, a private company transforms into a public company. Initial public offerings are mostly used by companies to raise the expansion of capital, possibly to monetize the investments of early private investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors. Although IPO offers many advantages, there are also significant disadvantages, chief among these are the costs associated with the process and the requirement to disclose certain information that could prove helpful to competitors.
Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus. Most companies undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters provide several services, including help with correctly assessing the value of shares that is share price and establishing a public market for shares. Alternative methods such as the Dutch auction have also been explored. In terms of size and public participation, the most notable example of this method is the Google IPO. China has recently emerged as a major IPO market, with several of the largest IPOs taking place in that country.
An IPO is a significant stage in the growth of many small businesses, as it provides them with access to the public capital market and also increases their credibility and exposure. Becoming a public entity involves significant changes for a small business, though, including a loss of flexibility and control for management. In many cases, however, an IPO may be the only means left of financing growth and expansion. The decision to go public is sometimes influenced by venture capitalists or founders who wish to cash in on their early investment.
Staging an IPO is also a very time-consuming and expensive process. A small business interested in going public must apply to the Securities and Exchange Commission (SEC) for permission to sell stock to the public. The SEC registration process is quite complex and requires the company to disclose a variety of information to potential investors. The IPO process can take as little as six months or as long as two years, during which time management’s attention is distracted away from day-to-day operations.
Overall, going public is a complex decision that requires careful consideration and planning. Experts recommend that small business owners consider all the alternatives first (such as securing venture capital, forming a limited partnership or joint venture, or selling shares through private placement, self-underwriting, or a direct public offering), examine their current and future capital needs, and be aware of how an IPO will affect the availability of future financing.
According to Jennifer Lindsey in her book, The Entrepreneur’s Guide to Capital, the ideal candidate for an IPO is a small to medium-sized company in an emerging industry, with annual revenues of at least 10 million dollars and a profit margin of over 10 percent of revenues. It is also important that the company have a stable management group, growth of at least 10 percent annually, and capitalization featuring no more than 25 percent debt. Companies that meet these basic criteria still need to time their IPO carefully in order to gain the maximum benefits. Lindsey suggested going public when the stock markets are receptive to new offerings, the industry is growing rapidly, and the company needs access to more capital and public recognition to support its strategies for expansion and growth.
A company can raise capital through issue of shares or debentures. The various types of issues are: Public Issue, Rights Issue, Bonus Issue, Private Placement and Bought out Deal.
There can be two kinds of public issues, namely:
‘ Initial Public Offer (IPO)
‘ Further Public Offer (FPO)
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is 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. This paves way for listing and trading of issuer’s securities. The sale of securities can be through book building or normal public issue.
Further Public Offers are issued by companies or corporate bodies whose shares are already being traded in the capital market and they are issuing fresh shares either to fund the expansion of their existing business or to invest into other business activity.
An IPO and the result of being a public company may provide significant advantages to the company and its stockholders. These include cash infusion, ability to mint coin, easier future access to equity and debt markets, liquidity for pre-IPO stockholders and institutionalization of the company. The common theme of these advantages is that a liquid market for its stock unlocks value that the company could not otherwise access. By having publicly traded stock, the discount that is attached to stock of private companies no longer applies.
1. Cash Infusion: The result of an IPO is a significant and immediate infusion of cash into the company. This cash is typically earmarked for specific items described in the IPO disclosure documents, which can be for a variety of purposes. For example, the company may use the proceeds of the IPO to expand its inventory, property and equipment base, reduce debt, further research and development or expand its services.
2. Minting of Coin: Having an established value and liquid market for its stock creates additional coin for the company through issuance of additional stock. This ‘coin’ may be used as consideration to acquire other business and to compensate both current and future employees. The ability to utilize the company’s stock for an acquisition significantly decreases its cash needs and allows it to engage in transactions without tapping into its ‘war chest’ of IPO proceeds, which can be put to use to fund future growth. In addition, acquisitions using the company’s stock as consideration may be structured as a ‘tax-free’ reorganization, which can allow the sellers to defer taxes on gains associated with the sale of their business. Using stock as consideration for acquisitions also provides sellers an opportunity to participate in the future growth of the combined organization. Another benefit of a liquid market for a public company’s shares is that its stock may be used to compensate both its existing and future employees through the grant of options or direct issuance of shares. Grants of options or stock provide a means to share the company’s success and are a great tool for attracting talented management and employees.
3. Access to Capital Markets: Being a public company enhances access to both equity and debt markets. After the company has been a reporting company for 12 months, it may engage in follow-on offerings using a ‘short form’ registration process. The ability to use this process reduces both the time and expense of future equity financings. As a reporting company, the transparency of its financial position and operations makes it better suited to obtain debt financings. The infusion of cash from an IPO also enhances the balance sheet and makes the company a much stronger candidate for debt financings.
4. Liquidity: An IPO provides liquidity to the company’s founders, employees and pre-IPO investors holding the company’s stock. While the liquidity may not be immediately realized due to ‘lockup’ requirements imposed by underwriters and other SEC rules, being a public company provides a means for the pre-IPO stockholders to monetize the value of their stock at some point in the future.
5. Institutionalization: Being publicly traded adds to a company’s stature as an institution, which can enhance its competitive position. The IPO process itself generates publicity that may enhance the company’s recognition in the marketplace. As a result, suppliers, vendors and lenders often perceive the company as a better credit risk and customers may perceive it as a better source of products or services. The stature of a public company can also enhance its ability to attract top level executives and employees.
While going public provides significant advantages to a company and its stockholders, the requirements imposed by securities laws produce disadvantages to the company and its operations. These include increased costs, securities law compliance, changes in corporate governance structure and becoming a slave to the stock price.
1. Costs: The costs of an IPO include both the costs of engaging in the offering process and the future costs of being a reporting company. Raising less money can increase the percentage of offering costs significantly. These costs include underwriting commissions, legal and accounting fees, SEC and National Association of Securities Dealers (NASD) filing fees, exchange fees, financial printing, travel and other miscellaneous costs related to the offering. In addition to these initial costs, as a reporting company subject to securities laws, including Sarbanes-Oxley, and exchange listing requirements, the company will have significant ongoing costs associated with its operations. These costs include outside directors’ fees and expenses, directors’ and officers’ liability insurance, accounting and legal costs, internal control costs, printing costs for stockholder reports and proxies and costs of investor relations. The costs are not just monetary. The IPO process can take up to six months or longer. During this period the company’s executive management team must devote substantial time and energy to the IPO. This takes away from management’s time and ability to run the company’s business, and operations may suffer during the IPO process.
2. Securities Law Compliance: A myriad of compliance issues results from an IPO. The IPO process imposes severe restrictions on the company’s marketing and publicity activities during the ‘quiet period’ preceding the filing of a registration statement. The registration and reporting process involves the disclosure of significant information about the company that is readily available to the company’s competitors. Following completion of the IPO, the company will be required to file quarterly, annual and current reports detailing its operations and announcing major events. This disclosure includes detailed information about operations, executive compensation, financial results and significant customers and vendors. Proxy statements must be filed with the SEC before a stockholders meeting can be called. The company cannot release information on a selective basis and must be careful to assure that the information it releases is accurate and complete. Company insiders and major stockholders also must comply with the Exchange Act requirements for reporting their stock ownership and prohibitions on short swing trading. Finally, the exchanges where the company’s stock is traded have various listing standards that impose additional governance and disclosure requirements.
3. Change in Corporate Governance Structure: A listing requirement of the major stock exchanges is that the company’s board be comprised of a majority of independent directors. Independent directors cannot be officers, employees, major stockholders or outside service providers. Independent directors must comprise the audit, compensation and corporate governance committees. This means that the duties of selection and oversight of auditors, setting executive compensation and determining board candidates and litigation issues are taken away from management and given to ‘strangers’ that may have little past experience with the company’s operations. Another listing requirement is holding annual stockholder meetings. Matters such as calling meetings and presenting proposals to stockholders must now be accomplished in compliance with SEC rules. A major change brought about by Sarbanes-Oxley was empowerment of the independent directors. Previous ‘best practices’ of having a majority of independent directors are now mandated by exchange listing requirements. The independent directors are charged with oversight of the company’s management and auditors. For most companies, particularly where the founders are executive management, the change in corporate governance structure resulting from being a public company may take some adjustment.
4. Becoming a Slave to the Stock Price: It is often said that a professional baseball pitcher is only as good as his last outing and that a CEO of a public company is only as good as her company’s last quarter. While a fluid and liquid market in a company’s stock unlocks value, a public company’s stock price is frequently subject to rapid fluctuation. The stock price can be affected by a variety of factors, over which management may have little or no control. Reporting of quarterly earnings can lead to decision making based on the short term result when a longer term perspective would be better for the company. The close ties between executive compensation and their personal net worth to operating results enhances the dilemma of seeking short-term results at the sacrifice of long-term perspective. Wall Street can be impatient and, as with baseball pitchers, may have a tendency to look only to immediate past results rather than the big picture. A loss of stock value can lead to dire consequences, such as stockholder lawsuits, loss of confidence in management and possible hostile takeovers. Lawsuits can stem from a sudden decline in stock price. A stockholder lawsuit can be very costly and distract management from running the business. Recently stockholder activism has been on the rise and dissatisfaction with directors including executive management on the board has been evidenced by stockholders withholding approval of directors. Various proposals, such as mandatory removal of directors that do not win a majority of stockholder approval in elections, are increasing the pressures on management to perform on a quarterly basis. If a company loses favor with analysts and stockholders, its stock may suffer additional devaluation, which could lead to it becoming attractive to a hostile takeover bid. A successful takeover, particularly a hostile takeover, could result in the company’s founders being removed from management positions.
‘ Provisions relating to prospectus.
‘ Provision of minimum subscription, allotment, return on allotment.
‘ Power to SEBI under section 55A relating to issue and transfer of securities.

No unlisted company shall make an IPO of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, unless the following conditions are satisfied as on the date of filing of Prospectus in case of fixed price issue or Red Herring Prospectus in case of book built issue:
‘ The unlisted company has obtained grading for the IPO from at least one credit rating agency.
‘ Disclosures of all the grades obtained, along with the rationale or description furnished by the credit rating agencies for each of the grades obtained, have been made in the Prospectus in case of fixed price issue or Red Herring Prospectus in case of book built issue.
‘ The expenses incurred for grading IPO have been borne by the unlisted company obtaining grading for IPO.
Most of the market analysts have welcomed this move of SEBI as it will help the investors in a volatile market to know whether the merchant banker has carried the exercise in determining the price of an issue in a proper manner or not. It will also help the investors in knowing whether the price of the issue is justified or not. They even said that management of a good company will never get afraid of getting graded of their IPOs if they are good. The only demerit of this step by the SEBI as said by many experts is that there will be a slowdown in the number of IPOs coming out as grading will be a bit lengthy process and there will be a cost factor attached to it also.
Fixed Pricing versus True Pricing (Book- Building)
The traditional method of doing IPOs is the fixed price offering. Here, the issuer and the merchant banker agree on an issue price. Then the investor has a choice of filling in an application form at this price and subscribing to the issue. Extensive research has revealed that the fixed price offering is a poor way of doing IPOs. Fixed price offerings, all over the world, suffer from IPO under pricing. In India, on average, the fixed-price seems to be around 50% below the price at first listing; i.e. the issuer obtains 50% lower issue proceeds as compared to what might have been the case. This average masks a steady stream of dubious IPOs who get an issue price which is much higher than the price at first listing. Hence fixed price offerings are weak in two directions:
‘ Dubious issues get overpriced and
‘ Good issues get under priced.
Fixed Price Issues
‘ Offer Price : Price at which the securities are offered and would be allotted is made known in advance to the investors
‘ Demand : Demand for the securities offered is known only after the closure of the issue
‘ Payment: 100 % advance payment is required to be made by the investors at the time of application.
‘ Reservation: 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the balance for higher amount applications.
Book Building Issues
‘ Offer Price: A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding.
‘ Demand :Demand for the securities offered , and at various prices, is available on a real time basis on the BSE website during the bidding period
‘ Payment: 10 % advance payment is required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application.
‘ Reservations: 50 % of shares offered are reserved for QIBS, 35 % for small investors and the balance for all other investors.
‘ The Issuer who is planning an offer nominates lead merchant bankers as ‘book runners’.
‘ The Issuer specifies the number of securities to be issued and the price band for the bids.
‘ The Issuer also appoints syndicate members with whom orders are to be placed by the investors.
‘ The syndicate members input the orders into an ‘electronic book’. This process is called ‘bidding’ and is similar to open auction.
‘ The book normally remains open for a period of 5 days.
‘ Bids have to be entered within the specified price band.
‘ Bids can be revised by the bidders before the book closes.
‘ On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels.
‘ The book runners and the Issuer decide the final price at which the securities shall be issued.
‘ Generally, the number of shares is fixed, the issue size gets frozen based on the final price per share.
‘ Allocation of securities is made to the successful bidders. The rest get refund orders.
Intermediary’s help corporations design securities that will be attractive to investors, buy these securities from the corporations, and then resell them to savers in the primary markets.
Merchant Bankers/ Lead Manager:
Merchant bankers play an important role in issue management process. Lead managers have to ensure correctness of the information furnished in the offer document. They have to ensure compliance with SEBI rules and regulations as also Guidelines for Disclosures and Investor Protection. To this effect, they are required to submit to SEBI a due diligence certificate confirming that the disclosures made in the draft prospectus or letter of offer are true, fair and adequate to enable the prospective investors to make a well informed investment decision. The role of merchant bankers in performing their due diligence functions has become even more important with the strengthening of disclosure requirements and with SEBI giving up the vetting of prospectuses. Their functions are:
‘ To act as intermediaries between the company seeking to raise money and the investors. They must possess a valid registration from SEBI enabling them to do this job.
‘ They are responsible for complying with the formalities of an issue, like drawing up the prospectus and marketing the issue.
‘ If it is a book building process, the lead manager is also in charge of it. In such a case, they are also called Book Running Lead Managers.
‘ Post issue activities, like intimation of allotments and refunds, are their responsibility as well.
Underwriters are required to register with SEBI in terms of the SEBI (Underwriters) Rules and Regulations, 1993. In addition to underwriters registered with SEBI in terms of these regulations, all registered merchant bankers in categories I, II and III and stockbrokers and mutual funds registered with SEBI can function as underwriters. Part III gives further details of registration of underwriters. In 1996-97, the SEBI (Underwriters) Regulations, 1993 were amended mainly pertaining to some procedural matters.
Bankers to an Issue:
Scheduled banks acting as bankers to an issue are required to be registered with SEBI in terms of the SEBI (Bankers to the Issue) Rules and Regulations, 1994. These regulations lay down eligibility criteria for bankers to an issue and require registrants to meet periodic reporting requirements. Part III gives further details of registration of bankers to an issue.
Portfolio managers:
Portfolio managers are required to register with SEBI in terms of the SEBI (Portfolio Managers) Rules and Regulations, 1993. The registered portfolio managers exclusively carry on portfolio management activities. In addition all merchant bankers in categories I and II can act as portfolio managers with prior permission from SEBI. Part III gives further details of the registration of portfolio managers.
Registrars to an Issue and Share Transfer Agents:
Registrars to an issue (RTI) and share transfer agents (STA) are registered with SEBI in terms of the SEBI (Registrar to the Issue and Share Transfer Agent) Rules and Regulations, 1993. Under these regulations, registration commenced in 1993-94 and is granted under two categories: category I – to act as both registrar to the issue and share transfer agent and category II – to act as either registrar to an issue or share transfer agent. With the setting up of the depository and the expansion of the network of depositories, the traditional work of registrars is likely to undergo a change.
The published work relating to the topic is reviewed. The relevant literature is reviewed on the basis of Books, Periodicals, News Papers and Websites. The detailed review is given below:
Arwah Arjun Mamdan (2003), in his research work mentioned that once IPO’s are listed, after 5 years, there is a drastic fall in their returns.
Anand Adhikari (2010), pointed out that those companies which has unique business models in 2009-2010, have made their investors reach.
Mahesh Nayak, (2010) in his article, point out that, IPOs have grown in size and entered their own brave new world. Further he states that raising money in India’s booming economy cannot be a onetime affair; if a company does not maintain a good relationships with investors and rewards them well it may not able to go back to them when it want to raise money later.
Jagannadham Thunuguntla (2011) in his research, pointed out that, the age old philosophy of understanding the company and sticking to the basics should be given due respect. Let the buyer be made aware that the investor has to put a price tag to his hard earned money. There is a dire need for investor education and awareness and the connections should be on a stable income than a becoming rich overnight.
Jignesh B. Shahet et al. (2013) in their research, concluded that, the recent IPO Scam indicates that even a highly automated system will not prevent malpractices. But steps should be taken by SEBI to restrict such IPO Scam by applying know your customer (KYC) and unique identification number to market players and investors.
Madhumita Gosh, Vice President (PM & Research) Unicon Financial Intermediaries in her article ‘IPOs: More Misses Than Hits’, published in the Dalal Street Investment Journal, pointed out that, in the recent past a majority of IPOs haven’t performed well because valuation wise they are priced more than the fundamentals. This has happened mainly due to the greed of promoters, who want to price their issue invariably at a much higher price. In such cases merchant banker’s role also comes under scanner as they usually don’t give proper advice to the promoters in the wake of losing the business.
Prithvi Haldea, CMD, Prime Database in his article ‘IPOs: More Misses Than Hits’, published in the Dalal Street Investment Journal pointed out that, IPOs in India have become an instrument of trading rather than investment and a majority of people are parking their money into such IPOs just to make a fast buck at the time of listing. So, in my view, they are not the investors who are investing money as per the valuations of the company by taking a long term horizon.
Sunil Damania in his article ‘Primary Issues’ published in Dalal Street, mention that, the primary market has been always been a great area of interest for retail investors. But over the last few years the quality of IPOs and their issue prices have been a matter of concern. Due to this investors are losing faith in the IPO system and this is a very dangerous sign for the country. For any new investor to enter the market, the primary market is the first step. If that first experience of investment is not a happy one, it is unlikely that investors would continue investing in the market.
1. To find out the level of awareness about Initial Public Offerings in the city.
2. To find out the reasons for investing/not investing in IPOs.
3. To find out investor’s perception towards IPOs.
4. To find out what parameters are considered before investing in an IPO.
5. To find out investors satisfaction level and their preference while investing money that is whether investors feel that they can make money in the stock market?
It describes the data collection method, the sampling plan, the tools of investigation, planning and testing of questionnaire and the limitations of the study.
Scope of the Study: The scope of the study is confined to Patiala City only.
Data Collection: The study aims at finding out the awareness level and investors perception towards IPOs in Patiala City. The study required the data to be collected from Primary data sources. The primary data has been collected with the help of structured questionnaires.
Sampling procedure: By adopting convenience sampling, 95 respondents were selected for this study. The sample was selected of them who are the local mall shoppers, traders, brokers, bank managers, individual investors and the clients of insurance company. It was collected through filling up the questionnaire prepared for the study. The data has been analyzed by using percentage analysis.
Sample Size: The sample size of the project is limited to 95 people only. Out of which 64 people have invested in IPOs. Other 31 people have not invested in IPOs.
Sample design: Data has been presented with the help of bar graphs and pie charts.
Sampling Technique: The sampling technique which has been used for the study is convenience sampling.
‘ The Sample size is limited to 95 investors only.
‘ There may be a possibility of error in the data collection because many of investors may have not given actual answers of questionnaire.
‘ The research is confined to Patiala City only.
‘ Some of the respondents were reluctant to divulge personal information which can affect the validity of all responses.
‘ Some of the persons were not so responsive.
‘ Respondents were not so prepared to contribute to the research due to lack of time and resources required.
This provides the profile of sample like age, gender, Income etc. The sample was selected of them who are the bank managers, clients of insurance companies, traders, brokers, local mall shoppers and individual investors. The sample size of the project is limited to 95 people only. Most of the respondents belong to the age group of 25-35, followed by 35-45, and 20-24 and Above 45 years of age. This shows that Age group of 25 to 34 are highly invest in capital market and IPOs.
From the total respondents, 71% were males and 29% were females. This shows that the number of males is more compared to that of the number of females. This clearly talks about the interests of the female population in investments.
Distribution on the basis of occupation
Employed 69%
Self Employed 16%
Part Time Work 11%
Student 4%
Retired 0%
Percentage of respondents on the basis of occupation.
The pie chart mainly depicts about the various occupational details of respondents who participated in the survey. It shows that the maximum number of respondents were Employed followed by Self employed, Part time workers, Students and Retired persons. This clearly shows us that the maximum numbers of people who are interested in investment activities are employed persons; they have the panache for investment activities. They are nearly 69% of the sample. The interesting factor is that the employed persons are very much interested in investment activities which are a very good sign.
Distribution on the basis of income
Up to 2,00,000 13%
2,00,000 to 5,00,000 59%
5,00,000 to 10,00,000 25%
Above 10,00,000 3%
Percentage of respondents on the basis of annual income.
The above pie chart depicts the income level of various respondents. We can see that the maximum number of people ie., 59% fall in the category of 2, 00,000 to 5, 00,000 lakh followed by the people falling in the 5,00,000 to 10,00,000 lakhs category. There are comparatively less people in the category of up to 2,00,000 lakhs and very few people in the more than 10, 00,000 category. This shows that the investors fall in both high income and low income categories. These are those people who are interested in investing in IPOs.
Data Analysis provides results obtained from the response of people, which have been examined and evaluated through data analysis techniques. This chapter evaluates awareness level as well as perception of Investors towards the Initial Public Offerings in Patiala City. The interpretation of the questions asked from the investors is as follows:
Q. 1 ‘ Do you invest in IPOs?
YES 67%
NO 33%
Number of investors who invest in IPOs
INTERPRETATION: The pie chart above mainly shows about the respondents interest in investing in Initial Public Offerings. Out of 95 people surveyed it is seen that 67% of the people are investing in IPOs whereas 33% of the people are not investing in IPO. This shows that IPO is considered as a good option for investment by most of the respondents.
Q. 2 ‘ What are the reasons for not investing in IPOs?
Reasons for not investing in IPOs.
INTERPRETATION: The above pie chart clearly shows that 55% of people do not invest in IPOs due to lack of awareness and knowledge. And second most important reason is risk factor and recent scam which are associated with IPO. Delay in getting returns from the IPOs is also one of the factors because of which people do not prefer investing in IPOs.
Q. 3 ‘ In this highly volatile market, do you think IPOs are a good destination for investments?
YES 62%
NO 38%
Percentage of people who think IPOs as a good destination for investments.
INTERPRETATION: Considering the highly volatile market, 62% of the respondents think that IPOs are a good destination for their investments where as 38% of the respondents have responded negatively against IPOs as a good destination for investments.
Q. 4 ‘ How do you rate the risks associated with IPOs?
LOW 13%
HIGH 32%
Percentage of Risks associated with IPOs
INTERPRETATION ‘ About 55% of the respondents rated the risks associated with the Initial Public Offerings as moderate, 32% rated as High, whereas only 13% of the respondents rated Low risks associated with IPOs.
Q. 5 ‘ How much do you invest in an IPO per year?
Below 10,000 0%
Above 10,000 to 50,000 6%
50,000 to 1,00,000 33%
Above 1,00,000 61%
Amount invested by inestors in IPOs per year.
INTERPRETATION ‘ The above pie chart depicts that about 61% of the investors invest above 1,00,000 in the IPOs per year, followed by 33% of the investors who invest between 50,000 to 1,00,000 and only 6% of the investors invest between 10,000 to 50,000 in IPOs per year.
Q. 6 ‘ How long have you been trading in stocks and IPOs?
Less than 1 year 4%
1-3 years 20%
4-5 years 58%
More than 5 years 18%
Number of investors for which investors have been trading in stocks and IPOs.
INTERPRETATION ‘ The above pie chart shows that mainly 58% of the investors have been trading in stocks and IPOs from last 4-5 years, followed by 20% of the investors who have been investing from last 1-3 years, 18% of the investors have been investing from more than 5 years whereas 4% are the new investors who have started investing from less than 1 year.
Q. 7 ‘ How long do you like to hold your IPO investments?
1 to 3 years 78%
4 to 6 years 15%
7 to 10 years 5%
More than 10 years 2%
Number of years for which investors want to hold IPO investments.
INTERPRETATION ‘ As per the response of the investors, 78% of them like to hold their IPO investments for 1 to 3 years, followed by 15% who want to hold investments for 4 to 6 years, 5% are those who want to hold investments for 7 to 10 years and there are only 2% of the total investors who want to hold their IPO investments for more than 10 years. This clearly shows that majority of the investors want their returns on investments within 1 to 3 years. They do not want to hold their IPO investments for more than 10 years.
Q.8 ‘ What do you see before investing in an IPO?
Percentage of things that investors see before making investments.
INTERPRETATION ‘ The above pie chart clearly depicts that 52% of the investors see the performance of the sector in which they are going to invest for an IPO, followed by 21% who invest in accordance with the premium amount of the IPO, 15% are those investors who take into account the performance of the existing company and 12% are those who consider the background of the promoters.
Q.9 – How do you come to know about the new listings?
Sources from where investors come to know about new listings.
INTERPRETATION ‘ The above data shows that 47% of the investors come to know about the new listings through the newspaper, followed by 26% investors get to know about new listings through brokers, 15% through the television and 12% through their friends and colleagues. This shows that newspaper is the major source which is used by the new listings to promote their IPOs.
Q.10 ‘ What is the purpose of IPO investment from your perspective?
Purpose of IPO investments from investor’s perspective.
INTERPRETATION ‘ It can be inferred from the above pie chart that from investor’s perspective, 61% of the investor’s think that the purpose of an IPO investment is Long-term gain for the company whereas 39% of the investors think that the purpose of such investments is raise capital for getting listed ie., listing gain.
Q. 11 – How much percentage have you gained from IPOs?
UP TO 10% 27%
10 – 20% 48%
MORE THAN 20% 19%
Percentage gained by investors from IPOs
INTERPRETATION ‘ Here, It can be interpreted from the above pie chart that majority of the investors that is 48% have gained 10-20% from their investments in IPOs, followed by 27% of investors who have gained up to 10 percent from their investments, 19% have gained more than 20 percent and 6% are those who have not gained any amount from IPOs.
Q.12 ‘ How do you intend to use the income earned from IPO investments?
Percentage of earnings reinvested by investors.
INTERPRETATION ‘ This shows that 73% of the investors reinvest between 20-80% of their earnings from the IPOs, followed by 25% of investors who receive 80% of their earnings from IPOs and then reinvest the remaining. There are only 2% investors who reinvest their total earnings from the IPO investments.
Q.13 – Which among the following is the safest Investment option?
IPOs 32%
Most safest investment option regarded by investors.
INTERPRETATION ‘ The pie chart clearly shows that 47% of the investors have rated Mutual Funds as the safest Investment option. IPOs has been regarded as the second safest investment option by 32% of the investors where as bank deposits have got the lowest percentage of 21% in terms of safe investment options.
Q.14 ‘ What do you feel about the procedure of IPOs?
EASY 63%
Percentage of how investors feel about IPO Procedure.
INTERPRETATION – The Pie Chart shows that 63% investors feel the procedure of IPO investments is easy, followed by 22% who find it difficult, 12% investors find it complicated and only 3% investors feel that the procedure is lengthy.
Q.15 ‘ Are you satisfied with IPOs as your investment option?
YES 76%
NO 24%
Percentage of investors who are satisfied/unsatisfied with IPOs as their investment option.
INTERPRETATION ‘ It is clear from the above chart that 76% of the investors are satisfied with IPOs as their investment option whereas 24% are not satisfied with their investments in IPOs. The reasons behind this can be low returns, refund problems, delay in crediting allotted shares, no clarity in allotment etc.
Q.17 ‘ What Difficulties did you face after applying for an IPO?
Percentage of Difficulties faced by investors after applying for an IPO
INTERPRETATAION ‘ We can see that the major problem that the investors are facing after applying for an IPO is the delay in crediting allotted shares with 72% of the response. The second problem is the refund problem with 22% of the response followed by 6% ie., no clarity in allotment.
Q.18 – Rate the important factors to be considered for investing in an IPO:
CORPORATE PROFILE 13% 9% 35% 43%
SIZE OF THE IPOs 10% 20% 26% 44%
BROKER’S ADVISE 14% 22% 64% –
COMMENTS IN MEDIA 9% 13% 45% 33%
INTERPRETATION – The above Pie chart mainly depicts the percentage of the various factors that are considered by the investors while investing in an IPO. After a clear observation of the data presented above based upon the response calculated from the questionnaire in terms of percentage, we can see that the Goodwill of the Company, Market Share of the company and Current Financial Position are the Highly Considerable factors for investment in IPO. The least considered factors as depicted from the data are Corporate Profile and Size of the IPO issued. It must also to be noted that the comments that are being passed in the media and Broker’s advice do affect the investor’s attitude and perception towards IPO investments. Overall, all the factors are taken in to consideration before making any investment in the IPO.
1. Unishine Urban Infrastructure Ltd.
2. Axis Gold ETF Exchange Traded Funds
3. Star Land Relators Pvt. Ltd. Patiala
4. Kotak Securities
5. HDFC Securities ‘ Gold Exchange Traded Funds
6. Vishal Fabrics Pvt. Ltd. Chandigarh
7. Quick Heal Tech. Pvt. Ltd.
8. MotiLal Oswal Gold ETF
9. Coffee Day
10. Kotak Bank ASBA Schemes
11. Mangalam Seeds Pvt. Ltd.
12. Ganga Pharmaceuticals Pvt. Ltd.
13. Future Generali
14. Naysa Corp. Pvt. Ltd.
15. ICICI Prudential Gold ETF
16. Vibrant Global Capital Pvt. Ltd. Chandigarh
17. Pearl Insurance.
18. BH Properties Pvt. Ltd. Patiala
19. Frisklance ventures
20. Omaxe Limited
21. Hari Om Web Solutions Pvt. Ltd.
22. Anubhav Infrastructure Pvt. Ltd.
23. RSG Properties Pvt. Ltd. Patiala
24. Bansal Rooding Products Ltd.
25. Barclays Shared Services.
26. Oasis Tradelink Pvt. Ltd.
27. Chemtech Industries
28. Rudra Chemicals Pvt. Ltd.
29. Monte Carlo Fashions Ltd.
30. Omaxe Township Ltd. Patiala
31. SRS Group
32. V-Mart retail Ltd.
33. PTC India Services Pvt. Ltd.
INTERPRETATION ‘ It can be seen from the above list of IPOs in which the investors of Patiala city have been investing in the recent years that most of the investments have been made in Gold Exchange Traded Funds and Real Estate IPOs. An IPO ETF is an exchange-traded fund (ETF) that tracks initial public stock offerings of various companies. Many investors are attracted to IPO ETFs because they follow a large pool of initial public offerings, rather than exposing the investor to one or a few selected companies.
1. From the analysis and interpretation of the data, it is found that approximately 67% of the respondents invest in IPOs whereas 33% have not invested in IPOs. The major reason behind not making investments in IPOs is Lack of awareness and knowledge about IPOs. Other reasons are risk factor, recent scams in IPOs and delay in returns.
2. It is found that those who invest in IPOs come to know about the new listings through newspaper mostly. Other sources are television, brokers and friends.
3. Investor’s perception towards IPOs:
‘ Majority of investors think that IPOs are a good destination for investments and the risk associated with IPOs is moderate just like other investment options.
‘ It has been found that Investors invest in the IPOs according to their annual income. In consideration with the sample profile, 59% investors have annual income above 10,00,000 and approximately 60% invest above 1,00,000 in the IPOs every year.
‘ Majority of the investors have gained 10-20% from their investments and have reinvested 20-80% of their earnings.
‘ About 76% investors are satisfied with IPOs as their investment option and find the IPO procedure easy. Others are not satisfied due to the problems faced by them while applying and investing in IPOs. The major problems are Delays in allotment of shares and Refund problems.
‘ As the investors have so many other options for investments other than IPOs, it is found from the analysis and interpretation that Majority of investors regard Mutual Funds as the most safest investment option followed by IPOs.
4. It is also found that Goodwill of the company, Market share of the company and Current financial position of the company are the most important factors that are considered by the investors before making investments in IPOs.
5. Investors have made most of the investments in Gold Exchange Traded Funds and Real Estate IPOs.
After making the project, it is concluded that the Investors of Patiala City are very much aware about IPOs. IPOs are playing an indispensable role for the companies to raise money through the investments made by investors. IPOs are found to be no more risky investments as majority of Investors find that there is a moderate risk involved just like other investment options and SEBI is playing very important role in regulating the risk and financial aspects of the investors. The major parameters considered by the investors while applying for an IPO are Market share, Goodwill and current financial position of the company. As per the findings, IPOs gives returns up to 10- 20% to 73% of total investors. Hence, the perception of Investors towards IPOs is positive and IPOs can be considered as a good option for investment.
1. M.Y Khan and P.K Jain – Financial management. Pearson publications
2. Initial Public Offerings ‘ Quantitative Finance by Greg. N
3. High-Profit IPO Strategies – Finding Breakout IPOs for Investors and Traders ( 2012) -Tom Taulli.
4. Securities laws and compliances. The institute of company secretaries of India
1. Arwah Arjun Madan (2003), Investments in IPOs in Indian Capital Market, Volume 3.
2. Anand Adhikar (2010), New Listings – Business Today, Volume – 19.
3. Jignesh B. Shah and Smita Varodkar, Capital Market: Trends in India and abroad ‘ impact of IPO Scam an Indian Capital Market, published in the Souvenir, All India Accounting Conference, November (2013).
4. Madhumita Gosh and Prithvi Haldea IPOs: More Misses Than Hits, Dalal Street Investment Journal, Volume. 26
5. Mahesh Nayak (2010) Of Primary Concerns Business world, Journal.
6. Sunil Damania (2011) Primary Issues, Dalal Street Investment Journal, Volume. 2
1. The Economic Times
2. Financial Express
Questionnaire used for the study:
Name – _________________________ Gender – _______
Position – _________________________ Age – _______
Company – __________________________
Location – __________________________
Contact – __________________________
Q.1 ‘ Do you invest in IPOs?
Yes No
Q.2 ‘ What are the reasons for not investing in IPOs?
‘ Lack of awareness and knowledge
‘ Due to risk factor and Scams
‘ Take more time in getting returns
Q.3 – In this highly volatile market, do you think IPOs are a good destination
for Investments?
Yes No
Q.4 – How do you rate the risks associated with IPOs?
‘ Low
‘ Moderate
‘ High
Q.5 – What is your annual income?
‘ Below 1,00,000
‘ 1,00,000 to 3,00,000
‘ 3,00,000 to 5,00,000
‘ Above 5,00,000
Q.6 ‘ How much do you invest in an IPO per year?
‘ Below 10,000
‘ Above 10,000 to 50,000
‘ Above 50,000 to 1,00,000
‘ Above 1,00,000
Q.7 ‘ How long have you been trading in stocks and IPOs?
Number of years
Q.8 – How long do you like to hold your IPO Investments?
‘ 1 to 3 years
‘ 4 to 6 years
‘ 7 to 10 years
‘ More than 10 years
Q.9 ‘ What do you see before investing in an IPO?
‘ Promoters background
‘ Sector Performance
‘ Performance of existing company
‘ Premium amount
Q.10 ‘ How do you come to know about the new listings?
‘ Through Brokers
‘ Through Television
‘ Through Friends
‘ Through Newspaper
Q.11 ‘ What is the purpose of IPO investment from your perspective?
Listing Gain Long-term Gain
Q.12 ‘ How much percentage have you gained from IPOs?
‘ No Gain
‘ Up to 10%
‘ 10% to 20%
‘ Above 20%
Q.13 ‘ How do you intend to use the income earned from IPO investments?
‘ Reinvest between 20-80% of earnings
‘ Reinvest total earnings
‘ Receive 80% and remaining reinvest
Q.14 – Which among the following is the safest Investment option?
‘ IPOs
‘ Mutual funds
‘ Bank Deposits
‘ Others ___________________
Q.15 ‘ What do you feel about the procedure of IPOs?
‘ Easy
‘ Difficult
‘ Complicated
‘ Lengthy
Q.16 ‘ Are you satisfied with IPOs as your investment option?
Yes No
Q.17 ‘ What Difficulties did you face after applying for an IPO?
‘ Refund Problem
‘ Delay in crediting allotted shares
‘ No clarity in allotment
‘ None of the above
Q.18 – In which IPO schemes you have invested in?
Q.19 – Rate the important factors to be considered for investing in an IPO:
5. Very Highly considerable 4. Highly considerable
3. Considerable 2. Least considerable
1. Not at all important
Factors 5 4 3 2 1
Goodwill of the company
Market Share of the company
Corporate Profile
Current financial Position
Size of the IPO
Broker’s advise
Comments in media

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