1. A
STUDY
ON
„SHORT TERM & LONG TERM PERFORMANCE OF IPO
(INITIAL PUBLIC OFFER) ‟
(Conducted on behalf of „India Advantage Securities .Pvt. Ltd.Majura Gate, Surat.)
(From 6th January, 2011 to 6th March, 2011)
A Project Report submitted in partial fulfillment of the requirements
For the award of the degree of
BACHELOR OF BUSINESS ADMINISTRATION
TO
VEER NARMAD SOUTH GUJARAT UNIVERSITY, SURAT
Submitted By:
DESAI PRADIP
T.Y.B.B.A. (SEM –VI) Roll No: 112
Under the guidance of
Ms. SWATI MEHTA
Submitted To:
Principal I/c
PROF. V. B. SHAH INSTITUTE OF MANAGEMENT,
R. V. PATEL COLLEGE OF COMMERCE,
V.L.SHAH COLLEGE OF COMMERCE,
R.K.SHAH WOMEN‟S ARTS COLLEGE,
AMROLI (SURAT)
March 2011
1
2. DECLARATION
I, Desai Pradip, hereby declare that the project report entitled “SHORT
TERM & LONG TERM PERFORMANCE OF IPO(INITIAL PUBLIC
OFFER)” under the guidance of Ms. SWATI MEHTA submitted in partial
fulfillment of the requirements for the award of the degree of Bachelor of
Business Administration to Veer Narmad South Gujarat University, Surat is
my original work – research study – carried out during 6th January, 2011 to 6th
March, 2011 and not submitted for the award of any other
degree/diploma/fellowship or other similar titles or prizes to any other
institution/organization or university by any other person.
Signature
Place: Amroli, Surat
Date:
(Desai Pradip)
(T.Y.B.B.A., Roll No: 112)
2
3. PROF. V. B. SHAH INSTITUTE OF ANAGEMENT,
R. V. PATEL COLLEGE OF COMMERCE,
V.L.SHAH COLLEGE OF COMMERCE,
R.K.SHAH WOMEN‟S ARTS COLLEGE,
AMROLI (SURAT).
CERTIFICATE OF THE FACULTY GUIDE
This is to certify that the Project Report entitled “SHORT TERM &
LONG TERM PERFORMANCE OF IPO (INITIAL PUBLIC OFFER)”
(Conducted on behalf of „India Advantage Securities .Pvt. Ltd.Majura Gate,.
Surat‟) submitted in partial fulfillment of the requirements for the award of the
degree of BACHLOR OF BUSINESS ADMINISTRATION to VEER NARMAD
SOUTH GUJARAT UNIVERSITY, SURAT is a record of bonafide research work
carried out by Pradip. p. Desai under my supervision and guidance.
Signature Signature
Ms. SWATI MEHTA Mr. MAHENDRAV.SONI
(Project Guide) Principal I/C
3
4. ACKNOWLEDGEMENT
I wish to express my thanks to the officers and all the staff
members of The „India Advantage Securities .Pvt. Ltd.Majura Gate, Surat‟for their
valuable assistance and excellent co-operation in preparation of this project report.
I wish to place on record the co-operation given me by Mr.Anil
Patel (Director of The India Advantage Securities .Pvt. Ltd.Majura Gate Surat) for
making capable of teaching new things, which are helpful in our practical life that
is going on project at different places.
I would like to thanks Mr. MAHENDRA.V.SONI, The
Principal I/c Prof. V.B. Shah Institute of Management & R.V. Patel College of
Commerce, Amroli for making available all facilities in fulfilling the requirement
for my project report.
The project would have been possible throughout the
experience, guidance and supervision of Ms. Swati Mehta has potentially and
critically gone through the subject matter. Her constructive criticism helped me lot
in presenting the project in concrete form.
Finally, I would like to thank to all these people who are
directly or indirectly contributed to my project work.
4
5. PREFACE
In this period fast developing and changing world. I am proud for a study of
B.B.A. full time course offered by South Gujarat University at Prof. V.B. Shah
Institute of Management, Amroli.
Finance is most important parts of economics activities. Today the financial
management is branch of business administration. The firm or management can
accept or reject proposal on the basis of financial statement. So I am selecting the
specialized subject of Finance.
Today, financial markets is more dynamic with changing the environment
and changing in to SEBI rules, regulation and structures and depend to the capital
market & securities market to SEBI. Hence with a view to knowing more about
investment practice and to get practical knowledge of what we learn in the college
and class, I have decided to do my project work at of „India Advantage Securities
.Pvt. Ltd..Majura Gate, Surat.‟
Here, In My Project I am analyzing 25IPO company From Different Sector like IT,
BANKING, CHEMICAL, AUTOMOBILE, CEMENT, etc. with collection of IPO
price of last three years, And also analyze the model like CAAR (Cumulative
Abnormal Adjusted Return), MAAR (Market Adjusted Abnormal Return), And By
analyzing all this data I am find that IPOS Different sector is continuously growing
in last Three years.
5
6. CHAPTER PAGE
NO: TOPICT NO:
1 INTRODUCTION OF INDIA ADVANTAGE SECURITIES LTD. 7-9
VISION 10
PHILOSOPHY 10
COMPANY PRODUCT 10 - 12
2 RESEARCH METHODOLOGY 13 - 15
3 INTRODUCTION ABOUT CAPITAL MARKET 16
MEANING OF CAPITAL MARKET 17
STRUCTURE AND SIZE OF CAPITAL MARKET 18
PRIMARY MARKET & SECONDARY MARKET 19
4 INTRODUCTION OF IPO 20 - 23
WHAT IS AN IPO? 24 - 25
WHY MAY A COMPANY NEED AN IPO? 26
WHAT ARE THE TWO SIDE OF IPO COIN? 27
WHO CAN" TOSS THE IPO COIN" 28
PREPARING FOR IPO REGULATORY 29
PROCESS OF IPO 30 - 31
IDEAL PROCESS OF IPO 32
THE PROCEDURE FOR THE ISSUE OF AN IPO 33 - 34
DOCUMENT OF IPO 35
IPO MARKET IN INDIA 36
5 GENERAL ANALYSIS 37
LIST OF IPO 38
CLOSING PRICE OF IPO 39
CALCULATION METHOD FOR SHORT TERT &
LONG TERM PERFORMANCE OF IPO 40 - 41
SHORT TERM PERFORMANCE OF IPO 42 - 43
LONG TERM PERFORMANCE OF IPO 44 - 57
6 CONCLUSION 58 - 59
7 BIBLIOGRAPHY 60 - 61
6
8. INTRODUCTION OF COMPANY:
India Advantage Securities Pvt. Ltd. is a member of The Bombay Stock
Exchange Ltd. (BSE) as well as the National Stock Exchange (NSE). The
institutional desk was established in 2009 with a vision to provide quality research
and execution services to institutional as well as corporate clients. IASL has
significant net worth as well as expertise in managing large transactions in the cash
and derivatives market. Our expertise lies in Futures and Options where we are the
market leaders in Delta / Gamma Neutral arbitrage in the Indian markets IASL
services Financial Institutions, Mutual funds and Foreign Institutional Investors.
The quality, commitment and experience of our Institutional Sales Team is an
essential element of our ability to meet and surpass our clients expectations. We
are confident and committed to devise and conceptualize various investment and
trading themes with respect to dynamic market conditions in Indian equities and
derivatives domain. Our team remains committed to provide highest standards of
Research, execution and client satisfaction.
An arm of the flagship company India Advantage Securities Limited, we
at the India Advantage group are dedicated to deliver expert financial services that
best suit your futuristic needs. Our fundamental areas of functioning include
Shares, Stocks (Capital Market and Futures & Options), and Commodities,
E-Broking, Internet Institutional Equities, Research, Currency Derivatives, NRI
Desk, PCG, IPO‟s and Depository services. We are a one-stop specialized solution
to all your financial requirements.
India Advantage was established to perform these core functions three
decades ago. Prior to this, it operated as M/s Mehta Investments, founded by Mr.
Pravin Mehta, Chartered Accountant in 1990. It is under the able guidance of
Mr. Mehta, the Chairman and Managing Director, that India Advantage is today
reaching new heights in financial consultancy. India Advantage was founded
with a vision of creating a “ONE-STOP-INVESTMENT SOLUTION PROVIDER
TO ALL INVESTORS”. Strong team of qualified and experienced professionals is
8
9. the key success of our organization. With latest IT infrastructure set-up we provide
hassle free connectivity and fastest trading platform. It is backed up by focused
professionals. We have catered number of clients by giving end to end wealth
solutions. We are based on the principles of highest standards of excellence,
ethics, efficiency and professionalism.
The integration of India Advantage Securities Limited and India Advantage
Commodities Private Limited has transformed it into a financial power house that
provides expert services required for stock broking and investments in Capital /
Securities and Commodities market. We are focused on our aim to fulfill the
requirements of individual investors and financial institutions across the country.
We channel our energies towards bringing out our best skills to ensure a
maximum financial benefit for you. Along with this, we uphold and augment the
values of our shareholders. We are a visionary team with a deep understanding of
the financial diversity. We are a tram with intense passion for our goal of setting
excellent standards of Corporate Governance and meeting the financial needs and
demands of society.
9
10. Vision:
Protect Investor Interest and Enhance Investment Value.
Philosophy:
The India Advantage philosophy has a social base with associates and
client centric, with a clear focus on providing long-term value addition to all, while
maintaining the highest standards of excellence, ethics and professionalism.
Company Products:
As a group, our first priority is our clients. We believe in being focused on
their needs and providing excellent long term value addition, while taking utmost
care to uphold our values of excellence, ethics and professionalism.
Our activities are divided across distinct client groups: Individuals,
Corporate and Institutions. Keeping in mind this client-centric approach, we
provide our clients brokering assistance in equities and commodities, distribution
of mutual funds and IPOs.
Equities:
India Advantage Securities Ltd. encourages its clients to deal on both the
prominent exchanges of the country – the Bombay Stock Exchange and the
National Stock Exchange of India Ltd. Capital Market segments though smaller in
volumes than Derivatives, are very vital for the success of the medium and small
investors. We advance client dealings on BSE and NSE for equities segment.
Dedicated sales and trading teams in our trading desks support these client
Derivatives :
India Advantage Securities Ltd., also provides services for its clients
wanting to deal in the Derivatives segment of the NSE. All client dealings on the
exchange in all types of Futures and Options (Call and Put), conducted through us
are duly supported by a dedicated sales & trading teams in our trading desks
10
11. Commodities:
Commodities have lately forged new possibilities for participation of
investors and traders. Commodities hold a wide range of unexplored opportunity to
evade business risks, while providing attractive investment and trading prospects
for investors as well as traders. Commodities hold great ability to turn into a
separate asset class for market-savvy investors, arbitrageurs and speculators. The
best part is that they are easily comprehendible for fundamentals of demand and
supply.
At India Advantage Commodities Pvt. Ltd., we back our clients and
provide an efficient platform to trade on both the commodities exchanges, which
are the Multi Commodity exchange of India Ltd. (MCX) and the National
Commodity & Derivatives Exchange Ltd. (NCDEX)
E-Broking (Internet trading):
It is user-friendly services to customers so that they can manage their stock
portfolio. Including, online capabilities linked to an information database to help
customers invest, confidently. E-broking services are specially developed for the
traders and investors who prefer operating from their home or office, through the
internet.
NRI Service:
WHY NRI ACCOUNT WITH INDIA ADVANTAGE SECURITIES
LIMITED?
a. Single location for Investments and Demat
b. Linked Bank Account with respective banks
c. Research Reports for every asset class
d. Trading platforms for every need: Trade online on NSE and BSE.
e. Real-time portfolio tracking with price alerts
f. Secure transactions
g. Order & Trade confirmations by e-mail and online portfolio.
11
12. CHAPTER 2:
RESEARCH
METHODOLOGY:
Statement of problem
Scope of the study
Objective of study
Selection of Sample
Significance of study
Reference period
Source of data
Tools & techniques
Chapter schema:
Limitation of study
12
13. Statement of problem:
„To measure short term means same day & long term
performance of IPOs.(1 month, 3month, 6month, 12month, 24month, 36month,)‟
Scope of the study:
Analysis of 25 IPOs from different years.
Measurement of performance with reference to average return with
the same day (1month, 3month, 6month, 12month, 24month,
36month,)‟
Project emphasis more in fluctuation of share price after public
offering retain then effect of systematic factor.
Objective of study:
Main :
To compare performance of ipo in same day of 1day or in
short-run & long –run.
To know profit potential of IPOs after long period of time.
Secondary:
To understand the return & risk associated of time.
To understand profit potential in IPOs & in secondary
market.
Selection of sample:
Project is covered 25IPO from different sectors from the
year2006,2007,2008,
Significance of study:
The profit opportunity for investor.
13
14. Reference period:
6th January,2011 to 6th march, 2011
Source of data:
Primary data
Secondary data: magazine, newspaper. book
Tools & techniques:
MAAR (Market Abnormal Adjusted Return)
CAAR(Cumulative Abnormal Adjusted Return)
Chapter schema:
1. Introduction of India Advantage Securities Ltd.
2. Research Methodology
3. Introduction About Capital Market
4. Introduction Of IPOs
5. General Analysis
6. Conclusion
7. Bibliography
Data collection:
25IPOs-offer price of all 25 IPO. & price (in same day, after
1month, 3month, 6month, 1year, 2year, 3year,) from listing date.
14
15. Limitation of study:
Study is only of 25 IPOs from year 2007 of
different sectors. It may not give complete idea
about the performance of IPOs in short & long run.
Study analysis the perform only on compare to the
retain of index effect of other factor are market.
Tools which are used may have certain militate.
15
16. CHAPTER 3:
INTRODUCTION
ABOUT
CAPITAL MARKET
MEANING OF CAPITAL MARKET
STRUCTURE AND SIZE OF CAPITAL MARKET
PRIMARY MARKET & SECONDARY MARKET
16
17. CAPITAL MARKET
MEANING OF CAPITAL MARKET:
“Capital market refers to the market for rising of financial
resources by the business enterprises, firms, government, semi- government
bodies, public sector units and other organization.”
Capital market is an organized market for long term funds required for
meeting long term needs of business enterprises. It converts savings into profitable
investments for industrial development.
Capital market is a wide term used to comprise all operation in the new
issues market and stock market. New issues made by the companies constitute the
Primary marker. While trading in the existing securities relates to the secondary
market. While we can only buy in the Primary market, we can buy and sell
securities in the secondary market. Market comprises some who demand and other
who supply these resources.
THE CAPITAL/SHARE MARKET:
The origination of the Indian securities market may be traced back to 1875,
when 22 enterprising brokers under a Banyan tree established the Bombay Stock
Exchange (BSE). Over the last 125 years, the Indian securities market has evolved
continuously to become one of the most dynamic, modern and efficient securities
markets in Asia. Today, Indian markets conform to international standards both in
terms of structure and in terms of operating efficiency.
17
18. Structure and Size of the Markets:
Corporation of the exchanges assumes the counter-party risk of each
member and guarantees settlement through a fine-tuned risk management system
and an innovative method of online position monitoring. It also ensures the
financial settlement of trades on the appointed day and time irrespective of default
by members to deliver the required funds and/or securities with the help of a
settlement guarantee fund. Today India has two national exchanges, the Bombay
Stock Exchange (BSE) and the National Stock Exchange (NSE). Each has fully
electronic trading platforms with around 9400 participating broking outfits.
Foreign brokers account for 29 of these. There are some 9600 companies listed on
the respective exchanges with a combined market capitalization near $125.5bn.
Any market that has experienced this sort of growth has an equally substantial
demand for highly efficient settlement procedures. In India 99.9% of the trades,
according to the National Securities Depository, are settled in dematerialized form
in a T+2 rolling settlement environments. In addition, trades are guaranteed by the
National Clearing Corporation of India Ltd (NSCCL) and Bank of India
Shareholding Ltd (BOISL), Clearing Corporation houses of NSE and BSE
respectively. The main functions of the Clearing Corporation are to work out (a)
what counter parties owe and (b) what counter parties are due to receive on the
settlement date. Furthermore, each exchange has a Settlement Guarantee Fund to
meet with any unpredictable situation and a negligible trade failure of 0.003%. The
Clearing
18
19. 1.) Primary Market:
Primary market is the market for those securities which are issued first
time in the market for the public. The New Issue Market deals with new securities
i.e. securities which were not previously availably and are offered to the investing
public for the first time. Primary market is a market for New issues or New
financial claims. Hence, it is called New Issue Market. The market, therefore,
derives its name from the fact that it makes available a New Block of Securities for
public subscription. In the Primary market, borrowers exchange new financial
securities for long term funds. It facilitates capital formulation.
Companies raise its capital in the primary market though:
(i) Public Issue
(ii) Right Issue
(iii) Primary placement/subscription
The most popular method of raising capital is sale of securities to the
public by new companies is called Public Issue. Right Issue means, when existing
company first offered. The security to existing shareholders on a Pre –emptive
bases, while company want to raise additional capital is called capital is called
Right Issue. Private placement imagine private sale of securities to small group
investors.
2.) Secondary Market:
Secondary market is the market for those securities which have
already been available in the market and listed on a stock exchange. The main
benefit of Secondary market is securities sold and purchased continuously among
investors without involvement of company. This market consists of all stock
exchange recognized by the Government of India. The stock exchange in India are
regulated under the securities contracts (Regulation) Act, 1956.
19
20. CHAPTER 4:
INTRODUCTION
OF
IPO
WHAT IS AN IPO?
WHY MAY A COMPANY NEED AN IPO?
WHAT ARE THE TWO SIDE OF IPO COIN?
WHO CAN" TOSS THE IPO COIN"
PREPARING FOR IPO REGULATORY.
PROCESS OF IPO.
IDEAL PROCESS OF IPO.
THE PROCEDURE FOR THE ISSUE OF AN IPO.
DOCUMENT OF IPO.
IPO MARKET IN INDIA
20
21. INTRODUCTION OF IPO:
The transition from being a private company to a public one is one of the
most important events in the life of a firm. It is also one of particular interest to
institutional investors, and the transition is facilitated through the INITIAL
PUBLIC OFFERING (IPO) process. The IPO provides a fresh source of capital
Shareholders such as venture capitalists a liquid market for their shares. From an
institutional investor's perspective, the IPO provides an opportunity to share in the
rewards of the growth of the firm.
When a firm issues equity to the public for the first time, it makes an initial
public offering consisting of two kinds of issues – the primary issue and the
follow-on issue. In a primary, the firm raises capital for itself by selling stock to
the public, whereas in the follow on issue, existing large shareholders sell to the
public a substantial number of shares they currently own.
It is a well documented fact that IPOs tend to be generally under-priced,
though some issues tend to be overpriced. From the viewpoint of financial
research, IPO under-pricing in the sense of abnormal short-term returns on IPOs
has been found in nearly every country in the world. This suggests that IPO under-
pricing may be the outcome of basic problems of information and uncertainty in
the IPO process, and is unlikely to be a figment of institutional peculiarities of any
one market.
There have also been various studies made to suggest the reasons for such
underpricing. From the investors‟ point of view, this under-pricing appear to
provide the sure and quick profit that most dream about. Though first day return
could vary, few of the issues tend to provide a very high return over the first day.
One of the examples is VA Linux which had a first day return of 700%. It is also
seen that for some of the issues, the first day return could also be negative. It then
becomes inevitable for most investors to measure the performance of IPOs by the
short term (usually within one week of issue), as the general scheme is to buy
the shares at a low initial offering price and sell it the next day when the price
increases.
Pricing of the IPOs are done by the issuers with guidance from underwriters
from investment banks. There are various ways to price the stocks but what is
commonly used now is a process called book building. It is basically a capital
issuance process used in an Initial Public Offer which aids price and demand
21
22. discovery. It is also a process used for marketing a public offer of equity shares of
a company. During the period for which the book for the IPO is open, bids are
collected from investors at various prices, which are above or equal to the floor
price. The offer/issue price is then determined by the issuing company after the bid
closing date based on the various bids that have been collected. For a more detailed
discussion of book building, one can visit any of the many stock exchanges. An
example of the book building process can be seen from the National Stock
Exchange. This Initial Public Offering can also be made through the fixed price
method or a combination of both book building and the fixed price method.
There have been various studies conducted on the price changes of the
shares after prolonged periods (six months to five years). These studies show that
while the short-run performance of IPOs is often quite impressive, the long-run
performance over the subsequent three to five years is not as impressive. Excluding
the initial-day return, IPOs tend to underperform various benchmarks. However,
these studies focus mainly on developed economies and tend to neglect the
developing counterparts. A study by Madhusoodanan and Thiripalraju studies the
performance of Indian IPOs prior to 1996.
It is in the hope that the long term performance of IPOs in developing
economies can also be a useful indicator to the potential investor that this study is
to be undertaken. The purpose of this paper is to examine the long-run
performance of IPOs in Indian stock market which were issued during 2000-2001.
The IPO literature has shown that the IPO issues and performance is based on a
cycle. In some years there are a large number of IPOs while in some years, there
are only a few IPOs. When it is a vintage year with a large number of IPOs, most
IPOs tend to do well on the first day but tend to do poorly over a long term
whereas in years when there are only a few IPOs, the results tend to be mixed. The
long run performance is likely to be affected while we include IPOs from different
time periods because the market movements in different market conditions are
likely to be different. In order to see that results are not confounded by the time
period when IPO was issued, it was decided to include IPOs that were issued
within a one-year period. This has resulted in a sample of 116 companies which
had IPOs in this period from various industries. This study is important mainly
because the Indian stock market has been performing very well from the year 2001
and our research wants to show whether this performance is due to the established
firms or the performance also gets to the newly issued shares through IPOs.
The study uses various methods to ascertain the significance of the over or
underperformance of IPOs. Among the many reasons for the performance which
22
23. we see, one of them could be the sensitivity of the results to the choice of
benchmarks. Dimson and Marsh, Ritter, Gregory et al, Fama and French and Fama
have successively demonstrated the sensitivity of the long-run performance of the
IPOs the benchmark used in the study. For this reason, the effect of various
benchmarks on the return measurements will be studied so as to elucidate the
possibility that the magnitude of the performance is benchmark dependent.
23
24. What is an IPO?
An IPO or an Initial Public Offer is a company's first sale of equity shares to
general public. Shares offered in an IPO are often, but not always, those of newly
set up companies seeking outside equity capital and a public market for their
shares.
“An initial public offer is an equity product that allows you to buy cheap
tomorrow’s possible winners”
-George Mathew
An Initial Public Offering (IPO) can be a good investment avenue for equity
investors. While the IPO market is dry these days, a fresh crop is expected soon.
Let us take five minutes to understand IPOs and to decide whether to invest in
them or not.
Suppose your friend owns a business, his company is profitable and he
wants to grow the company faster. For this he needs money. Instead of debt, he
wants to offer a part of his company for sale in the stock market. He will make,
what is called, a „public offer‟ of shares (after a number of procedures and
regulatory processes). If the issue is successful, his company will „list‟ or begin to
trade in a stock exchange. So, an IPO is a fresh offer, where a company that is not
yet trading, wants to sell shares directly to the investors. The shares can be offered
„at par‟, that is, at face value of Rs 2 Rs 5 or Rs 10, or at a premium. After this,
your friend is no longer the only owner but will have „diluted‟ his share. The
„owners‟ of the company may now be thousands of people he may not even know.
Yet, if he holds the majority shares, he will still take all the decisions about the
company. All the share holders are now entitled to vote, may get dividends and
24
25. bonuses. They also have the option to exit from the shares by selling their stock in
the secondary market, making a capital appreciation or loss as the price changes
from the issue price.
25
26. Why may a Company need an IPO?
To meet short-term requirements, the company may approach banks,
lenders or may even accept fixed deposits from the public/shareholders. To
meet its long-term requirements, funds can be raised either through loan from
lenders, Banks, Institutions etc., (which carry financial burden) or through the
issue of capital. Capital can be raised through private placement of shares,
public issue, rights issue, etc. Public Issue means raising funds from the public.
Promoters of the company may have plans for the company that may require
infusion of money. The main purpose of the public issue, amongst others, is to
raise money through the public and to get its shares listed at any of the
recognized stock exchanges in India. The following may be some other reasons
for a company to go public:
Raising funds to finance capital expenditure programs like expansion,
diversification, modernization, etc;
Financing of increased working capital requirements;
Financing acquisitions like a manufacturing unit, brand acquisitions, tender
offers for shares of another firm, etc;
Debt financing ;
Exit route for exiting investors.
An IPO has two sides to it, consisting of advantages and disadvantages.
Moreover, it needs to be balanced, and this is done by the Regulatory Bodies
such as The Securities and Exchange Board of India (SEBI), so that it does not
fall on one side. Due to this property of an IPO, it has been referred to as a
“Coin” in this report.
26
27. What are the two sides of IPO coin?
Advantages Disadvantages
Money non-refundable except in the case of Time consuming process
winding up or buy back of shares Expensive
No financial burden i.e. no fixed rate of Several Legal formalities.
interest payable. However, in order to Involvement of many intermediaries
service the equity, dividend may be paid. Transparency Requirements and public
Enhances shareholder's value if the disclosure of information may lead to
company performs well lack of privacy
Greater Transferability Continuous Compliance of provisions
Trading & Listing of securities at stock of listing agreement and other legal
exchanges requirements
Better Liquidity of securities Constant scrutiny of performance by
Helps building reputation of promoters, investors
company & its products / services, provided May lead to takeover of the company
the company performs well Securities of the company may be
made subjective to speculative attacks.
How is the “coin” made to balance (Controls)?
Applicable Laws
A Company is required to comply with the following laws in connection with a public
issue:
Provisions of The Companies Act, 1956
Securities Contracts (Regulations) Act, 1956
SEBI Rules & Regulations
Compliance to the Listing Agreement with the concerned stock exchanges after the
listing of securities.
RBI regulations in case of foreign.
27
28. Who can “Toss the IPO Coin”?
Eligibility Criteria for Public Issuance of Securities
Net Tangible Assets of at least Rs. 3 crores in each of the preceding 3
full years (of 12 months each), of which not more than 50% is held in
monetary assets. If more than 50% is held in monetary assets, the
company should have firm commitments to deploy such excess in its
business/project
Track record of distributable profits in for 3 out of preceding 5 years
Net Worth of at least Rs. 1 crores in each of the preceding 3 full years
(of 12 months each)
Issue size + previous issue in current FY is lesser than 5 times pre-issue
net worth
Yes No
Fixed Price or Book Only Book building, with compulsory allocation of
building (no minimum at least 50% to QIBs
allocation to QIBs) Or
At least 15% participation in project by FIs/banks,
of which at least 10% should come from the
appraiser(s) and additionally allocation of at least
10% to QIBs.
And
Minimum post-issue face value capital of the
Company shall be Rs. 10 crores
Or
Compulsory market making for 2 years
28
29. Preparing for IPO – Regulatory:
Company should adopt best corporate governance practices to assist Investors
appreciate greater transparency and disclosure. These have to be complied with
before listing.
Board of Directors Committees
Change in Board Audit committee of at least
composition to reflect public 3, all being non-executive
shareholders‟ interest directors, with majority
Increase number of non- being independent & at least
executive directors to 1 director having financial &
constitute at least 50% (If accounting knowledge
the chairman of the board is Remuneration committee to
an executive director then determine the Company‟s
the board should have at policy on specific
least 50% independent remuneration packages for
directors or else at least executive directors
1/3rd) Investor Grievance
committee
Company would have to ramp up Secretarial and Compliance
teams
29
30. Process of IPO:
For private companies in the United States , the first issue of securities
to the speculative and rarely do they result in large gains for investors.
However, since capital is often needed to grow a private company and values of
companies are public is referred to as an Initial Public Offering (IPO). IPO's are
extremely best determined in the marketplace, IPO's continue to be used as a
way for growing private companies.
IPO's are often one of the hottest topics in financial management.
Behind the glamour and the glitz of Initial Public Offerings (IPO's) there is a
tremendous amount of hard work and personal sacrifice. IPO's require a core
group of highly skilled professionals who must literally work around-the-clock
for one year. Therefore, one of the first steps to a successful IPO is the
formation of a seasoned, experienced team of professionals who will make the
IPO happen. You must recruit the best possible people you can find - there is no
time to supervise inexperienced MBA's fresh out-of-school.
Once an IPO team (Investment Banker, Legal Council, SEC Expert, Outside
Auditor, etc.) has been formed, you can establish a plan for the IPO Process. A
basic timeline for an IPO will usually consist of:
Month 12: Recruit new management to run the public company - CEO, CFO,
etc. Start compiling the financial information.
Month 11: Start due diligence work - worthless assets are written off,
inconsistencies with GAAP are resolved, etc.
Month 10: Start drafting the prospectus. Coordinate the collection of data to
minimize duplicative efforts.
Month 9: Establish a board of directors for the newly formed public company.
Month 8: Draft three-year historical financial statements.
Month 7: Circulate draft prospectus for comments.
Month 6: Establish transition contracts for services and products that will now
be provided to the newly formed public company. Some new contracts will be
needed, such as independent audits of financial statements.
30
31. Month 5: Finalize historical financial statements. Start preparing interim (stub)
financial statements for current period.
Month 4: Finalize pro forma and interim financial statements. Make revisions to
draft prospectus.
Month 3: Convene new board of directors. Audit of interim financials should be
complete.
Month 2: Outside auditors opinion is issued. Membership with stock exchange is
complete.
Month 1: File prospectus with SEC (Securities Exchange Commission). Issue
press release and sell the company to investors.
Before the IPO Process is complete, it is essential to implement all of the
necessary controls, procedures, and systems that will now be required within
"public life." Staff changes must be made, new financial systems tested,
functions like human resources must be managed, etc. The entire IPO process is
much more involved than most people realize. A great IPO team and proper
planning is the key to a smooth IPO process.
31
32. Ideal IPO Process:
On Monday morning, the newspaper should carry an advertisement which is the
prospectus of the IPO, which only talks about the firm and is silent on
valuation.
The IPO should take place on Tuesday evening, from 4 PM to 5 PM. The
auction should be a simple uniform-price auction with full transparency. A
picture of the demand schedule, and the cut-off price, should update on the
screen in real-time.
Investors should be able to go to any NSE terminal and place orders into the
auction. This harnesses 10,000 odd computer screens in 300 cities all over India
in the auction process. From the issuers perspective, NSCC should perform the
credit enhancement exactly as it does on the equity market. At a legal level, all
orders on the screen should be placed by NSCC, thus shielding the issuer from
the credit risk associated with anonymous order placement.
There should be no fragmentation of the shares on offer. All shares to be sold
should go through a single auction. If a retail investor wanted to "access the
IPO at prices close to the offer price" she would just place non--competitive
bids at the IPO, where she bids to buy (say) 100 shares at the IPO price,
whatever it proves to be.
Allocation of shares in the depository should take place on Tuesday itself.
There should be no physical shares. Trading on NSE should start on Wednesday
(the next day). This gives us a one-- day lag between the IPO and the start of
trading.
This proposed IPO process sounds startlingly effective. To put it in perspective,
it is part of the same disintermediation process that we have seen in other areas
of areas of the financial markets. With anonymous, electronic trading on the
equity market, the broker/dealer has been fundamentally disinter mediated out
of secondary market trading, which is now dominated by the actions of buyers
and sellers (and not intermediaries). In that same fashion, the IPO process
proposed here uses technology to link up the issuer and the investor with a
transparent pricing mechanism, and eliminates the traditional overheads of
intermediation.
32
33. The Procedure for the Issue of an IPO:
Many of these steps can be undertaken prior to formal launch of the
offering and filing of the offer document with SEBI and other regulators
Preparing for IPO.
Review business plan.
Capital structuring.
Initiate research.
Corporate governance.
Financial statements.
Due diligence.
Business and legal due diligence.
Re-stated audited financials.
Exemptions and approvals.
=Offer document.
Business overview.
Management discussion.
Statutory disclosures.
Pre-issue marketing.
Meeting with institutional investors.
Research briefings.
Corporate publicity.
33
35. Document of IPO:
A company coming out with a public issue has to come out with an offer
document/prospect.
An offer document is the document that contains all information you need
about the company. It will tell you why the company is coming is out with a
public issue. It‟s financial and how the issue will be priced.
The Draft Offer Document is the offer document in the draft stage. Any
company making a Public issue is required to file the draft offer document
with the Securities and Exchange Board of India(SEBI).The market
regulator.
If SEBI demands any changes. They have to be made. Once the changes are
make. It is field with the registrar of companies are the Stock Exchange. It
must be filed with SEBI at least 21 days before the company files it with the
ROC/ Stock Exchange during the period. You can check it out on the SEBI
website.
Red Herring prospectus is just like the above except that it will have all the
information as a draft offer document. It wills, howrver, not have the details
of the price or the number of shares being offered or the amount of issue.
That is because the Red Herring prospectus is used in bookbuiling issues
only, Where the details of the find price are know only after bidding is
concluded,
35
36. IPO MARKET IN INDIA:
The IPO Market in India has been developing since the liberalization of the
Indian economy. It has become one of the foremost methods of raising funds for
various developmental projects of different companies.
The IPO Market in India is on the boom as more and more companies are
issuing equity shares in the capital market. With the introduction of the open
market economy, in the 1990s, the IPO Market went through its share of policy
changes, reforms and restructurings. One of the most important developments was
the disassembling of the Controller of Capital Issues (CCI) and the introduction of
the free pricing mechanism. This step helped in developing the IPO Market in
India, as the companies were permitted to price the issues. The Free pricing
mechanism permitted the companies to raise funds from the primary market at
competitive price.
The Central Government felt the need for a governed environment
pertaining to the Capital market, as few corporate houses were using the abolition
of the Controller of Capital Issues (CCI) in a negative manner. The Securities
Exchange Board of India (SEBI) was established in the year 1992 to regulate the
capital market. SEBI was given the authority of monitoring and regulating the
activities of the bankers to an issue, portfolio managers, stockbrokers, and other
intermediaries related to the stock markets. The effects of the changes are evident
from the trend of the resources of the primary capital market which Includes rights
issues, public issues, private placements and overseas issues. The IPO Market in
India experienced a boom in its activities in the year 1994.In the year 1995 the
growth of the Indian IPO market was 32 %.The growth was halted with the South
East Asian crisis. The markets picked up speed again with the introduction of the
software stocks.
36
37. CHAPTER 5:
GENERAL
ANALYSIS
LIST OF IPO.
CLOSING PRICE OF IPO.
CALCULATION METHOD FOR SHORT TERT & LONG TERM
PERFORMANCE OF IPO.
SHORT TERM PERFORMANCE OF IPO.
LONG TERM PERFORMANCE OF IPO.
37
38. For the analysis I have selected following IPOs. I have collect IPOs from
year 2006 to 2008. So it is possible to measure long-term performance.
Listing
Name of IPO Date Offer Price(RS.)
1. Porwal auto component Ltd 17-Dec-06 68
2. Aries agro ltd 14-Dec-06 120
3. Transformer and rectifier ltd 7-Dec-06 425
4. Burnpur cement ltd 28-Nov-06 12
5. Jyoti laboratory ltd 12-Nov-06 620
6. Renaissnce jwellary ltd 19-Nov-06 125
7. Edelweiss capital ltd 15-Nov-07 725
8. Mundra port & SEZ ltd 1-Nov-07 400
9. Barak valley cement ltd 29-Oct-07 37
10. Allied computer int. ltd 19-Oct-07 12
11. Chemical biotech ltd 9-Sep-07 16
12. Vishal info. Technology ltd 21-Jul-07 140
13. KSK energy venture ltd 23-Jun-07 240
14. Sejal architectural glass ltd 9-Jun-07 105
15. Avon washing system ltd 9-Jun-07 10
16. Bafna Pharmaceuticals ltd 27-May-07 40
17. Aishwariya telecom ltd 15-Apr-08 32
18. Sita Shree food product ltd 11-Apr-08 27
19. Niraj cement structureal ltd 22-Jun-08 175
20. Godrej properties ltd 9-Dec-08 100
21. Think soft global service ltd 22-Sep-08 120
22. Euro multivision ltd 24-Sep-08 70
23. C mahendra export ltd 31-Dec-08 95
24. Punjab &Sind bank 13-Dec-08 113
25. Power Grid corporation of
india ltd 9-Nov-08 85
38
40. CALCULATION METHOD FOR SHORT- TERM PRAFORMANCE OF IPOS:
The methodology used by Aggarwal, Leal and Hernandez (1993) to measure
the short-run performance for each IPO and for groups of IPOs. The total return for
stock “i” at the end of the first trading day is calculated as:
Ri1= (Pi1/Pi0) -1 (1)
Where Pil is the closing price of the stock i at the first trading day, and Pi0 is
its offering price and Ril is the total first-day return on the stock. The return on the
market index during the same time period is:
R m1 =(P m1/ P m0) - 1 (2)
where P m1is the closing market index value at the first trading day and P m0 is
the closing market index value on the offering day of the appropriate stock, while
R m1 is the first day‟s comparable market return.
Using these two returns, the market-adjusted abnormal return for each IPO on the
first day of trading is computed as:
MAARi1= 100 ( 1+ Ri1/ 1+ R m1-1 ) (3)
MAAR is the sample mean abnormal return for the first trading day and may
be viewed as a Performance index which reflects the return, in excess of the market
return, on an investment divided equally among N new issues in a sample:
40
41. CALCULATION METHOD FOR LONG- TERM PRAFORMANCE OF IPOS:
The Long Term Performance Is Based on CAAR Model it means
Cumulative Average Abnormal Return:
Average CAART=
where the abnormal return in month t after the IPO for firm I is given by εit
and N is the number of firms in the sample.
41
43. CHART OF MAAR :
Figure 1 Distribution of First Day Return
of 25 company
MAAR(%)
200
150
100
MAAR
MAAR(%)
50
0
1 3 5 7 9 11 13 15 17 19 21 23 25
-50
INTERPRETATION:
The average first day returns for the entire sample of 25 selected
company. Figure 1 shows the frequency of the market-adjusted initial returns of
IPOs for the entire sample of Indian stocks. For the Indian market, the Average
MAAR is found to 81.46%.so Average MAAR has a greater return in a first day.
And it is a high profit potential in a first day of initial public i.e. 81.46% return on
first day. And the positive for the investor. So IPOs are generally performed better
in same day for giving good return.
43
44. LONG- TERM PRAFORMANCE OF IPOS:
The long term performance of IPOs for them. 1month. 3month .6month
.12month .24month 36month. The analysis is below:
LONG- TERM PRAFORMANCE OF IPOS (monthly):
RETURN ON 1 MONTH
CL.PRICE OF SAME CL.PRICE AFTER 1MONTH
NO Name of IPO DAY 1MONTH RETURN (%)
1 Porwal auto component Ltd 79.58 110.397 39
2 Aries agro ltd 172.197 178.264 4
3 Transformer and rectifier ltd 534.17 476.397 -11
4 Burnpur cement ltd 19.175 10.37 -46
5 Jyoti laboratory ltd 734.15 679.87 -7
6 Renaissnce jwellary ltd 115.274 112.397 -2
7 Edelweiss capital ltd 824.1 752.165 -9
8 Mundra port & SEZ ltd 297.145 364.254 23
9 Barak valley cement ltd 47.19 42.17 -11
10 Allied computer int. ltd 10.97 11.36 4
11 Chamical biotech ltd 27.197 33.14 22
12 Vishal info. Technology ltd 179.87 211.31 17
13 KSK energy venture ltd 197.157 221.296 12
14 Sejal architectural glass ltd 92.154 86.15 -7
15 Avon washing system ltd 8.257 7.982 -3
16 Bafna Pharmaceuticals ltd 35.198 33.31 -5
17 Aishwariya telicom ltd 57.191 49.11 -14
18 Sita Shree food product ltd 21.254 25.364 19
19 Niraj cement structureal ltd 227.9 221.25 -3
20 Godrej properties ltd 135.96 96.36 -29
21 Think soft global service ltd 98.12 99.365 1
22 Euro multivision ltd 63.94 69.5 9
23 C mahendra export ltd 115.95 122.35 6
24 Punjab &Sind bank 95.87 76.98 -20
Power Grid corporation of
25 india ltd 99.31 87.25 -12
AVG. TOTAL -0.92
AVERAGE CAAR -0.92
44
45. CHART OF 1 MONTH RETURN :
Figure 2 Distribution of 1 Month Returns 25
company
1MONTH RETURN(%)
60
40
20
1MONTH
0
RETURN(%)
1 3 5 7 9 11 13 15 17 19 21 23 25
-20
-40
-60
INTERPRETATION:
The Average CAAR for monthly is -0.92. So it is a negative for the
company & the investor. Also company takes a risk for IPOs. And less profit
potential of IPOs after long period i.e. monthly for investor.
.
45
46. LONG- TERM PRAFORMANCE OF IPOS (quarterly):
RETURN ON 3 MONTH
N CL.PRICE OF CL.PRICE AFTER QUARTERLY
O Name of IPO SAME DAY 3MONTH RETURN(%)
1 Porwal auto component Ltd 79.58 75.147 -6
2 Aries agro ltd 172.197 140.397 -18
3 Transformer and rectifier ltd 534.17 379.379 -29
4 Burnpur cement ltd 19.175 7.254 -62
5 Jyoti laboratory ltd 734.15 611.52 -17
6 Renaissnce jwellary ltd 115.274 145.697 26
7 Edelweiss capital ltd 824.1 612.14 -26
8 Mundra port & SEZ ltd 297.145 387.42 30
9 Barak valley cement ltd 47.19 22.254 -53
10 Allied computer int. ltd 10.97 11.254 3
11 Chamical biotech ltd 27.197 19.675 -28
12 Vishal info. Technology ltd 179.87 145.64 -19
13 KSK energy venture ltd 197.157 321.264 63
14 Sejal architectural glass ltd 92.154 67.198 -27
15 Avon washing system ltd 8.257 14.987 82
16 Bafna Pharmaceuticals ltd 35.198 29.987 -15
17 Aishwariya telicom ltd 57.191 35.14 -39
18 Sita Shree food product ltd 21.254 31.476 48
19 Niraj cement structureal ltd 227.9 152.14 -33
20 Godrej properties ltd 135.96 141.71 4
21 Think soft global service ltd 98.12 142.95 46
22 Euro multivision ltd 63.94 42.92 -33
23 C mahendra export ltd 115.95 112.35 -3
24 Punjab &Sind bank 95.87 74.25 -23
Power Grid corporation of india
25 ltd 99.31 109.7 10
AVG. TOTAL -4.76
AVERAGE CAAR -2.84
46
47. CHART OF 3 MONTH RETURN :
Figure 3 Distribution of 3 Month Returns of 25
company
QUARTERLY RETURN(%)
100
80
60
40
20 3MONTH
0 RETURN(%)
-20 1 3 5 7 9 11 13 15 17 19 21 23 25
-40
-60
-80
INTERPRETATION:
The Average CAAR for Quarterly is -2.84. So it is a negative for the
company & the investor. Also company takes a risk for IPOs. And less profit
potential of IPOs after long period i.e. quarterly return for investor. As compare to
monthly return it is a high risk for each 25 companies & investor.
47
48. LONG- TERM PRAFORMANCE OF IPOS (haft yearly):
RETURN ON 6 MONTH
CL.PRICE OF SAME CL.PRICE AFTER HAFT YEARLY
NO Name of IPO DAY 6MONTH RETURN(%)
1 Porwal auto component Ltd 79.58 76.21 -4
2 Aries agro ltd 172.197 150 -13
3 Transformer and rectifier ltd 534.17 32 -94
4 Burnpur cement ltd 19.175 7.36 -62
5 Jyoti laboratory ltd 734.15 725.2 -1
6 Renaissnce jwellary ltd 115.274 159.2 38
7 Edelweiss capital ltd 824.1 633.2 -23
8 Mundra port & SEZ ltd 297.145 411.54 38
9 Barak valley cement ltd 47.19 26.3 -44
10 Allied computer int. ltd 10.97 15.21 39
11 Chamical biotech ltd 27.197 24.12 -11
12 Vishal info. Technology ltd 179.87 157.25 -13
13 KSK energy venture ltd 197.157 357.21 81
14 Sejal architectural glass ltd 92.154 51.21 -44
15 Avon washing system ltd 8.257 12.58 52
16 Bafna Pharmaceuticals ltd 35.198 22.14 -37
17 Aishwariya telicom ltd 57.191 39.25 -31
18 Sita Shree food product ltd 21.254 33.21 56
19 Niraj cement structureal ltd 227.9 157.69 -31
20 Godrej properties ltd 135.96 157.21 16
21 Think soft global service ltd 98.12 125.21 28
22 Euro multivision ltd 63.94 44.2 -31
23 C mahendra export ltd 115.95 159.6 38
24 Punjab &Sind bank 95.87 74.21 -23
Power Grid corporation of india
25 ltd 99.31 111.25 12
AVG. TOTAL -2.56
AVERAGE CAAR -2.75
48
49. CHART OF 6 MONTH RETURN :
Figure 4 Distribution of 6 Month of 25
company
HAFE YEAR RETURN(%)
100
50
0
6MONTH
1 3 5 7 9 11 13 15 17 19 21 23 25 RETURN(%)
-50
-100
-150
INTERPRETATION:
The Average CAAR for haft yearly is -2.75. So it is a negative for the
company & the investor. Also company takes a risk for IPOs. And less profit
potential of IPOs after long period i.e. haft yearly return for investor. As compare
to monthly return it is a high risky but quarterly return less risky for each 25
companies & investor.
49
50. LONG- TERM PRAFORMANCE OF IPOS (yearly):
RETURN ON YEARLY
CL.PRICE OF SAME CL.PRICE AFTER YEARLY RETURN
NO Name of IPO DAY 1YEAR (%)
1 Porwal auto component Ltd 79.58 65.174 -18
2 Aries agro ltd 172.197 143.287 -17
3 Transformer and rectifier ltd 534.17 370.9 -31
4 Burnpur cement ltd 19.175 12.271 -36
5 Jyoti laboratory ltd 734.15 598.217 -19
6 Renaissnce jwellary ltd 115.274 120.32 4
7 Edelweiss capital ltd 824.1 575.153 -30
8 Mundra port & SEZ ltd 297.145 370.198 25
9 Barak valley cement ltd 47.19 17.975 -62
10 Allied computer int. ltd 10.97 19.254 76
11 Chamical biotech ltd 27.197 15.364 -44
12 Vishal info. Technology ltd 179.87 180.364 0
13 KSK energy venture ltd 197.157 225.172 14
14 Sejal architectural glass ltd 92.154 104.031 13
15 Avon washing system ltd 8.257 19.854 140
16 Bafna Pharmaceuticals ltd 35.198 37.154 6
17 Aishwariya telicom ltd 57.191 31.294 -45
18 Sita Shree food product ltd 21.254 33.21 56
19 Niraj cement structureal ltd 227.9 142.35 -38
20 Godrej properties ltd 135.96 163.65 20
21 Think soft global service ltd 98.12 148.57 51
22 Euro multivision ltd 63.94 47.16 -26
23 C mahendra export ltd 115.95 142.36 23
24 Punjab &Sind bank 95.87 62.24 -35
Power Grid corporation of india
25 ltd 99.31 103.54 4
AVG. TOTAL 1.24
CAAR -1.75
50
51. CHART OF YEARLY RETURN :
Figure 5 Distribution of Yearly Returns of 25
company
200 YEARLY RETURN(%)
150
100
50
YEARLY RETURN(%)
0
1 3 5 7 9 11 13 15 17 19 21 23 25
-50
-100
INTERPRETATION:
The Average CAAR is -1.75.So it is a negative for the company & the
investor. Also company takes a risk for IPOs. And less profit potential of IPOs
after long period i.e. Yearly return for investor. As compare to monthly return it is
a high risky but quarterly return & haft yearly return less risky for each 25
companies & investor.
51
52. LONG- TERM PRAFORMANCE OF IPOS (FOR 24 MONTH):
RETURN ON 24 MONTH
CL.PRICE OF SAME CL.PRICE AFTER 2YEARLY RETURN
NO Name of IPO DAY 2YEAR (%)
1 Porwal auto component Ltd 79.58 45.167 -43
2 Aries agro ltd 172.197 98.271 -43
3 Transformer and rectifier ltd 534.17 482.754 -10
4 Burnpur cement ltd 19.175 16.387 -15
5 Jyoti laboratory ltd 734.15 570.33 -22
6 Renaissnce jwellary ltd 115.274 142.254 23
7 Edelweiss capital ltd 824.1 545.254 -34
8 Mundra port & SEZ ltd 297.145 375.159 26
9 Barak valley cement ltd 47.19 59.147 25
10 Allied computer int. ltd 10.97 15.364 40
11 Chamical biotech ltd 27.197 17.98 -34
12 Vishal info. Technology ltd 179.87 137.264 -24
13 KSK energy venture ltd 197.157 238.12 21
14 Sejal architectural glass ltd 92.154 107.1 16
15 Avon washing system ltd 8.257 27.379 232
16 Bafna Pharmaceuticals ltd 35.198 39.17 11
17 Aishwariya telicom ltd 57.191 29.146 -49
18 Sita Shree food product ltd 21.254 27.29 28
19 Niraj cement structureal ltd 227.9 163.98 -28
20 Godrej properties ltd 135.96 112.94 -17
21 Think soft global service ltd 98.12 125.917 28
22 Euro multivision ltd 63.94 44.51 -30
23 C mahendra export ltd 115.95 113.67 -2
24 Punjab &Sind bank 95.87 92.81 -3
Power Grid corporation of india
25 ltd 99.31 72.19 -27
AVG. TOTAL 2.76
CAAR -0.848
52
53. CHART OF 2 YEARLY RETURN :
Figure 5 Distribution of 2 Yearly Returns of 25
company
2YEARLY RETURN(%)
250
200
150
100 2YEARLY
50 RETURN(%)
0
-50 1 3 5 7 9 11 13 15 17 19 21 23 25
-100
INTERPRETATION:
The Average CAAR is -0.848 .So it is a negative for the company & the
investor. Also company takes a risk for IPOs. And less profit potential of IPOs
after long period i.e. 24 Monthly returns for investor. As compare to monthly
return it is a less risky but quarterly return & haft yearly return also less risky and
from the duration of 24 month the risk has been reduced for each 25 companies &
for investor.
53
54. LONG- TERM PRAFORMANCE OF IPOS (FOR 36 MONTH):
RETURN ON 36 MONTH
3YEARLY
CL.PRICE OF CL.PRICE AFTER RETURN
NO Name of IPO SAME DAY 3YEAR (%)
1 Porwal auto component Ltd 79.58 49.176 -38
2 Aries agro ltd 172.197 109.175 -37
3 Transformer and rectifier ltd 534.17 439.647 -18
4 Burnpur cement ltd 19.175 13.27 -31
5 Jyoti laboratory ltd 734.15 625.149 -15
6 Renaissnce jwellary ltd 115.274 111.351 -3
7 Edelweiss capital ltd 824.1 698.14 -15
8 Mundra port & SEZ ltd 297.145 403.31 36
9 Barak valley cement ltd 47.19 60.37 28
10 Allied computer int. ltd 10.97 13.215 20
11 Chamical biotech ltd 27.197 16.01 -41
12 Vishal info. Technology ltd 179.87 122.746 -32
13 KSK energy venture ltd 197.157 207.985 5
14 Sejal architectural glass ltd 92.154 119.31 29
15 Avon washing system ltd 8.257 11.31 37
16 Bafna Pharmaceuticals ltd 35.198 39.19 11
17 Aishwariya telicom ltd 57.191 34.371 -40
18 Sita Shree food product ltd 21.254 28.12 32
19 Niraj cement structureal ltd 227.9 159.89 -30
20 Godrej properties ltd 135.96 92.21 -32
21 Think soft global service ltd 98.12 109.07 11
22 Euro multivision ltd 63.94 72.69 14
23 C mahendra export ltd 115.95 78.137 -33
24 Punjab &Sind bank 95.87 101.35 6
Power Grid corporation of
25 india ltd 99.31 87.21 -12
AVG. TOTAL -5.92
CAAR -1.69
54
55. CHART OF 3 YEARLY RETURN :
Figure 5 Distribution of 3 Yearly Returns of 25
company
3YEARLY RETURN(%)
60
40
20
3YEARLY
0
RETURN(%)
1 3 5 7 9 11 13 15 17 19 21 23 25
-20
-40
-60
INTERPRETATION:
The Average CAAR is -1.69.So it is a negative for the company & the
investor. Also company takes a risk for IPOs. And less profit potential of IPOs
after long period i.e. 36 Monthly returns for investor. As compare to monthly
return it is a less risky but quarterly return & haft yearly return also less risky and
from the duration of 36 month the risk has been reduced for each 25 companies &
investor.
55
56. CHART FOR CAAR :
MONTH Average CAAR
1 -0.92
3 -2.84
6 -2.75
12 -1.75
24 -0.848
36 -1.69
AVERAGE CAAR
0
1 2 3 4 5 6
-0.5
-1
-1.5 CAAR
-2
-2.5
-3
INTERPRETATION:
The Average CAAR has Been Negatives for Entire 36 Month .so in long
term performance is poorly for the 25 selected companies. And negative response
by Indian invertors. And negative returns get in long term IPOs.
56
59. The short-term is positive i.e. Average MAAR is 81.46% and the long-term
performance is negative for each month i.e. average CAAR. and short-term
performance of IPOs is the positive and the higher chance to earn return in
short-term IPOs for Indian investor.
The long-term performance of these companies shows that investment in
Indian IPOs provides negative abnormal return by the end of the 36 month
The short-term performance of these companies shows that investment in
Indian IPOs provides positive abnormal return by the end of the first trading
day. And the higher chance to earn profit in short-term IPOs for Indian
invertors
This study shows that investment in IPOs generally negative benefit to
Indian investor in long term IPOs. And positive for short-term IPOs.
59
