IMPACT OF IPO/FPO’s PERFORMANCE IN INDIAN CAPITAL MARKET

Topics: Initial public offering, Public company, Stock exchange Pages: 6 (1693 words) Published: March 30, 2014


Major Research Project
on
“IMPACT OF IPO/FPO’s PERFORMANCE IN INDIAN CAPITAL MARKET.”

Supervised By - Submitted By -
Prof. Dr Mitchell BharadwajAshish Gupta MBA 1st Year(2nd SEM)

CONTENT

S.NO.

TOPIC

PAGE NO.
1.
Introduction
3-4
2.
Method of Pricing of IPO/FPO in India
4
3.
Literature Review
5-7
4.
Rationale of study
8
5.
Objectives
9
6.
Research Methodology
10
7.
Bibliography
11-12

INTRODUCTION
Financial capital is one of the most important components of a business. The need for financial capital grows with a growth in the business. At a certain stage, it becomes imperative to raise a large amount of financial capital to expand and sustain the business, and at an affordable cost to the company. An IPO – an acronym for Initial Public Offer – is one of the most popular methods of raising money from the general public and investors.

IPO DEFINITION
An initial public offer, as the name indicates, is the first (initial) instance of a company (called the issuer) offering its commons stock (or shares) to the general public for subscription. It is a common misconception that only newly formed companies resort to raising money through an IPO. Even long established private companies can access the IPO route to raise capital, and become publicly traded companies as a result. An IPO is considered as a “rite of passage” into the big league of publicly traded stocks. Any company that needs to be listed on a stock exchange has to offer its shares to the public. In addition to IPO, an already listed and publicly traded company may issue an FPO Follow on Public Offer – to raise further capital for the company. the two. METHOD OF PRICING OF IPO/FPO IN INDIA

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 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.

LITERATURE REVIEW
S S S Kumar , a study on “Short and Long-run Performance of Bookbuilt IPOs in India”,“International Journal of Management Practices & Contemporary Thoughts”,year 2007 “One of the important reforms Indian markets witnessed in the recent past is the introduction of issuing shares through the book building process which aims at efficient price discovery. The paper attempts to see how the IPOs issued through book building process fare both in short-run as well as in long run. Results indicate that the IPOs are under-priced as is evidenced by the positive listing day returns and are out performing the market in the subsequent months almost up to twenty four months. However, after two years of listing they generate negative returns. This finding is consistent with the /PO performance literature from the other countries but is in contrast with the first long run study on 1POs in the long run in India. Vijaya B Marisetty2 (Department of Accounting and Finance Monash University ) and Marti G Subrahmanyam (Stern School of Business ,New York University ),” “Group Affiliation and the Performance of Initial Public Offerings in the Indian Stock Market ”, Journal of Financial Markets , October 2008 . “This paper document the effects of group affiliation on the initial performance of 2,713...

Bibliography: RECENT VIEW OF SEBI(OVERPRICING OF IPO)
(SOURCE- THE ECONOMIC TIMES, 1 MAY 2011)
2. Jason Draho (2004) The IPO decision: “why and how companies go public”
3
4. Aggarwal R. K., Krigman and Womack (2002), “Strategic IPO underpricing information momentum and lockup expiration selling” Journal of Financial Economics, 66, 105-137.
5. Hunger, Adrian (2003) “Market Segmentation and IPO-Underpricing: The German Experience” Working Paper, Ludwig-Maximilians-Universität München, Institut für Kapitalmarktforschung und Finanzierung, February.
6. Jegadeesh Narasimhan, Mark Weinstein, Ivo Welch (1993): “An empirical investigation of IPO returns and subsequent equity offerings”, Journal of Financial Economics, 34, 153-75.
7. Kunz, R.M. and Aggarwal, R. (1994), “Why initial public offerings are
Underpriced: Evidence from Switzerland”, Journal of Banking and Finance, 705-723.
8. Levis, M. (1995) “Seasoned equity offerings and the short and long –run performance of Initial public offerings in the UK”, European financial Management, 1,125-146.
9. Madhusoodan, T. P. and Thiripalraju M. (1997): “Under pricing in initial public offerings: The Indian evidence”, Vikalpa, 22, 17-30.
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