Major Research Project
“IMPACT OF IPO/FPO’s PERFORMANCE IN INDIAN CAPITAL MARKET.”
Supervised By -
Submitted By -
Prof. Dr Mitchell Bharadwaj
MBA 1st Year(2nd SEM)
Method of Pricing of IPO/FPO in India
Rationale of study
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.
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.
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”
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5. Hunger, Adrian (2003) “Market Segmentation and IPO-Underpricing: The German Experience” Working Paper, Ludwig-Maximilians-Universität München, Institut für Kapitalmarktforschung und Finanzierung, February.
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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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