International Journal of Ethics in Engineering & Management Education

Website: www.ijeee.in (ISSN: 2348-4748, Volume 2, Issue 11, November 2015)

A Study on Initial Public Offer (IPO) In India

Dr. Rajesh Kumar Agrawal Ms.VaishaliBakliwal
Director Management Trainee
The Institute Of Company Secretaries Of India (ICSI) The Institute Of Company Secretaries Of India (ICSI)
- Centre For Corporate Governance, Research And - Centre For Corporate Governance, Research And
Training (CCGRT) Training (CCGRT)
Navi Mumbai, Maharashtra, India Navi Mumbai, Maharashtra, India
Email Id- rajesh.agrawal@icsi.edu

Abstract: An Initial Public Offering (IPO) is a dated October 27, 2015 SEBI cuts IPO paperwork by
transformational event for an organization as it forever changes notifying a five-sheet abridged prospectusincluding the
how a company goes about doing business. The Indian IPO has application form shall not exceed 5 sheets (printed both sides)
seen its fair share of ups and downs. Thanks to the regulatory that companies need to file for public offers to make it easier
changes and compliances, the companies have to undergo the for investors to understand key points and to make an
maze of interpretation, application and implementation with
informed decision.This shall be applicable from 1st day of
awareness and updated knowledge incessantly. Thus, the purpose
of this study is to understand the procedure for listing of IPO in December, 2015.
India and the hurdles that the Indian Corporates face as they The IPO Scam in the year 2005-2006 made us aware of the
gear up to pull up a successful IPO. It is also to be noted that abuse and misuse of the IPO allotment process. The buying
these hurdles, procedural or otherwise help to trace the trends of and sharing process in the shares allotted through IPOs to
IPO in the Indian primary market. The study covers the issue nearly 21 companies in the year 2003, 2004 and 2005. It
trends of IPO, their listing on the Main Boards of National Stock involved manipulation of the initial public offers (IPOs) by
Exchange of India Limited and Bombay Stock Exchange Limited financiers and market players by using fictitious or benaami
and also look into areas that cause hurdles in the flow of issue of DEMAT Accounts. In the year 2005, the IPO scam came to
securities and their listing. The study also provides the major
light when the private ‘Yes Bank’ launched its initial public
factors affecting the issuance of shares through IPO such as
volatility of market, global meltdown, merchant bankers, offering. Roopal Ben Panchal, a resident of Ahmedabad, had
amendments in the statues and government stability. allegedly opened several fake DEMAT accounts and
subsequently she raised finances on the shares allotted to her
Keywords: Listing of IPO, Initial Public Offer, Securities and through Bharat Overseas Bank branches. After detecting the
Exchange Board of India (SEBI) Regulations, Companies Act irregularities in the buying of shares of YES BANK’s IPO, the
2013, Indian Capital Market, Hurdles faced by Corporates, SEBI started a broad investigation. SEBI decided to release
National Stock Exchange, Bombay Stock Exchange. the orders of a sub-committee looking into NSDLs role in the
IPO scam and case of irregularities in dematerialisation of the
1. INTRODUCTION shares of a company. Thus the case comes up as NSDL v.
SEBI case appealed to Securities Appellate Tribunal (SAT).
Going public is a monumental decision for any company. It is Thus, SEBI had indicted NSDL as far back as in 2006 for
the process of offering securities generally common stock of a being responsible for not properly monitoring the Depository
privately owned company for sale to the general public. The Participants and thus being responsible for the scam. With this
first time these securities are offered is referred to as an initial the SEBI issued ex-parte ad-interim order under Section 19 of
public offering (IPO). A public company has access to more, the Depositories Act, 1996 read with Section 11,11B of the
and often deeper, sources of capital than a private company. Securities and Exchange Board of India Act, for completing
Corporates may raise capital in the primary market by way of the inquiry. The SEBI initiated adjudication proceedings
an initial public offer that can be made through the fixed price against NSDL under section 15 H of the SEBI Act, 1992 and
method, book building method or a combination of both for section 19 H of the Depositories Act, 1996. Thus the SEBI
which companies have to go through various rules and levied a monitory penalty of Rs. 5crores on NSDL.
regulations which are governed by Securities and Exchange In October 2010,Coal India IPO came and called as The
Board of India (SEBI). SEBI is a governing body of securities Mother of All IPOs. Coal India Limited (CIL), the largest coal
market in India which lays down rules to protect the interest of producing company in the world, came up with the biggest
investors and assist the development of securities market in ever Initial Public Offering (IPO) in the history of the Indian
India.ICDR regulations of SEBI, 2009 list down rules for IPO. stock market to raise funds close to INR 1,500,000 million.
An issuer is required to go through these regulations before CIL, given an IPO grading of 5/5, offered 631.63 million
listing for IPO. ICDR regulation lists following information in equity shares through the IPO.Prior to this, the Reliance IPO
20 regulations: provisions and pricing for public issue, had been the biggest IPO ever.
eligibility criteria, contribution of promoters, minimum offer This research paper is carried out with an intention to
that can be used, offer document, reservation and general understand the problems faced by Indian Corporates in the
obligations of issuers with respect to public.In a notification process of bringing an Initial Public Offer and its listing

1
 International Journal of Ethics in Engineering & Management Education
Website: www.ijeee.in (ISSN: 2348-4748, Volume 2, Issue 11, November 2015)
thereafter. The study of IPO in this context had caught the relate the changes in the profile of the issuers to certain
researcher’s attention consider the momentum in the Indian regulatory developments which may have been intended to
IPO market. With changed attitude of the Government at the influence those attributes of issuers and issuances. The
Centre, mushrooming of IPOs and dynamic regulatory observations in this paper provide useful pointers to further
environment, the companies that wish to go public are now research which may unravel the working of the Indian IPO
thinking about the big step in a more comprehensive and market better. More importantly, they may be useful in
lateral manner. Thus it necessitates the study of the procedure designing new securities market which could serve as
for issue and Listing of IPO as well as the challenges and alternatives to or complement the existing market
obstacles that it poses. mechanisms.
Indian companies have raised Rs. 4,950 crore through the b)ManasMayur, Sanjiv Mittal in their research article titled
initial public offerings (IPO) in the first half of the current “Waves of Indian IPOs: Evolution and Trend” published
fiscal year, according to Prime Database.In the first half of byAsia-Pacific Journal of Management Research and
FY15, domestic companies had raised Rs. 1,017 crore through Innovation on July 2011 aims at understanding the waves and
IPOs. The fund-raising through IPO is expected to gain pattern of Indian IPOs. It was found that most of the IPOs
traction going ahead, as more than 30 companies have filed were from private sector companies. The industry-wise trend
draft papers with market regulator the Securities & Exchange in IPOs showed that most of the IPOs were launched by IT
Board of India (SEBI). At present, 19 companies planning to sector companies. It was observed that year 1999–2000 and
raise Rs. 11,545 crore are holding SEBI approval and year 2005–06 was best in terms of investors' response whereas
another 17 companies intending to raise Rs. 6,795 crore the period from 2001 to 2003 was worst in terms of investors'
have filed with SEBI and are awaiting approval, Pranav optimism. Current waves of Indian IPOs are divided into hot
Haldea, Managing Director of Prime Database has been market IPOs and cold market IPOs. A multivariate regression
quoted as saying.Meanwhile, Indian companies raised an model is applied to empirically analyze issuers' approach to
additional Rs. 12,916 crore in the first six months of FY16 time their issue with hot market condition. The result suggests
through the offer-for-sale (OFS) route due to the that Market timers, identified as firms that go public when the
Government's disinvestment programme.This is the best first market is hot, tried to maximize the total proceeds at the time
half for the primary market since FY08, when INR 31,831 of IPO.
crore was raised as per the India Infoline News Service (IIFL) c) ManasMayur, Manoj Kumar in their article titled
on October 13, 2015.Thus, what follows ahead in this paper is “Determinants of Going-Public Decision in an Emerging
analysis of issue and listing procedure and hurdles they create Market- Evidence from India” on January-March,
for Indian companies contemplating an IPO. 2013investigates the determinants of going-public decision of
the Indian firms. The determinants were investigated by
2. OBJECTIVES OF THE STUDY examining both ex-ante characteristics of the IPO firms and
ex-post IPO consequences of the IPOs. The ex-post analysis
a) To understand and evaluate the complex IPO process in reveals that firms go public to: finance their growth and
view of the multiple statues and regulations governing it. investments, diversify owners’ risk, rebalance their capital
b) To decipher the process for listing of IPOs under the structure, and bring down their borrowing rates. This study
altering regulatory environment. provides useful insights for corporate managers, investors,
c) To know the major factors affecting issue of shares through market intermediaries, stock exchange authorities, as well as
IPO. for academic and business researchers. An understanding of
d) To identify the real and probable hurdles faced by Indian the motivation and costs associated with the going-public
Corporates in making Initial Public Offer. decision of Indian firms can enable the corporate managers of
private Indian firms to take an informed decision whether to
3. REVIEW OF LITERATURE become public or remain private.
d) Fernando, A Rosary Ramona; Deo, Malabika; Zhagaiah,
The following literature have been reviewed: R in their research titled “Stock Price Performance of Initial
a)G. Sabarinathan’s research article titled “Attributes of Public Offerings: Evidence from India” published by
Companies Making IPOs in India- Some Observations International Journal of Research in Social Sciences on
published by Social Science Research Network on December May, 2013examines the price performance of Initial Public
30, 2010 pertain to different windows of IPO activity, starting Offerings (IPOs) in India. The study was conducted among 27
with the establishment of the Securities and Exchange Board book building IPOs in India comprising of a period of five
of India (SEBI) in 1992. However, no study so far has years from 1990 to 2004. All the issues were priced at
examined the evolution of the attributes of the issuer. The premium. Since all are premium issues, they were categorized
establishment of SEBI in its current empowered incarnation as low premium IPOs and high premium IPOs. Low premium
has been acknowledged to be a milestone in the evolution of IPOs were taken as those whose issue price is five times the
the Indian securities market. This paper is based on the belief face value of its shares and High premium IPOs were those
that understanding the evolution of IPOs since the whose issue price is ten times the face value of their shares.
establishment of SEBI may help in understanding the The sample comprised 5 low premiums and 22 high premium
phenomena in the IPO market better. The paper also tries to IPOs. For the purpose of the analysis, Shapiro Wilks “W” test

2
 International Journal of Ethics in Engineering & Management Education
Website: www.ijeee.in (ISSN: 2348-4748, Volume 2, Issue 11, November 2015)
and Mann Whitney “U” test were conducted. The study shows 4. IPOs RECENT TRENDS, PROCEDURES AND
that there is no much difference between low and high HURDLES FACED BY CORPORATES
premium issues, and suggests that mostly low premium issues
are under-priced and are more consistent as regards to returns Year-Wise IPOs in India Share Market:
than that of the high premium issues.
e) K. HemaDivya on research titled “A Study on Year No. Amount Issue Issue
Performance of Indian IPO’s during the Financial Year of raised Succeeded Failed
2010-2011” published by International Journal of IPOs (IN Rs Cr)
Marketing, Financial Services & Management Research on 2007 108 33,946.22 104 4
7 July, 2013 analysed the performance of the IPO’s in the
market during the financial year 2010-2011 and ascertain the 2008 39 18,339.92 36 3
factors contributing to the under-pricing or over-pricing of 2009 22 19,306.58 21 1
IPO in India. This study attempts to identify causal variables 2010 66 36,362.18 64 2
behind high initial gains for Indian IPOs using earlier 2011 40 6043.57 37 3
researches and testing them over a sample of Indian IPOs to
2012 27 6865.94 25 2
examine the influence of non-fundamental factors and
signaling effects on under-pricing.This study includes the data 2013 39 1645.87 37 2
set of 54 IPOs, out of 2 IPOs got cancelled before listing. The 2014 47 1479.68 45 2
Analysis from the statistical data that cover the IPOs of 2015* 55 7510.28 55 0
various companies adopting the book-building route also faces
Source: -http://www.chittorgarh.com/ipo/ipo_reports.asp
underpricing. There is an extent of over subscription of an
IPO, which will determine the First Day Gains. The over
subscription will leads to larger First Day Gains for the IPOs.
The analysis helps in finding whether the stocks are
Money raised through IPOs during 2007-2015:
underpriced or overpriced.
f) Poonam Raniin her research article titled “Regulatory
Transition in Initial Public offers of Corporate Sector: An
Indian Perspective” published by International Journal of
Management and Social Sciences Research (IJMSSR) on
August, 2014traces the changes that have come in the
regulatory environment surrounding and engulfing the Indian
IPO Market and observed that all these changes were
introduced to make healthy philanthropic process. The
relevant credentials of pertinent act as well recent reform
substantiates it very well. It complements the extant literature
by presenting recent reforms in systematic manner.The
researcher has studied the governing acts and regulations that
have witnessed transition over a period of time to suit the
changing market scenario and catalyze the procedure of Source:-http://www.chittorgarh.com/ipo/ipo_reports.asp
making an IPO.
g) Baishali Agarwal in an article titled “Foreign Financial Year Wise Comparison of Succeeded Vs Failed
Institutional Investors and the Indian IPO Market – An IPOs during 2007-2015:
Investigation from 2009-2011” published by Asia-Pacific
Journal of Management Research and Innovation on
September 2014 stated that the Indian capital market post
liberalisation underwent various reforms and deregulations
which heavily attracted foreign investments particularly the
portfolio investments. The Indian primary market on the other
hand is an integral part of the capital market which infuses
fresh capital into the system by mechanisms like Initial Public
Offering (IPO). This article thus attempts to make an
understanding of few major causes like IPO size and market
capitalisation as major forces in attracting foreign institutional
investors (FII) inflows into the Indian primary market and
thereby analysing the role of FIIs into capital formation.

Source:-http://www.chittorgarh.com/ipo/ipo_reports.asp

3
 International Journal of Ethics in Engineering & Management Education
Website: www.ijeee.in (ISSN: 2348-4748, Volume 2, Issue 11, November 2015)
Basic Steps for a Company venturing an IPO in the surveys, reports and opinions expressed by authors of various
Primary Market includes: research papers relevant to our subject.
c) Data Collection:
a) Approval of Board The present study incorporates the collection of both primary
b) Appointment of Lead Managers and secondary data for a comprehensive investigation.
c) Appointment of other Intermediaries Primary Data: It has been gathered through structured
d) Filing of Prospectus with SEBI unbiased questionnaire asked to 28 respondents which
e) Filing of Prospectus with registrar of Companies includes investors, Directors of Public Companies,
f) Printing and Dispatch of Prospectus Company Secretaries, Financial Analysts, Chartered
g) Filing of Initial Listing Application to the concerned Accountants, and Merchant Bankers etc.
stock exchanges. Secondary Data: The secondary data was collected from
h) Promotion of the Issue books, existing researches and reports, newspaper
i) Statutory Announcement articles, internet and magazines available online.
j) Processing of Applications d) Sampling:
k) Establishing the Liability of Underwriters The sampling is based on Convenient Sampling Method. The
l) Allotment of shares tool used was a questionnaire consisting of two different sets
m) Listing of the issue of questions to cover the perspective of the exchanges as well
as the issuer.
Possible Hurdles Faced by Corporates in Making an IPO: e) Limitations of the study:
Extensive public disclosure requirements. The research has been conducted on the basis of primary as
Significant increase in capital and human resource well as secondary data. However, the primary data has been
costs. collated through a basic and generalized questionnaire. Thus,
Pressures on management for reporting quarterly and the findings do not show outcomes in specific and absolute
annual financial results. terms. The respondents to the questionnaire include
More complex corporate governance structure and professionals and persons from various walks of life no
regulations. necessarily the financial markets and hence their responses are
Stringent eligibility and compliance norms. perception based.
Risk of takeover bids. There are procedural complexities as well as certain external
Co-ordination between the intermediaries. factors that often act as hurdles in making an IPO and its
To identify what risks and obligations are attached to listing thereafter.
the Company’s Contract and leases. The study has been undertaken based on provisions of
Interests and expectations of the minority public Companies Act 2013; not the Companies Act 1956 and also
investors must be taken into consideration. the SEBI (Issue of Capital and Disclosure Requirements) 2009
Pressure for short performance. as amended.
Substantial investment in the IPO process.
6. DATA ANALYSIS
5. RESEARCH METHODOLOGY
A primary research activity was conducted to understand the
a) Scope of the study: severity of different possible hurdles faced by Indian
The scope of the study is limited to understanding the Corporates w.r.t. Issue of Shares through IPO.
procedural issues pertaining to making an IPO and Listing it The respondents, which included individuals from various
with stock exchange(s). Further the scope is expanded to the industries, professions and occupations, were given a
extent of the hurdles that the procedures and regulatory questionnaire and were asked to rate different factors in
environment may create while the company gears up for accordance with the effect that they have on Issue of Shares
making an Initial Public Offer. through IPO.
b) Methodology: The replies obtained during this research are illustrated in the
For the collection of primary data, questionnaire was used. following table by analyzing the responses and also tried to
Our study enquires and brings forward the results of specified find out the major factors that affect the Issue of Shares
objectives which relates to factors affecting the making of an through IPO.
IPO. This is a descriptive research study that includes the

4
International Journal of Ethics in Engineering & Management Education
Website: www.ijeee.in (ISSN: 2348-4748, Volume 2, Issue 11, November 2015)

Responses of the interviewees illustrating the severity of factors w.r.t issue of shares

5
 International Journal of Ethics in Engineering & Management Education
Website: www.ijeee.in (ISSN: 2348-4748, Volume 2, Issue 11, November 2015)
Major Factors Affecting Issue of Shares through IPO:

6. FINDINGS, CONCLUSIONS AND It comes to know from this study that among other factors
SUGGESTIONS affecting the issue of shares through IPO, there are some
major factors affecting the making of an IPO that includes
Our study shows that there are procedural hurdles in putting volatility of market, global meltdown, goodwill, merchant
up an IPO. As the statutory requirements are highly bankers, amendments in the statues and government stability
exhaustive, it is difficult to interpret the requirements in true which together constitutes a very high percentage in affecting
sense. Thus the need for logical and cohesive understanding the issuance of shares through Initial Public Offer (IPO).
stems up. The role played by Merchant Banker can make or Therefore, in CompaniesAct 2013 the listed companies now
break the entire IPO issue. Thus, matching up with the will be under regulation of SEBI only whereas non listed
regulatory requirements is the basic hurdle in making an IPO. corporate entity will follow the provisions of Company Act
There are also other factors beyond the control of the issuer in 1956 & 2013. For discovery of fair price book building
addition to the regulatory environment such as global market mechanism strictly implement by the regulators. Grading of
situations, the local market sentiment, political environment equity instruments introduced to disseminate qualitative aspect
prevailing in the country, government’s outlook towards the of the financials reported in the prospectus document. Indian
industry. industrial securities market is secure for initial public offers,
effort on part of SEBI and amendment in law substantiate it.

6
 International Journal of Ethics in Engineering & Management Education
Website: www.ijeee.in (ISSN: 2348-4748, Volume 2, Issue 11, November 2015)
However, the compliances relaxation, special considerations [15]. The Regulatory Framework Governing IPOs in India | Business
Article | MBA Skool-Study.Learn.Share. (2015, May 8). Retrieved
for Start-Ups and introduction of the SEBI (Listing
October 14, 2015, from http://www.mbaskool.com/business-
Obligations and Disclosure Requirement) regulations 2015, articles/finance/12266-the-regulatory-framework-governing-ipos-
there seems a flavor of encouragement in the IPO Market in in-india.html
India.Hurdles arising due to overlapping of provisions, have
been incorporated separately under the regulations. Thus the
new regulations would catalyse the process of making an
Initial Public Offer; building confidence of the issuers.
However, the real flavor would be understood only when the
new regulations are enforced and activity is carried
thereunder.

REFERENCES

[1]. Initial Public Offerings (IPO) (October 2010 ed.). Navi Mumbai,
Maharashtra: The Institute of Company Secretaries of India-
Centre for Corporate Governance, Research and Training.
[2]. Agarwal, B. (2014, September 1). Foreign Institutional Investors
and the Indian IPO Market- An Investigation from 2009 to 2011.
Retrieved October 13, 2015, from
http://abr.sagepub.com/content/10/3/203.short
[3]. Divya, K. (2013). A Study on Performance of Indian IPO’s During
the Financial Year 2010-2011, 2(2277-3622), 31-41. Retrieved
October 11, 2015, from
http://indianresearchjournals.com/pdf/IJMFSMR/2013/July/4.pdf
[4]. Fernando, A Rosary Ramona; Deo, Malabika; Zhagaiah,
R. International Journal of Research in Social Sciences 3.2 (May
2013): 358-377
[5]. Mayur, M., & Kumar, M. (2013). Determinants of Going-Public
Decision in an Emerging Market: Evidence from India. Retrieved
October 12, 2015, from
http://www.vikalpa.com/pdf/articles/2013/jan-mar-vol-38-1-65-
86.pdf
[6]. Mayur, M., & Mittal, S. (2011). Waves of Indian IPOs: Evolution
and Trend. Asia-Pacific Journal of Management Research and
Innovation, 24-33.
[7]. Rani, P. (2014). Regulatory Transition in Initial Public Offers of
Corporate Sector: An Indian Perspective, 3(2319-4421), 1-7.
Retrieved October 12, 2015, from
http://www.irjcjournals.org/ijmssr/aug2014/1.pdf
[8]. Sabarinathan, G., Attributes of Companies Making IPOs in India -
Some Observations (December 30, 2010). IIM Bangalore Research
Paper No. 323. Available at
SSRN: http://ssrn.com/abstract=2122354
[9]. Business Case Studies, Financial Management & Corporate
Finance Case Study, Indage Vintners Limited. Coal India IPO
(2011). Retrieved October 11, 2015, from
http://www.ibscdc.org/Case_Studies/Finance, Accounting and
Control/Investment and Banking/INB0012.htm
[10]. Companies raise Rs. 4,950 cr via IPO in H1FY16. (2015, October
13). Retrieved October 15, 2015, from
http://www.indiainfoline.com/article/news-top-story/companies-
raise-rs-4-950-cr-via-ipo-in-h1fy16-115101300228_1.html
[11]. IPO Scam (2003-2005): With special reference to NSDL v. SEBI
Case. (2015, May 5). Retrieved October 12, 2015, from
http://www.legalservicesindia.com/article/article/ipo-scam-with-
special-referance-to-nsdl-v-sebi-case-1517-1.html
[12]. IPO Reports (Analysis of Historic IPO Data in India). Retrieved
October 13, 2015, from
http://www.chittorgarh.com/ipo/ipo_reports.asp
[13]. Roadmap for an IPO - A Guide to Going Public. Retrieved October
10, 2015, from http://www.pwc.com/us/en/transaction-
services/assets/roadmap-for-an-ipo-a-guide-to-going-public.pdf
[14]. Sebi cuts IPO paperwork; notifies 5 sheet abridged prospectus.
(2015, October 29). Retrieved October 30, 2015, from
http://timesofindia.indiatimes.com/business/india-business/Sebi-
cuts-IPO-paperwork-notifies-5-sheet-abridged-
prospectus/articleshow/49581068.cms