Initial Public Offering (IPO), also sometimes simply referred to as a "Public Issue" is the first sale of stock by a private company to the public. Public issues are done by both small as well as large companies seeking capital to expand business. It is also sometimes done by large privately-owned companies looking to become publicly traded. When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document, it is called Further Public Offering or FPO . According to industry experts , IPO gives very high abnormal returns with a shorter period of time . IPO returns depend mainly on the issue size , list price , market lot and the season of issue . Good economic conditions provoke the firms to go to public as the company requires enough funds to cater to their future requirements . They also foretell that lead managers play a crucial role in the success of an IPO or FPO. They have to be well priced at a discount for the retail investors , so as to lure them in investing on the public issues. IPO underpricing with proper valuation has to be carefully investigated before investing on an IPO or FPO. Market Sentiment with well known companies help in obtaining better results for them as opposed to others. The objective of the dissertation was to find out which of the sectors are worthy of investing and which ones are to avoided at all times. Proper findings and accurate results can help investors predict huge returns within a short time . Long term performance of IPO’s and FPO’s are to be studied and analyzed to find out which of them show better results for investors. Month wise performance of composite IPO and FPO would show the investors , the month of highest and lowest returns. Also sectoral break up of the IPO would depict which sector had it’s month of highest and lowest abnormal return. Again it is essential to determine which sector outperformed the others with respect to their capability of giving investors good returns on investment. It is to be properly found out whether some FPO’s out performed their IPO’s which had been issued by the same companies. Again each stock is to be calculated for return and analyzed to find out which stock had the highest return among all IPO’s.
Finally it is to be found out which of the IPO and FPO stocks give abnormal returns more than the significant level of t- statistics at specified degrees of freedom and probability.
2. LITERATURE REVIEW
As per book “Financial Services ” by M Y Khan ,
Initial Public Offer (IPO) is the first issue of equity shares to the public by an unlisted company . An unlisted company can make an IPO/offer for sale of equity shares / any other security convertible into , or exchangeable with , equity shares at a later date only if it meets all the criteria of SEBI.
All listed companies are eligible to make public issue of equity shares / securities convertible into , or exchangeable with equity shares at a later date on the condition that the issue size in terms of the aggregate of the proposed issue and all previous issues made in the same financial year does not exceed 5 times it’s pre-issue net worth as per the audited balance sheet of the last financial year. 1
As per website http://indianblogger.com/ipo-initial-public-offer-know-how/ 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 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. 2 As per website http://www.chittorgarh.com/ipo/ipo_dashboard.asp Initial Pubic Offer (IPO) is privately...
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