A Study on The Impact of Reforms on The Performance of Nse and Bse Listed Ipos

INTRODUCTION

IPO or Initial Public Offering is a category of public offering in which the company issues its stocks or shares for the first time to the investors which include individual and institutional investors. It is a common way of raising long pace and number of companies raising fund through term funds from the market by corporates. It is a primary market activity as it facilitates the issuance of new securities to the investors. India has seen a huge upward swing in primary market activity after the year 2003 as more firms tap the market to meet their capital requirements. The reason behind this was the bull phase of the stock market which turns the positive sentiments among the individual as well as institutional investors. The bull phase continued till 2008 and the funds raised through primary market reached at its peak level in the same year. As the economic recession covers the entire globe in 2009 the sentiments of Indian stock market also turns negative and the individual as well as institutional investors becomes cautious in investing their money in IPO’s. Stock market has seen a range bound trading till the end of 2013 as the market trades below its peak levels of 2009. It was then the year 2014 when the market breaks its previous peaks and enters again into a bull phase. With this the individual investors again become active and the corporates again rush to the primary market to raise funds.The primary market is also effected by the reforms like Goods and Service Tax and Demonetization. The application of these reforms results in interruption of the Performance of the IPO prices and causes fluctuation in the IPO prices Need of IPO1. New capital: Companies go public initially in order to have a sufficient amount of capital at the beginning of business to handle the investments and the expenses of the company

Future capital: IPOs are one of the popular way of raising funds, not only the new companies but also the existing companies issue IPOs for expansion of the business in the future

Mergers and acquisitions: It’s easier for other companies to notice and evaluate a public firm for potential synergies IPOs are often used to finance acquisitionsSEBI Guidelines for IPO1. It must have a pre-issue net worth of not less than Rupees One crore) (Kumar55, 2016) in 3 out of the preceding 5 years, with a minimum net worth to be met during the 2 immediately preceding years.2. It must have a track record of distributing dividends for at least 3 out of the immediately preceding 5 years, and3. The issue size, i.e., the offer through the offer document, the firm allotment and the promoter’s contribution through the offer document, should not exceed five times the pre-issue net worth as per the last available audited account, either at the time of filing the draft offer document with the Securities and Exchange Board of India (“SEBI”) or at the time of opening of the issue.4. If the above conditions are not satisfied, then the IPO can be made only through a book-building process, provided that sixty percent (60%) of the issue size must be allotted to Qualified Institutional Buyers (“QIBs”).

This paper focuses on how the IPOs issued through book building process perform in the short run as well as long run. This study includes all the new equity issues offered through book building process in National Stock Exchange from 1999 to May 2007. A total of one hundred and fifty six IPOs has been taken for the short run Performance analysis. For the short run Performance analysis, this paper calculated the first trading day return of the IPO from the offer price. For long run Performance analysis, this paper evaluated the monthly returns of the IPOs till May 2007. The majority of the IPOs in the sample were issued in the last three years of the study period. So this paper doesn’t have the five year data to analyse the long run Performance deeper. (Dr. Sanjiv Mittal, 2012)This paper finds out whether grading of IPOs is used as a basis for investment decisions by the retail investors and whether IPO grades affect the decision on the proportion of the issued share capital. It also evaluates the grading of IPOs effect on Performance of stock. The authors have collected data regarding IPO closing price, index value, subscription, and issue size details from NSE website, ICICI Direct website and Prime database. The sample includes 90 graded IPOs which got listed on NSE during May 2009-December 2011.The study showed a negative correlation between the proportion of issued share capital of an IPO and IPO grading. The study couldn’t establish any direct relationship between IPO grades and underprizing.(Puri, 2012) The study measures the IPOs Performance on first, seventh and thirtieth trading day to confirm whether investors can earn a positive return on the close of these trading days. The author’s uses market adjusted short run returns, wealth relative index and other descriptive statistics to get an in-depth knowledge about the IPOs Performance they also measure the overall Performance of these IPOs on year wise basis.