Initial Public Offer

The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

More than 7000 companies listed in NSE and BSE.Total number of companies listed from 2008 to 2012 is 166IPO Grades are assigned to each company by the credit rating agencies (CARE, ICRA, CRISIL etc)

IPO Grade 5 strong fundamentalsIPO Grade 4 above average fundamentalsIPO Grade 3 average fundamentalsIPO Grade 2 below average fundamentalsIPO Grade 1 poor fundamentals

IPO Grading is designed to provide investors an independent, reliable and consistent assessment of the fundamentals of new public issues. It includes an assessment of business and financial prospects, management quality and corporate governance.

It is a rating assigned by the Securities and Exchange Board of India-registered credit rating agencies to initial public offerings (IPOs) of various firms. The grade indicates an assessment of business fundamentals and market conditions in comparison to other listed equities at the time of the issuance. These ratings are generally assigned on a five-point scale, with a higher score indicating stronger companies. IPO grading can be done either before filing the draft offer documents or thereafter. However, the red herring prospectus must have the grades given by all the rating agencies.

Why is it important?IPO grading was introduced to make additional information about unlisted companies or those without any track record of their performance available to the investors, helping them assess the issue before investing and burning their fingers. Grading is additional investor information and assistance to enable informed investment decisions and more realistic pricing of shares. It helps issuing companies in that if they are given a higher score — indicating stronger fundamentals — they command a higher premium for their issue.

How does it help?IPO grading by a professional credit rating agency informs investors about the issuing company after analysing factors like business and financial prospects, management quality and corporate governance practices etc. The grade is not a recommendation to subscribe to the IPO. It needs to be read with the disclosures, including risk factors

The following data about the IPO's which is useful for the investors in stock market. Many investors losing their money in stock markets with their greediness, and entering into stock market with little knowledge. The following analysis can give you an idea about the IPO's.

An investor X invested Rs.10000 on each IPO which was issued from the year 2008 to 2012. Total number of companies listed from 2008 to 2012 is 166. So investor X’s total investment is 166*10000=1660000.

X attained a loss of Rs.149753.337 on his investment. This is due to the major loss in 2008 and 2009. The following table representing the investment, returns and their profit/loss of each year.

Companies are sorted according to their grades from 2008 to 2012 and their returns are as follows:

From the above data the return on grade 1, 3 and 5 has given positive output. Grade 2 & 4 companies attained loss. It is clear that grades given by the credit rating companies doesn’t show higher impact on the companies performance

References:

http://crisil.com/Crisil/capital-markets/ipo-grading.jsp?user=ipo%20signup http://www.icra.in/rating.aspx?ck=Al1zZU0jCxnnNzwL5uegvy5MauqXvHuCEVkcLebrM2/Lh

adFOk990119011Q7WQiX4C20cgfKhjCs47DTF4tMzMdSmdGYzVXWXq1TOaatfV4LrieGA9sF81SDv2rmdPyfRj5Sbm

http://www.business-standard.com/india/news/what-is-ipo-grading/435792/ http://www.nseindia.com/products/content/equities/ipos/historical_ipo.htm http://www.moneycontrol.com/india/stockpricequote/miningminerals/coalindia/CI11