Stock Prices,Stock tips, Stock Recommendations,Market Statistics,Most Active,Nifty Stock tips

1. Different kinds of issues

Primarily, issues made by an Indian company can be classified as Public, Rights, Bonus and

Private Placement. While right issues by a listed company and public issues involve a detailed

procedure, bonus issues and private placements are relatively simpler. The classification of

issues is as illustrated below:

(a) Public issue

(i) Initial Public offer (IPO)

(ii) Further public offer (FPO)

(b) Rights issue

(d) Private placement

(i) Preferential issue

(ii) Qualified institutional placement

(a) Public issue: When an issue / offer of securities is made to new investors for becoming

part of shareholders' family of the issuer3 it is called a public issue. Public issue can be further classified into Initial public offer (IPO) and Further public offer (FPO). The significant features of each type of public issue are illustrated below:

(i) Initial public offer (IPO): When an unlisted company makes either a fresh issue of

Securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer's securities in the Stock Exchanges.

(ii) Further public offer (FPO) or Follow on offer: When an already listed company

makes either a fresh issue of securities to the public or an offer for sale to the public,it is called a FPO.

(b) Rights issue (RI): When an issue of securities is made by an issuer to its shareholders

existing as on a particular date fixed by the issuer (i.e. record date), it is called an rights issue. The rights are offered in a particular ratio to the number of securities held as on the record date.

a record date, without any consideration from them, it is called a bonus issue. The shares are issued out of the Company's free reserve or share premium account in a particular ratio to the number of securities held on a record date.

(d) Private placement: When an issuer makes an issue of securities to a select group of

persons not exceeding 49, and which is neither a rights issue nor a public issue, it is called

a private placement. Private placement of shares or convertible securities by listed issuer

can be of two types:

(i) Preferential allotment: When a listed issuer issues shares or convertible securities, to

a select group of persons in terms of provisions of Chapter XIII of SEBI (DIP)guidelines, it is called a preferential allotment. The issuer is required to comply with various provisions which inter?alia include pricing, disclosures in the notice, lock?in etc, in addition to the requirements specified in the Companies Act.

(ii) Qualified institutions placement (QIP): When a listed issuer issues equity shares or

Securities convertible in to equity shares to Qualified Institutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP) guidelines, it is called a QIP.

2. What is an offer document?

'Offer document' is a document which contains all the relevant information about the Company, promoters, projects, financial details, objects of raising the money, terms of the issue etc and is used for inviting subscription to the issue being made by the issuer. 'Offer Document' is called "Prospectus" in case of a public issue or offer for sale and "Letter of Offer" in case of a rights issue.

(a) I hear various terms like draft offer document, Red Herring prospectus etc, what are they and how they are different from each other?

Terms used for offer documents vary depending upon the stage or type of the issue where the document is used. The terms used for offer documents are defined below:

(i) Draft offer document: is an offer document filed with SEBI for specifying changes, if

any, in it, before it is filed with the Registrar of companies (ROCs). Draft offer document is made available in public domain including SEBI website, for enabling public to give comments, if any, on the draft offer document.

(ii) Red herring prospectus is an offer document used in case of a book built public

issue. It contains all the relevant details except that of price or number of shares being offered. It is filed with RoC before the issue opens.

(iii) Prospectus is an offer document in case of a public issue, which has all relevant details including price and number of shares being offered. This document is registered with RoC before the issue opens in case of a fixed price issue and after the closure of the issue in case of a book built issue.

(iv) Letter of offer is an offer document in case of a Rights issue and is filed with Stock

exchanges before the issue opens.

(v) Abridged prospectus is an abridged version of offer document in public issue and is

issued along with the application form of a public issue. It contains all the salient features of a prospectus.

(vi) Abridged letter of offer is an abridged version of the letter of offer. It is sent to all

the shareholders along with the application form.

(vii) Shelf prospectus is a prospectus which enables an issuer to make a series of issues

within a period of 1 year without the need of filing a fresh prospectus every time. This facility is available to public sector banks /Public Financial Institutions.

(viii) Placement document is an offer document for the purpose of Qualified Institutional

Placement and contains all the relevant and material disclosures.

3. IPO Grading: IPO grading is the grade assigned by a Credit Rating Agency registered with

SEBI, to the initial public offering (IPO) of equity shares or other convertible securities. The

grade represents a relative assessment of the fundamentals of the IPO in relation to the

other listed equity securities. Disclosure of "IPO Grades", so obtained is mandatory for

Companies coming out with an IPO.

4. Pricing of an Issue

(a) Who fixes the price of securities in an issue?

Indian primary market ushered in an era of free pricing in 1992. SEBI does not play any role

in price fixation. The issuer in consultation with the merchant banker on the basis of market demand decides the price. The offer document contains full disclosures of the parameters which are taken in to account by merchant Banker and the issuer for deciding the price. The Parameters include EPS, PE multiple, return on net worth and comparison of these parameters with peer group companies.

(b) What is the difference between "Fixed price issue" and "Book Built issue"?

On the basis of Pricing, an issue can be further classified into Fixed Price issue or Book Built

issue.

Fixed Price Issue: When the issuer at the outset decides the issue price and mentions it in

the Offer Document, it is commonly known as "Fixed price issue".

Book built Issue: When the price of an issue is discovered on the basis of demand received

from the prospective investors at various price levels, it is called "Book Built issue".

5. Understanding Book Building:

(a) What is book Building?

Book building is a process of price discovery. The issuer discloses a price band or floor price before opening of the issue of the securities offered. On the basis of the demands received at various price levels within the price band specified by the issuer, Book Running Lead Manager (BRLM) in close consultation with the issuer arrives at a price at which the security offered by the issuer, can be issued.

(b) What is a price band?

The price band is a band of price within which investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. The price band can be revised. If revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding thirteen days.

Book building is a process of price discovery. A floor price or price band within which the bids can move is disclosed at least two working days before opening of the issue in case of an IPO and atleast one day before opening of the issue in case of an FPO. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. After the bidding process is complete, the 'cut?off' price is arrived at based on the demand of securities. The basis of Allotment is then finalized and allotment/refund is undertaken. The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process. Only the retail investors have the option of bidding at 'cut?off'.

(d) How does "cut?off" option works for investors?

"Cut?off" option is available for only retail individual investors i.e investors who are applying for securities worth up to Rs 1,00,000/? only. Such investors are required to tick the cut?off option which indicates their willingness to subscribe to shares at any price discovered within the price band. Unlike price bids (where a specific price is indicated) which can be invalid, if price indicated by applicant is lower than the price discovered, the cut?off bids always remain valid for the purpose of allotment

(e) Can I change/revise my bid?

Yes, you can change or revise the quantity or price in the bid using the form for changing/revising the bid that is available along with the application form. However, the entire process of changing or revising the bids shall be completed within the date of closure of the issue.

(f) Can I cancel my Bid?

Yes, you can cancel your bid anytime before the finalization of the basis of allotment by approaching/ writing/ making an application to the registrar to the issue.

6. Categories of Investors

(a) Whether the investors are categorized? If yes, how the allotment is made to different categories?

Investors are broadly classified under following categories?:

(i) Retail individual Investor (RIIs)

"Retail individual investor" means an investor who applies or bids for securities for a value of not more than Rs. 1,00,000.

(ii) Non?Institutional Investors (NIIs)

(iii) Qualified Institutional Buyers (QIBs)

"Qualified Institutional Buyer" shall mean:

a) A public financial institution as defined in section 4A of the Companies Act, 1956;

b) a scheduled commercial bank;

c) a mutual fund registered with the Board;

d) a foreign institutional investor and sub?account registered with SEBI, other than a sub account which is a foreign corporate or foreign individual;

e) a multilateral and bilateral development financial institution;

f) a venture capital fund registered with SEBI;

g) a foreign venture capital investor registered with SEBI;

h) a state industrial development corporation;

i) an insurance company registered with the Insurance Regulatory and Development Authority (IRDA);

j) a provident fund with minimum corpus of Rs. 25 crores;

k) a pension fund with minimum corpus of Rs. 25 crores);

l) National Investment Fund set up by resolution no. F. No. 2/3/2005?DDII datedNovember 23, 2005 of Government of India published in the Gazette of India."

Investors who do not fall within the definition of the above two categories are categorized

as "Non?Institutional Investors"

(b) What are "firm allotment investor categories"?

SEBI (DIP) guidelines provide that an issuer making an issue to public can allot shares on firm basis to some categories as specified below:

(i) Indian and Multilateral Development Financial Institutions,

(ii) Indian Mutual Funds,

(iii) Foreign Institutional Investors including Non?Resident Indians and Overseas Corporate Bodies and

(iv) Permanent/regular employees of the issuer company.

(v) Scheduled Banks

It may be noted that OCBs are prohibited by RBI to make investment.

7. Investment in public Issues/ rights issues:

(a) Where can I get application forms for applying/ bidding for the shares?

Application forms for applying/bidding for shares are available with all syndicate members, collection centers, the brokers to the issue and the bankers to the issue. In case you intend to apply through new process introduced by SEBI i.e APPLICATIONS SUPPORTED BY BLOCKED AMOOUNT (ASBA), you may get the ASBA application forms form the Self Certified Syndicate Banks.

(b) Whom should I approach if the information disclosed in the offer document appears to be factually incorrect?

The document is prepared by Merchant Banker(s), registered with SEBI. They are required to do the due diligence while preparing an offer document. The draft offer document submitted to SEBI is put on website for public comments. In case, you find any instance of misinformation/ lack of information, you may send your complaint to Lead Manager to the issue and/ or to SEBI, at this address: Securities & Exchange Board of India,

C4 A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai? 400051.

As per the requirement, all the public issues of size in excess of Rs.10 crore, are to made compulsorily in demat mode. Thus, if you intend to apply for an issue that is being made in a compulsory demat mode, you are required to have a demat account and also have the responsibility to put the correct DP ID and Client ID details in the bid/application forms.

(d) Is it compulsory to have PAN?

Yes, it is compulsory to have PAN. Any investor who wants to invest in an issue should have a PAN which is required to be mentioned in the application form. It is to be distinctly understood that the photocopy of the PAN is not required to be attached along with the application form at the time of making an application.

(e) For how many days an issue is required to be kept open?

The period for which an issue is required to be kept open is:

For Fixed price public issues: 3?10 working days

For Book built public issues: 3?7 working days extendable by 3 days in case of a revision in

the price band

For Rights issues : 15?30 days.

(f) When do I get the allotment/ refund of shares?

For Fixed price public issues: 30 days of the closure of the issue

For Book built public issues : 15 days of the closure of the issue

For Rights issues : 15 days of the closure of the issue

(g) How can I know about the demand for an issue at any point of time?

The status of bidding in a book built issue is available on the website of BSE/NSE on a consolidated basis. The data regarding bids is also available investor category wise. After the price has been determined on the basis of bidding, the public advertisement containing, inter alia, the price as well as a table showing the number of securities and the amount payable by an investor, based on the price determined, is issued. However, in case of a fixed price issue, information is available only after the closure of the issue through a public advertisement, issued within 10 days of dispatch of the certificates of allotment/ refund orders.

(h) How will I get my refund in an issue?

You can get refunds in an issue through various modes viz. registered/ordinary post, Direct Credit, RTGS (Real Time Gross Settlement), ECS (Electronic Clearing Service) and NEFT (National Electronic Funds Transfer). As stated above, if you are residing in one of the 68 centers as specified by Reserve Bank of India, then you will get refunds through ECS only except where you are otherwise disclosed eligible under Direct Credit and RTGS. If you are residing at any other center, then you will continue to get refunds through registered/ordinary post. You are therefore advised to read the instructions given in the prospectus/ abridged prospectus/ application form about centers.

(i) When will the shares allotted to me get listed?

In book built public issue the listing of shares will be done within 3 weeks after the closure of the issue. In case of fixed price public issue, it will be done within 37 days after closure of the issue.

(j) How will I know which issues are coming to the market?

Visit this link : http://nsestocktips.com/IPO.html

(k)Whom do I approach if I have grievances in respect of non receipt of shares, delay and refund etc.?

You can approach the compliance officer of the issue, whose name and contact number is mentioned on the cover page of the Offer Document. You can also address your complaints to SEBI at the following address:

Office of Investor Assistance & Education,

Securities & Exchange Board of India,

C4A, G Block, Bandra Kurla Complex, Bandra (E),

Mumbai? 400051.

9. SEBI's Role in an Issue

What is SEBI's role in an issue?

Any company making a public issue or a rights issue of securities of value more than Rs 50 lakhs is required to file a draft offer document with SEBI for its observations. The validity period of SEBI's observation letter is twelve months only i.e the company has to open its issue within the period of twelve months starting from the date of issuing the observation letter. There is no requirement of filing any offer document / notice to SEBI in case of preferential allotment and Qualified Institution Placement (QIP). In QIP, Merchant Banker handling the issue has to file the placement document with Stock Exchanges for making the same available on their websites.

Given below are few clarifications regarding the role played by SEBI:

(a) Till the early nineties, Controller of Capital Issues used to decide about entry of company in

the market and also about the price at which securities should be offered to public. However, following the introduction of disclosure based regime under the aegis of SEBI, companies can now determine issue price of securities freely without any regulatory interference, with the flexibility to take advantage of market forces.

(b) The primary issuances are governed by SEBI in terms of SEBI (Disclosures and Investor protection) guidelines. SEBI framed its DIP guidelines in 1992. The SEBI DIP Guidelines over the years have gone through many amendments in keeping pace with the dynamic market scenario. It provides a comprehensive framework for issuing of securities by the companies.

(c) Before a company approaches the primary market to raise money by the fresh issuance of securities it has to make sure that it is in compliance with all the requirements of SEBI (DIP) Guidelines, 2000. The Merchant Banker are those specialised intermediaries registered with SEBI, who perform the due diligence and ensures compliance with DIP Guidelines before the document is filed with SEBI.

(d) Officials of SEBI at various levels examine the compliance with DIP guidelines and ensure that all necessary material information is disclosed in the draft offer documents. Still there are certain mis?conceptions prevailing in the mind of investors about the role of SEBI which are clarified here in under:

(a) Does SEBI recommend any Issue?

It should be distinctly understood that SEBI does not recommend any issue nor does it take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made.

(b) Does SEBI approve the contents of an issue?

Submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. The Lead manager certifies that the disclosures made in the offer document are generally adequate and are in conformity with SEBI guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue.

The investors should make an informed decision purely by themselves based on the contents disclosed in the offer documents. SEBI does not associate itself with any issue/issuer and should in no way be construed as a guarantee for the funds that the investor proposes to invest through the issue. However, the investors are generally advised to study all the material facts pertaining to the issue including the risk factors before considering any investment.

10. New Terms

(a) Green?shoe Option

Green Shoe Option is a price stabilizing mechanism in which shares are issued in excess of the issue size, by a maximum of 15%. From an investor's perspective, an issue with green shoe option provides more probability of getting shares and also that post listing price may show relatively more stability as compared to market volatility.

(b) Safety Net

In a safety net scheme or a buy back arrangement the issuer company in consultation with the lead merchant banker discloses in the RHP that if the price of the shares of the company post listing goes below a certain level the issuer will purchase back a limited number of shares at a pre specified price from each allotted.

In an open book building system the merchant banker along with the issuer ensures that the demand for the securities is displayed online on the website of the Stock Exchanges. Here, the investor can be guided by the movements of the bids during the period in which the bid is kept open. Indian Book building process provides for an open book system. In the closed book building system, the book is not made public and the bidders will have to take a call on the price at which they intend to make a bid without having any information on the bids submitted by other bidders.

(d) Hard underwriting

Hard underwriting is when an underwriter agrees to buy his commitment before the issue opens. The underwriter guarantees a fixed amount to the issuer from the issue. Thus, in case the shares are not subscribed by investors, the issue is devolved on underwriters and they have to bring in the amount by subscribing to the shares. The underwriter bears a risk which is much higher than soft underwriting.

(e) Soft underwriting

Soft underwriting is when an underwriter agrees to buy the shares at stage after the issue the issue is closed. The risk faced by the underwriter as such is reduced to a small window of time.

(f) Differential pricing

When one category of investors is offered shares at a price different from the other category it is called differential pricing. An issuer company can allot the shares to retail individual investors at a discount of maximum 10% to the price at which the shares are offered to other categories of public.

(g) Basis of Allocation/Basis of Allotment

After the closure of the issue, for eg a book built public issue, the bids received are aggregated under different categories i.e., firm allotment, Qualified Institutional Buyers (QIBs), on?Institutional Buyers (NIBs), Retail, etc. The oversubscription ratios are then calculated for each of the categories as against the shares reserved for each of the categories in the offer document. Within each of these categories, the bids are then segregated into different buckets based on the number of shares applied for. The oversubscription ratio is then applied to the number of shares applied for and the number of shares to be allotted for applicants in each of the buckets is determined. Then, the

number of successful allottees is determined. This process is followed in case of proportionate allotment. Thus allotment to each investor is done based on proportionate basis in both book built and fixed price public issue.

(h) Fast Track Issues (FTI)

SEBI has introduced FTI in order to enable well?established and compliant listed companies satisfying certain specific entry norms/conditions to access Indian Primary Market in a timeeffective manner. Such companies can proceed with FPOs / Right Issues by filing a copy of RHP / Prospectus with the RoC or the Letter of Offer with designated SE, SEBI and Stock Exchanges. Such companies are not required to file Draft Offer Document for SEBI comments and to Stock Exchanges.

Entry Norms for companies seeking to access Primary Market through FTI's in case aggregate value of securities including premium exceeds Rs. 50 lacs:

(i) The shares of the company have been listed on any stock exchange having nationwide terminals for a period of at least three years immediately preceding the date of filing of offer document with RoC/ SE.

(ii) The "average market capitalisation of public shareholding" of the company is at least Rs. 10,000 crores for a period of one year up to the end of the quarter preceding the month in which the proposed issue is approved by the Board of Directors / shareholders of the issuer;

(iii) The annualized trading turnover of the shares of the company during six calendar months immediately preceding the month of the reference date has been at least two percent of the weighted average number of shares listed during the said six months period;

(iv) The company has redressed at least 95% of the total shareholder / investor grievances or complaints received till the end of the quarter immediately proceeding the month of the date of filing of offer document with RoC/ SE.

(v) The company has complied with the listing agreement for a period of at least three years immediately preceding the reference date;

(vi) The impact of auditors' qualifications, if any, on the audited accounts of the company in respect of the financial years for which such accounts are disclosed in the offer document does not exceed 5% of the net profit/ loss after tax of the company for the respective years.

(vii) No prosecution proceedings or show cause notices issued by the Board are pending against the company or its promoters or whole time directors as on the reference date; and

(viii) The entire shareholding of the promoter group is held in dematerialized form as on the reference date.