1. FINANCIAL MARKET ANALYSIS AND
INFORMATION CONTENT OF IPO GRADES
BY:
Ankit Wankhede
[ VJTI Mumbai ]
17December2014
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2. SESSION OBJECTIVES
To gain an understanding of the
 Securities Market in India
 Primary Markets
 Secondary Markets
 Initial Public Offering
 IPO Process
 IPO Rating/Grading
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3. REFORMS IN THE SECURITIES MARKET
 Establishment of SEBI on April 2, 1992
 Depositories Act 1996
 Demutualisation of stock exchanges
 Screen based nation-wide trading
 Dematerialisation and electronic transfer of securities
 Rolling settlement and ban on deferral products
 Sophisticated risk management and derivatives trading
 Book building
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4. REFORMS IN THE SECURITIES MARKET
 251 securities most active securities put on
rolling settlement on T + 5 basis in 2001
 T+3 rolling settlement commenced for listed
securities in 2002, subsequently in T+2 basis in
2003
 Commencement of trading in derivatives –
Futures in 2000, Options in 2001
 T+1 settlement system for transaction in
government securities in 2005
 SEBI allowed the short selling and Direct Market
Access (DMA) facility for all investors in India in
2008.
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5. PRODUCTS IN SECURITIES MARKET
Securities is defined in the Securities Contracts (Regulation) Act, 1956 and includes:
1. Shares, scripts, stocks, bonds, debentures, debenture stock or other marketable
securities of a like nature in or of any incorporated company or body corporate;
(a) derivatives;
(b) units of any other instrument issued by any collective investment scheme to the
investors in such schemes;
(c) security receipt as defined in clause (zg) of section 2 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(d) units or any other such instrument issued to the investors under any mutual
fund scheme;
(e) any certificate or instrument (by whatever name called), issued to an investor
by any issuer being a special purpose distinct entity which possesses any debt or
receivable, including mortagage debt, assigned to such entity, and acknowledging
beneficial interest of such investor in such debt or receivable, including mortgage debt,
as the case may be.
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6. PRODUCTS IN SECURITIES MARKET
Securities is defined in the Securities
Contracts (Regulation) Act, 1956 and
includes:
2. Government Securities
 such other instruments as may be declared by the
Central Government to be securities; and
3. Rights or interest in securities.
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Market Participants in Securities Market
1. Issuers of Securities
2. Investors in Securities
3. Intermediaries

7. DCA – Department of Company Affairs, DEA – Department of Economic
Affairs
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8. SECURITIES MARKET
 Primary Market
1) This is the market for new long term equity capital. The primary market is the
market where the securities are sold for the first time. Therefore it is also called the
new issue market (NIM).
2) In a primary issue, the securities are issued by the company directly to investors.
3) The company receives the money and issues new security certificates to the
investors.
4) Primary issues are used by companies for the purpose of setting up new business
or for expanding or modernizing the existing business.
5) Borrowers in the new issue market may be raising capital for converting private
capital into public capital; this is known as "going public.
 Secondary Market (Stock)
 OTC
 Exchange Traded Market
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9. LEGISLATIONS GOVERNING SECURITIES
MARKET
 The SEBI Act, 1992 which established SEBI to protect investors
and develop and regulate securities market;
 The Companies Act, 1956, which sets out the code of conduct for
the corporate sector in relation to issue, allotment and transfer of
securities, and disclosures to be made in public issues;
 The Securities Contracts (Regulation) Act, 1956, which provides for
regulation of transactions in securities through control over stock
exchanges;
 The Depositories Act, 1996 which provides for electronic
maintenance and transfer of ownership of demat securities; and
 The Prevention of Money Laundering Act, 2002 which prevents
money laundering and provides for confiscation of property derived
from or involved in money laundering.
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10. FUNCTIONS OF STOCK MARKETS
 Provide liquidity to securities
 Enable Price discovery
 Provide Marketability
 Provide Safety and Transparency
 Mobilisation of Resources
 Enable investors to buy or sell securities at prices close
to their intrinsic value
 Provide educative value to investors by making available
various kinds of information
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11. STOCK MARKET INDICATORS
 Stock Market Capitalizations to GDP ratio
 Turnover ratio – total value of shares traded on
country’s stock exchange divided by stock market
capitalization
BOMBAY STOCK EXCHANGE(BSE)
• Oldest stock exchange in asia(Estd.1875)
Demutualised in 2005
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12. SENSEX
 Sensex is an index.
 It is an indicator of all the prices of the major companies of
the BSE
 It is calculated using a “market-captialisation weighted”
methodology. As per this methodology , the level of index at
any point of time reflects the total market value of 30
components stock relative to base period.
 SENSEX was coined by Deepak Mohoni around 1990 while
writing market analysis columns for business newspaper.
OBJECTIVES OF SENSEX
 Measure market movement
 Benchmark for fund performance
 Benchmark for index based derivative products
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13. BSE’S ONLINE TRADING SYSTEM (BOLT)
 Trading on BOLT from Monday to Friday
 Scrips traded on the BSE (based on qualitative and
quantitative parameters)
 A - Scrips with most liquidity and credible track record
 B1 - Scrips with relatively liquidity and good track record
 B2 - Scrips with comparatively low liquidity
 T – Settled on a trade-to-trade basis as a surveillance
measure
 S – Scrips forming part of the BSE – Indonext Segment
 TS – Scrips in BSE – Indonext Segment, settled on a trade-to-
trade basis as a surveillance measure
 F – Fixed Income securities
 G – Government Securities
 Z – Scrips that have failed to comply with the listing requirement
of BSE.
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14. NATIONAL STOCK EXCHANGE (NSE)
Objectives for being set up
(a) establishing a nationwide trading facility for all types of
securities,
(b) ensuring equal access to all investors all over the
country through an appropriate communication network,
(c) providing a fair, efficient and transparent securities
market using electronic trading system,
(d) enabling shorter settlement cycles and book entry
settlements, and
(e) meeting the international benchmarks and standards.
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15. MARKET SEGMENTS
 Capital Market Segment
 Wholesale Debt Market Segment
 Futures and Options Segment
NIFTY
 Nifty is an indicator of the major companies of NSE
 Comprises of 50 stocks
OBJECTIVES OF NSE
 Establishing nationwide trading facilities for all
types of securities
 Providing fair, efficient and transparent securities
market using electronic trading system
 Meeting international benchmark and standards
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16. DEPOSITORIES
Depositories Act 1996
 Purpose of the act
 Ensuring free transferability of securities with speed, accuracy
& security by
 Making securities of public limited companies freely
transferable, subject to certain exceptions;
 Dematerializing the securities in the depository mode; and
 Providing for maintenance of ownership records in a book
entry form.
Depositories in India – NSDL & CSDL
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17. NATIONAL SECURITIES DEPOSITORY LIMITED
(NSDL)
NSDL is the first depository to be set up in India. It was
registered by SEBI on June 7, 1996
 It is a joint venture of:
 IDBI (Industrial Development Bank of India Limited);
 NSE (National Stock Exchange); and
 UTI (Unit Trust of India).
DEPOSITORY PARTICIPANTS
 It is an agent of the depository
 It is the intermediary between the depository and the
investor
 They perform their actions in variety of securities at
Depository on behalf of the client
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18. 17December2014
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Market Trades

19.  Step: 1 Seller gives delivery out instructions to his DP to
move securities from his account to his broker’s account.
 Step: 2 Securities are transferred from broker’s account to
CC on the basis of a delivery out instruction.
 Step: 3 On the pay-out day securities are moved from CC
to buying broker’s account.
 Step: 4 Buying broker gives instructions and securities
move to the buyer’s account.
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20. INITIAL PUBLIC OFFERING (IPO)
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21.  An initial public offering (IPO) or stock market launch is a type of public
offering where shares of stock in a company are sold to the general public
for the first time.
 This is done by offering those shares to the public, which were held by the
promoters or the private investors.
 IPO Grading is based on risk and return on an Investment. It is classified as
grade1(High risk ,High Return) to Grade5(Low risk, Low return)
 This is why doing an IPO is also referred to as "going public."
 IPO’s are often issued by smaller, younger companies seeking capital to
expand, but can also be done by large privately-owned companies looking
to become publicly traded.
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22. IPO PROCESS
Decision to
Go for IPO
Appointment
of BRLM and
Legal Counsel
Due Diligence
Drafting and
Draft Red
Herring
Filing with
SEBI & Stock
Exchanges
Funds
Transferred to
Issuer
Listing
ROC Filing &
Final
Prospectus
Pricing &
Allocation
Book Building
Pre-
Marketing
SEBI
Clearance &
ROC Filing
Road
shows
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23. INTERMEDIARY STRUCTURE – PARTIES INVOLVED
Book Running Lead
Managers (BRLM)
Book Runners
Legal Counsel
(Underwriters)
Broker Or
Syndicate
Advertising
Agency
PrintersEscrow BankersRegistrars
IPO Grading
Agency
Legal Counsels
Issuer Company Self Certified
Syndicate Banks
(SCSB)
Auditors
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24. IPO RATING
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 IPO Ratings, IPO Grading and IPO Ranking are among the few popular
inputs investor's uses before applying in an initial public offerings IPO.
 IPO Grading is provided by SEBI approved rating agencies including
CRISIL, CARE and ICRA. IPO Grading is designed to provide investors an
independent, reliable and consistent assessment of the fundamentals of
IPO Issuer Companies.
CRISIL IPO Rate Assessment
5/5 Strong fundamentals
4/5 Above average fundamentals
3/5 Average fundamentals
2/5 Below average fundamentals
1/5 Poor fundamentals

25. IPO GRADING REPRESENTS AN INDEPENDENT RELATIVE ASSESSMENT OF
FUNDAMENTALS OF THE EQUITY BASED ON THE FOLLOWING:
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A) Business Prospects:
This comprises:
1. Industry prospects
2. Company prospects - the alignment between industry
opportunities, the company's strategy and its capabilities.
B) Financial Prospects - This includes a rigorous assessment
of accounting quality using advanced tools devised by
Research.
C) Management quality - An assessment of the ability of the
management to handle uncertainty in terms of capitalizing on
future business opportunity and mitigating the impact of
contingencies.
4) Corporate governance - An evaluation of the company's
governance architecture to determine if it is structured such
that the risks and rewards of business are equally available to
all shareholders in keeping with the basic tenets of a joint-stock
company

26. ELIGIBILITY CRITERIA
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27. PRIMARY CRITERIA FOR IPO
a) Net tangible assets of at
least Rs. 3 crore in each of
the preceding three full
years
b) Distributable profits for at
least three out of the
immediately preceding five
years
c) Net worth of at least Rs. 1
crore in each of the
preceding three full years
d) The issue size should not
exceed 5 times the pre-
issue net worth
e) If there has been a change
in the company’s name, at
least 50% of the revenue for
preceding one year should
be from the new activity
denoted by the new name
a) Issue shall be through
book building route, with
at least 50% to be
mandatory allotted to the
Qualified Institutional
Buyers (QIBs)
b) The minimum post-issue
face value capital shall
be Rs. 10 crore or there
shall be a compulsory
market-making for at
least 2 years
a) The “project” is appraised
and participated to the extent
of 15% by FIs/Scheduled
Commercial Banks of which
at least 10% comes from the
appraiser(s).
b) The minimum post-issue face
value capital shall be Rs. 10
crore or there shall be a
compulsory market-making
for at least 2 years. In
addition to satisfying the
aforesaid eligibility norms,
the company shall also
satisfy the criteria of having
at least 1000 prospective
allottees in its issue.
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28. EXEMPTIONS TO CERTAIN CATEGORY ENTITIES
FROM ELIGIBILITY NORMS
 The following categories of entities are eligible for exemption from entry norms:-
 A banking company including a local area bank set up under the Banking
Regulation Act, 1949
 A corresponding new bank set up under the Banking Companies Act, 1970
 An infrastructure company
 Whose project has been appraised by a Public Financial Institution (PFI)
 Not less than 5% of the project is financed by any of the PFI
 Rights Issue by a listed company
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29. PRICING
There are two ways in which the price is determined in the IPO.
FIXED PRICE ISSUES
 Offer Price :- Price at which the securities are offered and would be allotted is made known in
advance to the investors
 Demand :- Demand for the securities offered is known only after the closure of the issue
 Payment:- 100 % advance payment is required to be made by the investors at the time of
application.
 Reservations:- 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the
balance for higher amount applications.
BOOK BUILDING ISSUES
 Offer Price:- A 20% price band is offered by the issuer within which investors are allowed to bid and
the final price is determined by the issuer only after closure of the bidding.
 Demand:- Demand for the securities offered, and at various prices, is available on a real time basis
on the BSE website during the bidding period
 Payment:- 10% advance payment is required to be made by QIB’s along with the application, while
other categories of investors have to pay 100% advance along with the application
 Reservations:- 50% of the shares offered are reserved for QIB’s, 35% of small investors and the
balance of all other investors.
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30. MARKETING PLAN FOR IPO
Direct marketing to
shareholders/
stakeholders
Public Relation
Plan
Conference Plan i.e.
Press & Broker
Conferences, Analysis
Media Plan
Stationery
distribution
schedule (Form &
Prospectus
Corporate Ads
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31. WHY DO COMPANIES GO PUBLIC?
 Prestige
 Getting Rich
 Because of the increased scrutiny, public
companies can usually get better rates when they
issue debt.
 it possible to implement things like employee stock
ownership plans, which help to attract top talent
 A listed company can issue more stock and raise
fresh capital faster than an unlisted company. They
can also offer their own stock to buy out a company.
Hence, mergers and acquisitions are easier for
listed companies since they can issue stock as part
of the deal.
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32. WHAT SHOULD INCLUDE IN IPO GRADING?
 IPO grading should consider the valuation aspect of
the company’s IPO.
 It should also take into account market factors such
as:
1)Liquidity ,Demand, Supply situation of the scrip
2)Market Sentiment at the time of issue
 Issue price from scope of grading
 It should have ongoing Validity
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33. CASE STUDY – JUST DIAL
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34. Introduction – Just Dial
Just Dial has established itself as the undisputed leader of local search in India. It provides comprehensive
and updated B2B and B2C services in India. The service is available on a number of platforms like phone,
internet, mobile internet and SMS. In keeping with the latest technological trends, Just Dial has also
launched its own mobile app for Android, IOS and blackberry.
According to CRISIL research, the business plan for Just Dial is stable and reliable as it is a negative
working capital and a debt-free business model. Also, being the first mover in the niche and by having
superiority in technology, databases and having a business model that is hard to replicate exactly, Just Dial
is likely to remain the market leader in local search for quite some time to come.
Profit and Revenue:-
According to CRISIL research report, Just Dial has maintained an astounding 39% Compounded Annual
Growth Rate (CAGR) over the last four year. Starting off with Rs. 50,000 investment in 1997, Just Dial's
revenue grew from Revenues grew from Rs 85 lakh in March 1997 to Rs 200 crore in March 2011. For
the nine months of FY13, Just Dial recorded revenues of Rs 271.6 crore and net profits of Rs 47
crore.
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35. IPO:-
On March 20, 2013, Justdial had obtained approval from Securities and Exchange Board of India
(SEBI) for its proposed Initial public offering (IPO).
Just Dial sold shares worth Rs. 950 crore in the IPO which was the largest sale by a domestic
internet company in India. The IPO opened on 20 May 2013 with existing stakeholders selling nearly 17.5
million shares in a price band of Rs.470-543.
The public issue saw a sale of a 25.02% stake in Just Dial, valuing the company at between Rs.3,290 crore
and Rs.3,800 crore.
Unlike previous public offers, Just Dial adopted a scheme "safety net" for retail investors proposed by the
capital market regulator SEBI in 2012 where the company promoters assure that they will buy back shares
from the retail applicants at the IPO price, if its stock falls sharply during the first six months after listing.
Citigroup Global Markets India Pvt. Ltd. And Morgan Stanley India Co. Pvt. Ltd. Managed the share sale for
Just Dial IPO.
Just Dial is also the biggest success story over the past year in terms of stock market listing. Its initial public
offering received bids for nearly 12 times the shares on sale. Despite stock market volatility and most
investors sitting on the sidelines, the company made an impressive debut in June 2013. From its offer price
of Rs 530 a share, the stock almost doubled to hit a record high of Rs 1,046.05 on October 7, 2013. Though
the stock is off its peak now, the price rise has catapulted the company into the top 200 companies in the BT
500 listing - it's ranked 180.
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36. Share Price of Just Dial Stock since the Initial Public Offering
6th June
2013 July 2013
September
2013
November
2013
January
2014
February
2014
March
2014
3rd April
2014
605.1 686 767.05 1128.25 1547.65 1478.55 1630.35 1596.80
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37. Just Dial plans post IPO:-
 They believe that investment in brand building campaign will help us further
strengthen our brand and lead to greater search volume from our users and greater
number of paid advertisers.
 Just Dial intends to further develop dedicated category portals to attract SMEs in
particular businesses.
 They are a local search player and there is no competition to talk about. We see
huge opportunity in Online to offline.
 Just Dial plans to expand our operations to other markets as opportunity rise by
licensing the “Just Dial” brand and selling our rights and offering service
arrangements to other parties to conduct these operations as we are doing in US
and Canada.
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38.  Going public raises cash and provides many benefits for a company.
 IPO is one of the forms of raising the capital and which is the effective one
though it has defects.
 Getting in on a hot IPO is very difficult, if not impossible.
 An IPO company is difficult to analyze because there isn't a lot of historical
info.
 Lock-up periods prevent insiders from selling their shares for a certain
period of time. The end of the lockup period can put strong downward
pressure on a stock.
 Road shows and red herrings are marketing events meant to get as much
attention as possible. But one should not get influenced by the hype.
 The valuation aspect of the IPO should also be taken into consideration
while grading so that it can be of much use to the retail investors.
 A few market factors such as liquidity in the market demand and supply of
the scrip, market sentiment etc. should also be taken care of while grading
an IPO.
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39.  BIBILIOGRAPHY
 Web Based
 Invetopedia - www.invetopedia.com
 Bombay Stock Exchange - www.bseindia.com
 Just Dial - www.justdial.com
 Wikipedia - www.wikipedia.com
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40. THANK YOU
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