Second Rough Draft

INTRODUCTION TO THE VARIABLES BSE Stock Exchange is the oldest Stock Exchange in Asia. We know by our assumptions that there are many participants in Stock Market, which are there to make this Stock Exchange operational. The companies listed on Stock Exchange need to release companies’ prospectus where they can communicate important information related to the company to the investors, which further helps investors to make some good investments. So there is this transfer of information taking place which investors make use of while making their investments in different kinds of financial instruments after doing research and analytics based on information available to them. There are many kinds of financial instruments traded in The BSE Stock Exchange. To know about all these kinds of financial instruments traded in The BSE Stock Exchange and about the Customer’s Appetite DataBase we have to consider certain variables. We are considering the following variables 1. Financial Instruments Traded in BSE Stock Exchange. 2. Customers Appetite DataBase.

Financial Instruments traded in BSE Stock exchange A financial instrument is defined as a document that indicates an asset to one individual (this person is owed) and a liability (this person owes) to another individual. The financial instruments that are specifically traded on the stock market are shares/ stocks, derivatives, bonds, and mutual funds. 1. Shares/Stocks - The term \"shares\" and \"stock\" are commonly used interchangeably. When you buy stocks (which consist of shares), you buy them so that you can sell them at profit, thereby earning a return on your investment. The difference between the buy and sell price is the stock market version of the interest earned on more traditional forms of investment such as fixed deposits. Shares represent equity stock in a firm, with the two main types of shares being common shares and preferred shares. Common shares enable voting rights and possible returns through price appreciation and dividends. Preferred shares do not offer price appreciation but can be redeemed at an attractive price and offer regular dividends. Share prices fluctuate constantly. This is known as volatility. because of this volatility profit is possible in the stock market trading. Stocks can also be classified into many types, there is a classification based on: ● Market Capitalization ● Ownership ● Fundamentals ● Risks ● Dividend Payment

● Large-Cap Stocks - Large-cap companies are companies that are big and well- established in the equity market. These companies have reliable management and rank among the top 100 companies in the country. Large-cap companies have a market cap of Rs 20,000 crore or more. For eg - Reliance Industry, Tata Motors, Kotak-Mahindra Bank. ● Medium-Cap Stock - Mid-cap companies sit somewhere between the large-cap and small-cap companies. These companies are compact and rank among the top 100-250 companies in the country. The market cap for Medium-cap companies is between Rs 5,000 crore and less than Rs 20,000 crore. For eg - IIFL Finance, Lux Industries. ● Small-Cap Stock - small-cap companies are much smaller in size and have the potential to grow rapidly. Small-cap companies have a market cap of Rs 1,000 crore and less than Rs 5,000 crore. For eg - Raymond, Tata Coffee. ● Micro-Cap Stock - which has a market cap below Rs 1,000 crore. For eg - Shemaroo Entertainment. 2. Derivatives - Derivatives involve making a contract to buy or sell commodities on a specific date at a specific rate. There are 4 types of derivatives, namely, they are ● Forward ● Future ● Option ● Swaps Forward and Swap derivatives are traded over-the-counter (OTC), and Futures and Options are traded in the exchanges, hence we will talk about Futures and Options. Derivatives are also commonly referred to as F&O stocks or Futures and Options stocks. A Futures contract entails the right and obligation to buy or sell a certain commodity, by a predetermined date at a specified rate. An Options contract is similar, but there is

no obligation. There are two types of options: Calls and Puts. A Call option gives the holder the right to buy a stock and a Put option gives the holder the right to sell a stock. there are two styles of Options ie American Style and European Style. American options can be exercised any time between the purchase and expiration date. European options can be exercised on the expiration date. 3. Bonds - Bonds are one of the safer ways to invest in the stock market because they assure a certain rate of interest by a certain date. The interest may fluctuate but will not dip below the rate of interest mentioned when they are issued on the stock market. However, bonds also may not display the kind of profits seen in stock trading and derivatives. Source: Samco Knowledge Center.

There are many types of bonds offered in the Bond market in BSE. 1. Central Government bonds: These bonds are issued by the central government to raise funds. These bonds are issued by the RBI on behalf of the government. 2. State Government bonds: These Bonds are issued by the State Government to meet the fiscal deficits. 3. Municipal and Local authority bonds: a municipal corporation or a local authority may raise finance to meet funding for specific goals such as constructing infrastructure, public waterworks, etc. 4. Corporate bonds: a corporate bond is a debt issued by a company forbased on it to raise capital. 5. Public-Sector bonds: These bonds are issued by public sector companies to meet their growth needs. 6. Floating Rate bonds - Unlike regular bonds that pay a fixed rate of interest,floating-rate bonds have a fluctuating interest rate(coupons). 7. Zero-Coupon bonds - Zero-coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount the investors will receive when the bonds mature or come due. 8. Deep-Discount bonds - it trades at a market price that is 20% or lower than its par or face value. 9. Inverse Float bonds - they are also known as inverse floaters, this type of bond is used in finance whose coupon rate has an inverse relationship to the short-term interest rate. 10. Sovereign Gold bonds - These are government securities denominated in grams of gold. They are substitutes for holding physical gold. 11. Convertible Debentures - A convertible debenture is a kind of long-term debt that can be transformed into stock after a specific period. 4. Debentures - Debenture is the type of bond or other debt instruments which is unsecured by collateral. In some countries Debentures and Bonds are used interchangeably. Both corporations and government can issue Debenture to raise funds. It is a legal and binding contract between bond issuers and bondholders. Similar to bonds, debentures pay periodic interest payments called coupon payments. The contract specifies the maturity date, the timing of coupon payments, the method of interest calculation, etc.

5. Mutual Funds - A mutual fund means a mutual trade of financial instruments in the stock market. Many different investors are pooling their money and investing in a variety of stocks, for instance, the risk is much lower than individuals trading in stock themselves. Mutual funds are one of the most popular methods used by Indians when it comes to investing in the stock market. Customers Appetite DataBase

BSE Shareholding Pattern for Quarter of June 2021 (Secondary data source). Source: trendlyne.com The above-given pie diagram shows the shareholding pattern in BSE Limited for the Quarter of June 2021. As we can see from the pie diagram majority of the shares are with the public. There are many kinds of share market entities like FII(Foreign Institutional Investors), DII(Domestic Institutional Investors), MF(Mutual Funds), Promoters, and others. For the quarter of June 2021. Public Holding is around 58.17%, Public Holdings for June 2020 was at 48.1% so it is an increase now. Mutual Funds have increase holdings from 1.16% to 1.2% in the quarter of June 2021. The number of MF schemes increased from 5 to 7 in June 2021 quarter. Promoters of the company have 0% holdings. FII/FPI have decreased holdings from 10.95% to 10.14% in June 2021. The number of FII/FPI investors decreased from 89 to 86 in June 2021 quarter. Also, Institutional Investors have decreased holdings from 14.73% to 14.4% in June 2021 quarter.

● BSE Sensex for April 2021 - Industry-wise (Secondary data source). The above-given pie diagram, tell us about the weightage of the top 30 companies ie BSE Sensex for April 2021 industry-wise. These top 30 companies represent the most traded companies in the stock market exchange and it gives an idea about how to economy is doing. Depending upon the economic conditions the companies might be there in the top 30 positions or it might change. For April 2021, as we can see from the pie diagram, Banking Industry had the majority of weightage in BSE Sensex with around 31.06%. These banks consist of ICICI Bank, HDFC Bank, Kotak Bank, Axis Bank, IndusInd Bank, and The State Bank Of India, etc. IT Consulting & Software Industry consist of Companies like Infosys. Ltd, Tata Consultancy Services Ltd, HCL Technologies Ltd, and Tech Mahindra Ltd. which together hold 17.82% weightage in BSE Sensex for April 2021. Followed by the

Integrated Oil and Gas Industry which holds around 11.99% weightage and it consists of Reliance Industries Ltd. Customer Appetite Database (Primary data source) A Questionnaire was designed to know about General Public’s Investment Preference, the result for the same is as follows. 10 participants answered these questions. The Questionnaire consist of 5 questions. The Questions and results for the Same are as follows. 1. Select the Investment Options you are aware of. ➔ The first question asked the participants about their awareness of different Investment avenues. There are 5 different Investment Avenues mentioned as we can see from the chart below.10 responses were recorded. They can select multiple Investment avenues. As we can see from the chart above, the question asked the participants about their awareness of different kinds of Investment Avenues. The can select Multiple options here. Low-Risk Investment Avenues (Saving Account, Fixed Deposits, Public Provident Fund, Post Office Savings) was the most common answer with 7 counts, followed by Moderate-Risk Investment Avenues (Mutual Funds, Life Insurance, Debentures, Bonds) which had 6 counts. Other Investment Avenues like High-Risk Investment Avenues (Equity Share Market, Commodity Market, Forex Market), Traditional Investment Avenues (Real Estate, Gold, Silver, Chit Fund), and Cryptocurrency each had 4 counts.

2. What do you think is the best option for Investing your Money? ➔ The Second question asked Participants which are the options they think are best for them to invest their money. The participants had 5 different types of Investment avenues to invest their money.10 responses were recorded. They can select multiple options. Moderate-Risk Investment Avenues (Mutual Funds, Life Insurance, Debentures, Bonds) was the most popular answer with 7 counts, followed by Low-Risk Investment Avenues (Saving Account, Fixed Deposits, Public Provident Fund, Post Office Savings) which had 4 counts. Other Investment Avenues like High-Risk Investment Avenues (Equity Share Market, Commodity Market, Forex Market) and Traditional Investment Avenues (Real Estate, Gold, Silver, Chit Fund) have 3 counts, and Cryptocurrency has 1 count. It looks like Moderate-Risk Investments like Mutual Funds, Life Insurance, Debentures, and Bonds are the most preferred Investment avenue. 3. Select the Financial Instruments which are traded in the BSE Stock Market, which you are aware of. ➔ The third question asked them whether they are aware of the different types of Financial Instruments which are traded in the BSE Stock Market. 10 responses were recorded. The participants can select multiple options as per their awareness.

The chart shown on the next page tell us about the General Public’s awareness of the Financial Instruments traded in the BSE Stock Market. Share’s/Stock’s recorded the highest count 8, followed by Mutual Funds with count 6. Derivative and Bonds each had a count of 2. And we have 1 count for None of the above.

4. How much percentage of your income are you willing to invest? ➔ The fourth question asked them what percentage of income they are willing to invest. 10 responses were recorded. The participants had the choice to select only 1 option. In the above-given pie diagram, we can see 60% of Participants ie 6 Participants selected the 10%-20% option on asking about the percentage of income they are willing to invest. 40% of Participants ie 4 Participants selected the option 20%-30% for the same. Among the participants, no one selected the option More than 30%.

5. Are you aware of Sensex Point Currently? If yes, then do you think it is a good time to begin investing in Stock Market in the present condition? ➔ The fifth question asked them if they are aware of the Current Sensex Point, and whether do they think if this is the right time to begin investing in the stock market.10 responses were recorded. The participants had the choice to select only 1 option. In the above-given pie diagram, we can see 50% of Participants ie 5 Participants selected Yes on asking if it’s a good time to start investing in the stock market. 30% of Participants ie 3 Participants selected No on asking if it’s a good time to start investing in the stock market. 20% of Participants ie 2 Participants selected Maybe for the same. Conclusion: From this Survey, we can conclude that ● The majority of participants were aware of the different types of Investment Options. ● The majority of participants prefer to invest in Moderate-Risk Investment Avenues (Mutual Funds, Life Insurance, Debentures, Bonds). ● Participants are more familiar with Financial Instruments like Share’s/Stock’s and Mutual Funds as compared to any other types of Financial Instruments.

COMPANIES KEEP CERTAIN INFORMATION HIDDEN There have been many instances when a company does not reveal all the information which is necessary to be added to their prospectus. These prospectuses are the document that can help investors make more informed investment decisions because it contains a host of relevant information about investment security. Many times in the past such incidents have occurred when the company has not mentioned the necessary information which was needed to be revealed through prospectus to the investors. ● Case Study : As per the BusinessLine article dated October 19, 2020. Bombay Stock Exchange has issued a notice to the Kirloskar Group that has many Subsidiaries such as Kirloskar Brothers Limited, Kirloskar Pneumatic Company Limited, Kirloskar Oil Engines Limited, etc. This notice is about non-disclosure of the deed of family settlement (DFS) and a show-cause notice that was issued by market regulator SEBI to the promoters for insider trading and fraud. Kirloskar family is in Dispute over the division of family assets and cases are on in the National Company Law Tribunal (NCLT). The DFS document talks about distributing the assets including company shares and other cash and investment. Also, SEBI issued a show-cause notice against Rahul and Atul Kirloskar back in December 2019 which was also kept hidden. BSE has asked Kirloskar Group to explain this non-disclosure. It is to ensure that key information does not remain hidden from shareholders. Such information is very crucial for the shareholders and investors. Another such case study consists of

● Case Study: Securities and Exchange Board of India (Appellant) initiated investigations against Trident Steel (company) on receipt of a complaint by a BSE member relating to public issues of the company. The complaint alleged misstatement of facts by the Company in the prospectus issued in furtherance of the proposed public issue. Mr. Ajay Agarwal (Respondent) was the joint managing director of the company. In the course of the investigation, it appeared that the company’s directors had pledged their personal holding of 750,000 shares with Bank of Baroda, and a director and Dowell Leasing and Financing Ltd had given a non-disposal undertaking to Bank of Baroda, lead manager to the issue. This was not disclosed in the prospectus of the company. This appeared to be a violation of SEBI guidelines on disclosure for investor protection. Thus, an important aspect of the capital structure of the company was not disclosed in the prospectus as a result of which investors were misguided. This is another such instance. The investors are also misguided due to the fake news. Hence there is much such information that is kept hidden from the public which they needed to know. Many such frauds took place such as 1. Satyam Computer scams (2009) - they did false disclosures, they overstated their assets. 2. Sahara Fraud (2010) - Non-Disclosure/False Disclosure. Under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR Regulations’) a listed entity shall disclose to stock exchange(s) all events or information, which are material, as soon as reasonably possible and not later than twenty-four hours from the occurrence of event or information. Conclusion We can conclude that from all such incidence which has happened in the past, that it’s not necessary that the company may reveal all the facts related to the company. There are many things that they keep hidden and the investors and the shareholder may come to know about it later.

Coursera Course Topic - Financial Markets. By - Yale University. Course Description Professor Rober Shiller begins by introducing us to the basis of financial markets and insurance. The course introduces one to risk management and behavioral finance principles to understand the real-world functioning of securities, insurance, and banking industries. Connection with this project Professor Shiller covered many topics, which helped to get a better idea about this project. He discussed the difference between the common and the preferred stocks. He also spoke about how a company raises money, to funds its various goals through bonds. He discussed the process of dilution and how a company repurchases its shares sometimes to increase the price of its share, which reduces the share available to the general public and they are benefitted from the capital gains through an increase in share prices. Overall it was a very good experience with Professor Shiller’s explanation, he made things interesting with his experience and real-life examples to understand the topic well.

Limitation ● The structure of the capital market is complicated to put in in just one small project, there are many types of debt securities and equity securities which we can discuss in detail, hence a more detailed analysis is needed to be done. ● Only 2 variables were studied due to time limits, However, more variables are needed to be studied to have a good idea about the financial instruments and their working, about the Customer appetite, etc. ● Collecting the information relevant to the variable was difficult for the part where information related to the shareholding pattern of investors is concerned. However, after going through many websites, the required information was found. ● Due to time constraints more detailed analysis was not possible. ● As the information about the database was not available, Primary data sources were used to add the necessary information. ● Due to covid-19 restriction only, secondary data sources are used to make this project. The part where the primary data source was employed was done with the help of Google form without making any human contact. Note: this project is made by following all the Covid-19 restrictions.

CONCLUSION ● There are many kinds of Financial Instruments Traded in the BSE Stock Exchange such as Share’s/Stock’s, Derivatives, Bonds, Mutual Funds, etc. ● Share’s/Stock’s can be characterized into various types based on their Market Capitalization, Ownership, Risk, etc. Derivatives are of 4 types but Future and Options are the ones that are traded in BSE Stock Exchange. Bonds are a much safer way to invest in the stock market, but they might not bring profit as much as one can get from investing in Stock’s/Share’s or derivatives. Mutual Fund is most commonly preferred by People in India as it consists of many participants and money is pooled and invested, in this way their money is diversified and risk is reduced. ● As per the BSE Shareholding pattern for a quarter of June 2021, we know that majority of the share is with the public which is around 58.17%. ● Based on the Survey, we conducted we can say that ➔ The majority of participants were aware of the different types of Investment Options. ➔ The majority of participants prefer to invest in Moderate-Risk Investment Avenues (Mutual Funds, Life Insurance, Debentures, Bonds). ➔ Participants are more familiar with Financial Instruments like Share’s/Stock’s and Mutual Funds as compared to any other types of Financial Instruments. ● Companies don’t necessarily reveal all the information related to the company, there are many important things that they might keep hidden, but it might be an important piece of information for the investors. Hence, SEBI has regulation acts that obligate the companies to share all the necessary information with their investors through the company’s prospectus.

● Identification/Specification on how I am benefitted from the topic. This topic helped me with understanding different types of Financial Instruments which are traded on the Stock Exchange. It helped me to understand especially about the financial instrument which I had heard previously, but I have no clarity about its nature. For example - I have heard of instruments like bonds and derivatives but I had no clarity about what are they, how one can invest in them, etc. It also gave me an idea about the shareholding pattern of the BSE Stock exchange, about its index ie. BSE SENSEX. While I was finding information about the case study, I came across an article which talks about the common types of fraud that happen with people who invest in the Stock Markets. I realized how important it is to analyze our end before investing in the stock market, rather than just believing in what your broker says. It helped me understand why people are more inclined towards low-risk investment avenues like Mutual Funds, which reduce your risk of Investment. Overall the project made me familiar with different kinds of instruments and which will help me with my future investments.

Reference Sources https://www.investopedia.com/terms/s/stockmarket.asp https://en.wikipedia.org/wiki/List_of_stock_market_indices#Asia https://en.wikipedia.org/wiki/Stock_market_index https://en.wikipedia.org/wiki/BSE_SENSEX https://www.youtube.com/watch?v=gX-Vf6XshX8 https://www.investopedia.com/insights/introduction-to-stock-market-indices/ https://en.wikipedia.org/wiki/Bombay_Stock_Exchange https://www.investopedia.com/terms/s/shares.asp https://www.indiainfoline.com/investment-guide/financial-instruments-traded-in-stock-market https://cleartax.in/s/stock-types https://www.kotaksecurities.com/ksweb/share-market/difference-between-large-small-mid-cap- in-share-market

Initial Public Offering Ayush Parab - TYBA Economics Indian Financial System (ECOIFSA603) 08/01/2022 Mobile No – 9022125295

Introduction In many economies, the initial public offering has been employed in the privatization of state- owned firms, particularly those of strategic importance to the government. This further influenced private-sector enterprises to take this move, allowing them to earn additional funds to fund their future expansion. Based on the previous experience of many developed countries and countries in the region, privatization through the public offering of shares has significantly contributed to the development of these countries' capital markets, which is primarily reflected in the growth of market capitalization, the volume of turnover, number of transactions, and participation of local and foreign investors. The process of issuing shares of a private firm to the public in a fresh stock issuance is known as an initial public offering (IPO). An initial public offering (IPO) allows a firm to raise funds from the general public. The move from a private to a public firm, which often involves a share premium for current private investors, can be a crucial opportunity for private investors to completely realize rewards from their investment. Meanwhile, public investors are allowed to participate in the offering. A corporation is deemed private before it goes public. The firm has expanded with a limited number of stockholders as a pre-IPO private company, comprising early investors such as the founders, family, and friends, as well as professional investors such as venture capitalists and angel investors. An initial public offering (IPO) is a significant milestone for a company since it allows it to raise significant funds. This increases the company's capacity to expand and grow. The enhanced transparency and legitimacy of its stock listing may also help the company acquire better terms when seeking borrowed capital.

But not every IPO has to give you massive returns; sometimes, even when the company fundamentals aren't that good, some companies ride a wave of bull runs and debut their shares through successful IPOs. New age investors don't look too deeply into the company analysis side of things before investing in an IPO and instead rely on word of mouth and other investors' recommendations. This is a poor investment technique that can result in negative investments. When investing in a company, there are many things to examine, such as the firm's fundamentals, balance sheet, return on equity ratio, profitability, prospects, and so on. All of these criteria go into determining whether or not investing in a company is a good idea. Most investors participate in IPOs for the purpose of profiting on the first day of trading, but a popular firm may list at a premium, lose momentum, and then fall in price, taking a long time to recover. Zomato is an example of a firm that first floated at a 70 percent premium and later fell due to poor company fundamentals and the fact that it is a loss-making business. In another case, despite being substantially subscribed during the IPO period, a well-known company can list with significant discounts in the stock exchange market. Paytm, for example, set a pricing band of roughly 2200rs before listing at a 40% discount and making a low of 1220rs in the market within two days after listing. So it's not a good idea to invest blindly in all IPOs just because users think they'll make money on the first day of trading. To invest in a company and prevent losing money in the process, a thorough analysis and financial understanding of the company is essentials. Assumptions • Capital Market is in stable condition, without any extraordinary fluctuations

Hypothesis • Mismanagement and a lack of planning cause companies to fail to sustain long-term growth despite listing success. Variables • Capital Markets • Initial Public Offering • Company Fundamentals Learning Objectives • To Study how a Company becomes public through an Initial Public Offering • To analyse how company fundamentals play an important part for the sustenance of the company over a period of time

Analysis on Assumption and Hypothesis For a stock to move normally, the market must be steady; if the capital market is influenced by abnormal fluctuations or unexpected news, stock behaviour is abnormal, and stock prices are primarily influenced by that cause. In such instances, releasing an IPO is not ideal since the price of the IPO shares at the time of debut during an abnormal market would not reflect the stock's true real potential to perform based on its fundamentals, but rather will be a news-driven price volatility. Some companies hunt for opportunities in the capital market to launch their initial public offering (IPO) by riding the IPO hype wave. This is a condition in which companies tend to price their initial public offerings higher than their true prices. Retail investors are duped in this case, and they lose a lot of money while the corporation profits handsomely from the Wave.

What is an IPO An initial public offering (IPO) is a type of stock that is sold to the general public. An initial public offering (IPO) is when a privately held firm lists its stock on a stock market and makes it accessible for purchase by the general public. Many people think of initial public offerings (IPOs) as massive money-making opportunities— when high-profile companies go public, their stock prices skyrocket. While they're unquestionably fashionable, you should be aware that initial public offerings (IPOs) are extremely risky investments with variable long-term returns. Although an initial public offering (IPO) is the first time the general public can acquire shares in a company, it's crucial to remember that one of the aims of an IPO is to allow early investors in the company to cash out their assets. Consider an IPO to represent the conclusion of one stage in a company's life cycle and the commencement of another—many of the initial investors want to cash out on a new venture or start-up. Investors in more established private companies that are going public, on the other hand, may prefer the option to sell some or all of their shares. Other reasons for a corporation to pursue an IPO include obtaining finance and increasing its public profile: • Companies can raise money by selling stock to the general public. The money might be used to grow the company, fund research and development, or pay off debt. • Other capital-raising options, such as venture capitalists, private investors, or bank loans, could be too expensive. • Going public via an initial public offering (IPO) can give a company a lot of exposure. • Companies may desire the status and gravity that comes with being a publicly traded company, which may help them achieve better lending terms. While becoming public may make it easier or less expensive for a company to raise funds, it also complicates a number of other issues. There are standards for disclosure, such as filing quarterly and annual financial reports. They must answer to shareholders, and there are reporting

requirements for stock trading by senior executives and other actions such as asset sales or acquisitions. Working of an IPO Going public is a complex, time-consuming process that most businesses find difficult to navigate on their own. A private firm seeking an IPO must not only prepare for a massive increase in public scrutiny but also file a mountain of paperwork and financial reports to satisfy the Securities and Exchange Board of India (SEBI), which regulates public corporations. That's why a private firm planning to go public engages an underwriter, usually an investment bank, to advise them on the IPO and assist them in setting an initial price. Underwriters assist management in preparing for an IPO by generating important investor documents and conducting roadshows with potential investors. The underwriter issues shares to investors and the business's stock begins trading on a public stock exchange, such as the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE), once the company and its advisors have chosen an initial price for the IPO.

Types of IPOs Fixed Price Offering Book Building Offering • The issue price that some companies • In the case of book building, the firm set for the initial selling of their launching an IPO provides investors shares is known as a fixed price IPO. a 20% price band on the equities. The price of the stocks that the Before the final price is set, interested corporation decides to make public is investors place bids on the shares. revealed to the investors. Investors must define the quantity of shares they wish to purchase as well • Once the offering is concluded, the as the price per share they are ready market demand for the stocks can be to pay. determined. If investors participate in this IPO, they must pay the entire • The floor price is the lowest stock price of the shares at the time of price, while the cap price is the application. maximum stock price. The final decision on the price of the shares is made by the bids of investors.

A private company decides to raise capital The company contracts an underwriter, usually through an IPO. a consortium of investment banks which assess the company's financial needs and decide the price/price band of shares, number of shares to be offered etc. The underwriter then participates in the SEBI carefully scrutinises the application and drafting of the application (to SEBI) for after making sure that all eligibility norms are approval with details of the company's past fulfilled, it gives the company the go ahead to release the ‘red herring prospectus’. The ‘red financial records including profits, herring’ prospectus is a document released by debts/liabilities, assets and net worth. Also, the company mentioning the number of shares the draft mentions how the funds to be raised and the issue price/price band (price of one will be used. share) to be offered in the IPO. It also has details of the company's past performance. In what is called a ‘Road show’, executives An IPO opens and can last for 3-21 days, travel to meet with and woo potential though it is usually open for 5 days.During this investors to buy their company’s shares. time, retail investors can bid for stocks through their banks/brokerages via the Internet. Investors need to have a demat account to participate in an IPO, and a PAN card.If the stocks you bid for are allotted, they'll be credited to your demat account. If not, you'll Process goeft yaonurImPoOney back.

Why Do Companies Go Public ➢ To raise Capital for growth and Expansion Every business requires funds to expand operations, develop new goods, or pay off existing debts. Going public is a terrific way for a firm to raise much-needed financing. ➢ Allowing owners and early investors to sell their stake to make money It's also considered as a way for early investors and venture capitalists to cash out. An initial public offering (IPO) allows a firm to become more liquid. At this point, venture capitalists sell their stock in the company in order to profit and exit. ➢ Greater Public Awareness In the stock market calendar, IPOs are indicated with a star. These events have generated a lot of interest and publicity. This is an excellent way for a business to introduce its products and services to a new group of clients.

The company should have had net tangible The company should have had an operating assets (defined as physical assets plus profit of minimum 15 crores for at least three monetary assets of at least 3 crore rupees in years in the preceding five years. each of the last three years. Doesn’t include virtual assets with fluctuating value like shares) The size of the IPO can't exceed the company's Even if these criteria are not fulfilled, the worth by more than five times. company can still file a request for approval of an IPO with SEBI. But, for such approvals, the IPO can only take the book building route where 75% of the stock has to be sold to Qualified Institutional investors (QII). This has to be done for the sale of stocks under the IPO to be held as valid. Otherwise, the IPO is cancelled and the capital raised has to be returned. SEBI functions to protect the interests of investors while ensuring that norms aren't too stringent to dissuade prospective companies that have the potential and the vision to deliver growth. Eligibility norms for companies planning to file an IPO as stipulated by SEBI Key Terminologies Associated with an IPO ➢ Issuer The company or firm that intends to issue shares in the secondary market to fund its operations is referred to as an issuer. ➢ Common Stock

Units of stock in a public business that normally permit holders to vote on corporate decisions and receive dividends from the company. When a firm goes public, it sells shares of common stock. ➢ Underwriter A banker, financial institution, merchant banker, or broker can all be underwriters. It aids in the underwriting of the company's stock. In the event that investors do not choose the stocks offered at the IPO, the underwriters promise to subscribe to the remaining shares. ➢ Lot Size In an IPO, the smallest quantity of shares for which you can place a bid. You must bid in multiples of the lot size if you want to buy more shares. ➢ Fixed Price and Price Bands The issue price that some companies set for the initial selling of their shares is known as a fixed price IPO. A price band is a way of determining value in which a seller sets an upper and lower cost limit, within which prospective buyers can submit their bids. The purchasers are guided by the price band's range. ➢ Undersubscription and Oversubscription When the quantity of securities applied for is less than the number of shares made available to the general public, this is known as under subscription. When the number of shares issued to the public is less than the number of shares applied for, this is known as oversubscription. ➢ Green Shoe Option It's a type of overallotment option. It's a type of underwriting agreement that allows the underwriter to sell more shares than the firm had expected. It occurs when the demand for a certain stock is larger than projected. In the event of oversubscription, it allows the issuer business to sell extra shares on the secondary market. ➢ Book Building Book building is the process by which an underwriter or merchant banker attempts to identify the price at which the IPO will be launched. The underwriter creates a book in which he presents institutional investors' and fund managers' bids for the number of

shares and price they are willing to pay. The underwriter or merchant banker determines the IPO price once an idea has been developed and a price band has been established. The shares of the issuer firm are available for subscription for three trading days. ➢ Draft Red Herring Propectus The DRHP is a document that informs the public about a company's IPO listing once SEBI has approved it. A DRHP contains the following information about the company: Purpose of raising funds through listings Balance sheet Promoter’s expenses Earning statement of the last three years (if applicable) Net proceeds of the company Commission and discounts of the underwriter Details such as the name and address of all the underwriters, officers, directors, and stockholder who possess 10% or more than the currently outstanding stock. Legal opinion on the listings Copy of the underwriting document

Non Institutional InvestorsDifferent investor categories (NIIs) Qualified Insititutional Buyers (QIBs) Retail Individual Investors (RIIs) How are shares allocated in an IPO? In an IPO, the allocation of shares differs for each of the above groups. You fall into the last category as an individual investor. You can invest in small lots for Rs 10,000-15,000 as an individual investor. In an IPO, you can apply for a maximum of Rs 2 lakh. The number of applications received in the retail sector is used to determine the total demand for shares. You will be offered a full allotment of shares if demand is less than or equal to the number of shares available in the retail category. In such circumstances, investors are offered shares in the retail sector by a lottery. This is a computerised method that assures that investors are allocated shares fairly. Oversubscription occurs when the demand exceeds the available supply. An initial public offering (IPO) can frequently be oversubscribed five times over. This suggests that the demand for shares is five times greater than the supply! In such circumstances, investors are offered shares in the retail sector by a lottery. This is a computerised method that assures that investors are allocated shares fairly.

Advantages of Listing the Company on Public Exchange ❖ Fundraising Money is the most frequently mentioned benefit of an initial public offering. The overall proceeds from an initial public offering (IPO) in 2021 were $500 billion, with numerous IPOs raising hundreds of millions of dollars. The biggest IPO in 2021, for example, was PAYTM, which raised Rs 18,300 crore. Even without considering the other benefits, the proceeds from an IPO provide adequate motivation for many companies to go public, especially given the numerous investment options available as a result of the extra capital. These money can help a growing business in a variety of ways. An initial public offering can be used to fund research and development, hire new personnel, build facilities, decrease debt, fund capital expenditure, acquire new technologies or other companies, or a variety of other things. An IPO provides a large sum of money that can drastically alter a company's growth trajectory. ❖ Exit Opportunity Stakeholders in any firm have invested substantial time, money, and resources in the hopes of building a successful business. For years, these founders and investors may not see a meaningful financial return on their investments. An initial public offering (IPO) provides investors with a huge exit option, allowing them to possibly obtain large sums of money or, at the at least, liquefy the cash they have invested in the company. As noted in the above paragraph, initial public offerings (IPOs) frequently raise approximately Rs 1000 crores (or even more), making them very appealing to founders and investors who believe it is time to be compensated financially for years of \"sweat equity.\" It's worth noting, though, that in order for founders and investors to get cash from an IPO, they'll have to sell their shares in the now-public firm on a secondary market (e.g., NSE, BSE). The proceeds of an IPO do not provide liquidity to shareholders right away. ❖ Publicity and Credibility An IPO can provide this exposure by thrusting a firm into the public spotlight. If a company intends to continue to grow, it will require increasing exposure to potential

customers who are familiar with and trust its products. Every initial public offering is covered by analysts all around the world in order to help their clients decide whether or not to invest, and numerous news organisations cover different firms that are going public. When a company decides to go public, it receives not just a lot of attention, but also a lot of credibility. To complete an offering, a company must undergo rigorous inspection to ensure that the information they are disclosing about themselves is accurate. This examination, combined with the fact that many people trust public corporations more, can boost a company's and its goods' credibility. ❖ Reduced Overall Cost of Capital The cost of financing is a key barrier for any company, but notably for smaller private companies. Companies must typically pay higher interest rates or give up ownership in order to collect funding from investors prior to an IPO. An IPO can greatly reduce the difficulties of obtaining new financing. A corporation must be audited according to criteria before it can begin the formal IPO preparation process. This audit is typically more thorough than previous audits, providing greater assurance that the information provided by a corporation is accurate. Because the organisation is viewed as less risky, this enhanced confidence will likely result in lower interest rates on bank loans. Aside from cheaper borrowing rates, after a firm becomes public, it can raise more money through successive stock market offerings, which is usually easier than raising money through a private investment round. ❖ Stock As Means of Payment Being a publicly traded company also allows you to pay with publicly traded stock. While a private firm can use its shares to make payments, private stock is only valuable if there is a good exit opportunity. Public stock, on the other hand, is a sort of cash that can be purchased and sold at any time at a market price, which can be useful when rewarding staff and acquiring other firms. In order for a business to succeed, it must hire the appropriate people. When it comes to hiring top-tier talent, the flexibility to pay employees in stock or provide stock options helps a company to compete even if the base monetary compensation is lower than what competitors are giving. Furthermore, acquisitions are frequently a crucial strategy for businesses to continue to expand and remain relevant. Purchasing other businesses, on the other hand, is usually highly costly.

When a company goes public, it can issue shares of its stock instead of spending millions of rupees in cash as a form of payment. Disadvantages Of Listing The Company On Public Exchange ❖ Additional Regulatory Requirements And Disclosures Public firms, unlike private companies, are required to file annual financial statements with the Securities and Exchange Commission (SEC) like SEBI in India . These financial statements must be prepared in accordance with Generally Accepted Accounting Principles used in India and must be audited by a registered public accounting firm. These SEC standards are both time consuming and expensive. Establishing more stricter financial controls, staffing a financial reporting team and audit committee, implementing quarterly and yearly financial closure processes, hiring an audit firm, and hundreds of additional duties are all required when a company's financial situation is publicly reported. Every year, these responsibilities cost public firms millions of dollars and thousands of hours of effort. See our article Audit Preparation for the Big Leagues for more information on public company audits. ❖ Market Pressures For company leaders who are accustomed to doing what they believe is best for the organisation, market pressures can be extremely challenging. Founders often have a long- term view of their firm, seeing what it will look like years from now and how it will effect the world. The stock market, on the other hand, has a profit-driven, short-term perspective. When a company goes public, every move it makes is analysed by investors and analysts all over the world, who are mostly concerned with one question: \"Will this company fulfil its quarterly earnings target?\" If a corporation achieves its goal, its stock price will often rise; if it does not, it will typically fall. Even if leadership is acting in the long-term best interests of the company, failing to achieve the public's short-term goals may cause the company to lose value, and leadership may be removed as a result.

Founders who dislike the idea of being restricted by short-term public aims may consider going public with caution. ❖ Potential Loss of Control One of the most significant disadvantages of an IPO is that founders may lose ownership of their business. While there are ways to ensure that the business's founders retain the bulk of decision-making power, once a company becomes public, the leadership must satisfy the public, even if other shareholders do not have voting power. Going public entails getting significant funds from public shareholders. Because shareholders have invested so much in the company, they expect it to operate in their best interests, even if that means going in a path that the founders don't like. If shareholders believe the firm is not running in a way that will help them gain money, they can push the corporation to choose new leadership through shareholder votes or public criticism. How Do Investors Benefit because of IPO ❖ First Mover Advantage This is especially true when well-known corporations launch an initial public offering. You have the opportunity to purchase the company's stock for a significantly reduced price. This is due to the fact that once the company's shares reach the secondary market, their value may skyrocket. ❖ High Returns Buying shares in an IPO might be beneficial if the company has the potential to grow. The company's strong fundamentals indicate that it has a decent probability of expanding. This could be beneficial to you as well. You have a decent possibility of making money in the long run. ❖ Listing Gains A company's stock may be traded at a price that is higher or lower than the allotment price when it is listed on the stock exchange. Listing gains occur when the starting price is higher than the allotted price.

Due to variables such as market demand and optimistic bias, investors often expect an IPO to do well when it is listed. This, however, does not always occur. It's also feasible that a stock's price will fall by the end of the first trading day. In actuality, listing profits may not produce positive long-term returns for the investor. So, if you're a trader looking for quick profits, it can be a good fit. Long-term investors, on the other hand, should look for a company that can provide substantial profits in five or even ten years.

Why some Companies fail to sustain the IPO listing gains in the Long Term For the past 1.5 years, India's stock market has been on a tear, with the Sensex reaching over 60k and the Nifty exceeding 18k on many occasions. Companies are not squandering any opportunity to enter the market, thanks to the bull market's favourable enthusiasm. Only in 2021 has Dalal Street seen about 46 IPOs, with Paytm triumphing over Coal India to become India's largest IPO in almost a decade with an issue amount of Rs 18,300 crore. However, investors were disappointed on Thursday as the digital fintech startup made a shaky market debut, with its stock plummeting 20%. Underperformance of IPOs is widely considered as a sign of long-term market performance, but it is not as common as IPO underpricing in the short term. Long-run underperformance occurs when succeeding share prices are lower than those of the first trading day, resulting in negative abnormal returns for investors over time. The inconsistent results and challenging findings gained by financial academics suggest that long-run market performance is a contentious issue. According to several studies, initial public offerings (IPOs) underperform marginally or have no aberrant long-term performance. When the anticipation surrounding a new business or product fails to live up to the hype, interest soon fades. Even if an initial public offering (IPO) has a great start, it can lose money on the first day of trading or in the days following. According to Goldman Sachs, just around a quarter of companies going public in 2019 will have a positive net income, the lowest ratio since the Information Age began. Uber and Lyft haven't fared well since their first public offerings, but Goldman Sachs pointed to biotech businesses as lowering the average. Biotech companies make up 28% of all IPOs, and they aren't expected to be profitable for the next three years. When a stock is in high demand, investment banks rush to sell all available shares at the first public offering. Once potential purchasers have acquired their shares, there is usually little interest in the stock once it begins trading. The greatest technique is for investment banks to sell

shares strongly while leaving a cadre of investors available who couldn't get shares on the initial Company Name List Date Issue Price Listing Price Change Post Lisitng Coal India 4th November 2010 245 288 -40.3 Yes Bank 27th July 2020 12 12 6.5 GIC RE 25th October 2017 912 425 -67.5 SBI Cards 16th March 2020 755 658 67.7 New India 13th November 2017 800 375 -57.9 Assurance Relaince Power 11th February 2008 450 372.50 - LTD ICICI Prudential 29th December 2006 334 329 99.2 ICICI Lombard 27th September 2017 661 650 132.4 public offering. The function of the underwriter is to measure the demand in the market, ensure that they're pricing it effectively, and be on the lookout for investors that might be tempted to dump their shares in short order. Some investors are eager to sell stock while it's hot, execute a quick flip and make a fast profit. Large institutions have much less loyalty. If a new stock isn't performing, the corporation may sell it early so they can maintain the remainder of their portfolio

robust. This may be in their best interests if a stock doesn't look like it will be successful in the coming years. There are two reasons why there are so many IPOs on the market right now. One is that, following the pandemic, we experienced a recovery in various industries. Export-oriented sectors including IT, healthcare, chemicals and metals are seeing a demand recovery. All of these businesses are experiencing significant export demand. The second factor is that as the Indian economy improves, confidence in the system has begun to return. When the market is on the rise, promoters often want to go public because investor sentiment is favourable. After 6 months or a year, 60-70 percent of all IPOs underperform the market, so it's crucial to keep an eye on how they perform after they've been listed. As a result, not all IPOs will be successful. It's similar to picking a stock. Investors should consider values, business fundamentals, and the sector in which the company operates. You'd do the same thing with any other stock. Do not be fooled into believing that all initial public offerings (IPOs) will succeed; in reality, this is not the case. Below is the list of some big IPOs which hit the market and failed to sustain the momentum and were trading at discount These numbers show that market sentiment can shift in any direction, regardless of whether the IPO is for a large-cap or a small-cap company. Since 2008, 100 out of 164 initial public offerings (IPOs) have traded below their issue price, according to statistics from the Economic Times. Only 44 firms have given double-digit gains among the remaining equities that have given good returns. During this time, the benchmark Sensex, on the other hand, has more than doubled. Meanwhile, many analysts believe that some IPOs fail because they were overpriced, despite the fact that stock performance is also influenced by other factors such as industry forecast, business quality, and management.

Conclusion The basic result is that, despite their higher risk, IPO returns have been dismal unless you're well connected enough to secure an allocation at the IPO price (as the average IPO returns 12 percent on the first day). If a company's fundamental conditions aren't up to par, it won't be able to maintain its listing momentum after launching an IPO. Such a corporation experiences a stock price correction and loses value over time.

Limitations ❖ Due to the present situation, primary data gathering was not possible, ❖ secondary data sources were inaccurate and limited. ❖ A lot of data was only provided in written form, with no illustrations or graphs to aid comprehension. Benefits from selecting this topic ❖ Getting a thorough understanding of Initial Public Offerings and how the entire process works in practise ❖ Assisted in comprehending how company financials play a key role in capital market company valuation. ❖ Learning about the market's most recent IPOs, how corporations ride the IPO wave, and what IPO frenzy is, among other things.

References ❖ https://www.cbsnews.com/news/why-ipos-underperform/ ❖ https://groww.in/p/what-is-ipo/ ❖ http://www.maco.jfn.ac.lk/ijabf/wpcontent/uploads/2017/11/Vol2_Issue1_1.pdf ❖ https://www.diligent.com/insights/ipo/what-happens-when-your-ipo-fails/ ❖ https://www.financialexpress.com/money/initial-public-offering-7-things-to- understand-before-investing-in-an-ipo/2294677/

INDIAN FINANCIAL SYSTEM PROJECT NAME: MAHIMA NELSON CLASS: TYBA ECONOMICS DATE OF SUBMISSION: 31ST AUGUST 2021 SIGNATURE MOBILE NUMBER: 9820904044

CRYPTOCURRENCY AND BLOCKCHAIN An introduction to cryptocurrency and blockchain: A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. Crypto can be used to buy goods and services, but uses this online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward. The world is quickly progressing towards newer mediums and forms of money and finance. It is pretty evident that cryptocurrencies are gradually taking over. It is a point of discussion everywhere you go and understanding what it actually is, its future and current value is very important not just in the finance world but it is something every individual should know because digitised assets is coming off to be of clear significance. Which is why I chose this topic so I could understand what cryptocurrency is in detail and why blockchain technology is under radar for so many analysts. Assumptions: 1) Bitcoin is the only crypto that matters 2) Cryptocurrency is an illegal form of digital money and is used for criminal activities. 3) Cryptocurrencies are volatile so blockchain must not be reliable. 4) Tokens and coins are the same thing. Hypothesis: Cryptocurrency and blockchain technology are concepts that can only be understood by people majoring in finance.

Let us understand cryptocurrency and blockchain technology in depth now. Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service. “Bitcoin” is something every person must have heard or read at least once in the past few months. Many term it as insignificant but if you actually pay close attention to the statistics, it’s quite the opposite. In April 2021, the Bitcoin market capital reached an all-time high and had grown by over 1,000 billion USD when compared to the summer months. The market capitalization decline since that moment, reaching roughly 600 billion U.S. dollars in June 2021. A very crystal clear growth in usage of crypto has come to light and it’s taking over at a quick pace but first lets go back to scratch to understand the evolution of this digital asset. The story of these virtual coins begins with one person: the cryptographer David Chaum. In 1983, the American developed a cryptographic system called eCash. Twelve years later, he developed another system, DigiCash, that used cryptography to make economic transactions confidential. However, the first time the idea or term \"cryptocurrency\" was coined was in 1998. That year, Wei Dai began to think about developing a new payment method that used a cryptographic system and whose main characteristic was decentralization. In 2008, a funding crisis affecting everyone, including America’s superpower, was booming. The effects of such a large economic disaster were dormant and the coins were losing value faster and faster. In 2009, the so-called Satoshi Nakamoto a person whose identity is still secret, created the first cryptocurrency, Bitcoin. To create a new way of payment that could be used internationally, decentralized and without having any financial institution behind it was the aim of cryptocurrency. The main reason as to why he felt the need to create a cryptocurrency was because of the big economic crisis that affected n number of citizens. He knew that there

had to be another form of money that people could rely on, the kind that can be used and benefitted from, both. Satoshi Nakamoto also invented the blockchain database whereby Bitcoin and a majority of the other cryptocurrency platforms conduct business and house information about the actors within the platforms. In fewer than two years after the first Bitcoin and blockchain transactions, other coders and developers had successfully minded the blockchain. Their efforts not only increased the number of Bitcoin transactions, but also developed new cryptocurrency platforms to further increase the footprint of these digital tokens. Let us also understand the history of blockchain in detail. Stuart Haber and W. Scott Stornetta envisioned what many people have come to know as blockchain, in 1991. Their first work involved working on a cryptographically secured chain of blocks whereby no one could tamper with timestamps of documents. In 1992, they upgraded their system to incorporate Merkle trees that enhanced efficiency thereby enabling the collection of more documents on a single block. However, it is in 2008 that Blockchain History starts to gain relevance. It again comes down to the anonymous identity Satoshi Nakamoto. They are accredited as the brains behind blockchain technology. Very little is known about Nakamoto as people believe he could be a person or a group of people that worked on Bitcoin, the first application of the digital ledger technology. Nakamoto conceptualized the first blockchain in 2008 from where the technology has evolved and found its way into many applications beyond cryptocurrencies. Satoshi Nakamoto released the first whitepaper about the technology in 2009. In the whitepaper, he provided details of how the technology was well equipped to enhance digital trust given the decentralization aspect that meant nobody would ever be in control of anything. Ever since Satoshi Nakamoto exited the scene and handed over Bitcoin development to other core developers, the digital ledger technology has evolved resulting in new applications that make up the blockchain History.

Most people believe that Bitcoin and Blockchain are one and the same thing. However, that is not the case, as one is the underlying technology that powers most applications of which one of them is cryptocurrencies. Bitcoin came into being in 2008 as the first application of Blockchain technology. Nakamoto formed the genesis block, from which other blocks were mined, interconnected resulting in one of the largest chains of blocks carrying different pieces of information and transactions. Ever since Bitcoin, an application of blockchain, hit the airwaves, a number of applications have cropped all of which seek to leverage the principles and capabilities of the digital ledger technology. Consequently, blockchain history contains a long list of applications that have come into being with the evolution of the technology. In simple terms, Blockchain is a peer-to-peer distributed ledger that is secure and used to record transactions across many computers. The ledger’s contents can only be updated by adding another block linked to the previous block. It can also be envisioned as a peer-to-peer network running on top of the internet. In layman term, blockchain is a platform where people are allowed to carry out transactions of all sorts without the need for a central or trusted arbitrator. The created database is shared among network participants in a transparent manner, whereby everyone can access its contents. Management of the database is done autonomously using peer-to-peer networks and a time stamping server. Each block in a blockchain is arranged in such a way that it references the content of the previous block.