Introduction
Grading of Initial Public Offerings (IPOs) is a
service aimed at facilitating assessment of equity issues offered to the
public. The Grade assigned to any individual IPO is a symbolic representation
of assessment of the “fundamentals” of the issuer concerned relative to other listed
securities. IPO Grades are assigned on a five-point point scale, where IPO
Grade 5 indicates the highest grading and IPO Grade 1 indicates the lowest
grading, i.e a higher score indicates stronger fundamentals. An IPO Grade is
not an opinion on the price of the issue, pre- or post-listing.
- IPO grade 1: Poor fundamentals
- IPO grade 2: Below-average fundamentals
- IPO grade 3: Average fundamentals
- IPO grade 4: Above-average fundamentals
- IPO grade 5: Strong fundamentals
IPO grading has been introduced as an endeavor to
make additional information available for the investors in order to facilitate
their assessment of equity issues offered through an IPO.
The IPO grading process is expected to take into
account the prospects of the industry in which the company operates, the
competitive strengths of the company that would allow it to address the risks
inherent in the business and capitalize on the opportunities available, as well
as the company’s financial position.
IPO
Grading: Conceptual Issues
IPO grading is a
service intended to facilitate the assessment of equity issues offered by
unlisted companies to public. The grade assigned to any individual issue may
represent a relative appraisal of the ‘fundamentals’ of that issue in relation
to the universe of other listed equity securities in India. In fact, IPO
grading is positioned as a service that provides ‘an independent assessment of
fundamentals’ to assist comparative assessment that would prove useful as an
information and investment tool for prospective investors.
The methodology
of such grading is to consider five-point scale with a higher score indicating
stronger fundamentals. While investment recommendations are expressed as buy,
hold or sell securities and are based on a security specific comparison of its
assessed ‘fundamental business strength’ (such as business prospects, financial
position etc.) and ‘market factors’ (liquidity, demand supply etc.) to its
price, IPO grading is expressed on a five-point scale as stated earlier. In
other words, it is a relative comparison of the assessed fundamentals of the
graded issue to other listed equity securities in India .
The cost of IPO
grading shall be borne from investor protection funds administered by stock
exchanges or from Investor Education and Protection Fund (IEPF) administered by
the Ministry of Companies Affairs. SEBI would finalize necessary procedural
aspects in consultation with Stock Exchanges IPO grading covers both internal
and external aspects of a company seeking to make an IPO in general. The
internal factors include competence and effectiveness of the management,
profile of promoters, marketing strategies, size and growth of revenues,
competitive edge, technology, operating efficiency, liquidity and financial
flexibility, asset quality, accounting quality, profitability and hedging of
risks. Among external factors, the key one is the industry and
economic/business environment for the issuer.
Here, it is
important to note that internationally, the global rating agencies such as
Standard & Poors and Moody’s do not perform grading of IPOs at all. While
Standard & Poors is the majority stakeholder in CRISIL Ltd, Moodys is the
single biggest stakeholder in ICRA Ltd. Similarly, the third global player
Fitch IBCA (which acquired another rating agency Dun & Bradstreet in 2000)
also does not grade IPOs as yet.
You can DOWNLOAD this Complete 27
PAGES of report for FREE from the below link.
We Hope the above detailed project report will help you in
getting better understanding of the concepts and also provide you better ideas
for your own project completion.
Have a Great Day!!!
No comments:
Post a Comment