Share Subscription Ratio in Primary Markets - An Important Determinant for Identifying Good Stocks in Secondary Markets

Abstract

Over the past few years, Securities and Exchange Board of India (SEBI), through implementation of several measures and regulations has tried to ensure that only good companies can access funds from the primary market. Though under such regulations, fly by night operators have been prevented from raising funds, but the problem of proper pricing oflnitial Public Offerings still remain visible in the system. When a company comes out with an [nitial Public Offering, it ensures proper distribution of shares among various classes of investors such as Individuals, Non- [nstitutional Investors and Qualified Institutional Buyers or Institutional Investors. The investors, particularly retail investors, invest on the basis of recommendations given by friends and di fTerent analysts and the return on such investments are subject to high uncertainty. This study has been done with a view to assess the returns from the Initial Public Offering market on the basis of the response shown by different class of investors mentioned above. There is a general perception in the market that sometimes the companies not having sound profitability record or management and those which have aggressively priced their issues try to ensure subscription by luring their friends, relatives and other retail investors.