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IPO grading is mandatory for raising capital in the Indian stock markets. While pre-issue rating of IPOs is much debated, there is no mechanism for reviewing the postissue performance of the company. The companies are found issuing misleading prospectus, making false statements and fraudulently inducing investors to invest. There is the growing problem of vanishing companies. The article considers a sample of IPOs for the period 1992-95 for their long-run performance on the basis of the pre-issue rating and post-issue rating. The findings of the study indicate that the pre-issue rating can prove to be an effective indicator for assessing the post-issue performance of the companies. However, the post-issue categorization of shares poses difficulty to the investor in trading such securities at the exchange.
Business magazines, journals and newspapers often review IPOs/public issues. A complete review of the company's financial analysis and profile is present and an attempt is at times made to assign ratings to the IPOs/ public issues. The question that often comes to one's mind is whether the IPOs/public issues should be rated. There has been a lot of debate on this issue in the recent times. Experts are of the opinion that rating of equity would make equity look much safer that it actually is. It is quite possible that such a rating could give investors a false sense of security and would not make them and keep them aware and cautious of equity investments. The market is expected to evolve its own rating mechanism using information of various kinds available at different points of time.
Another set of experts is of the opinion that rating of equity can help investors make informed investment decisions. Rating of equity when done in an objective and scientific manner can guide investors in choosing companies for the purpose of investment. Transparency and informational efficiency on the fundamentals of the issuer company can be targeted through the process of rating. It can be a basis for differentiating issues available for investment in the market.
Way back, in the early nineties, two business magazines-the Capital market and the Dalal Street- would bring out a rating for companies coming up with public issues on a regular basis. For reasons best known to them, the practice...