IPO Grading

IPO grading was made compulsory by the regulator of the market-SEBI or Securities And Exchange Board of India. IPO grading is helpful for individual buyers in particular. Not only does it help in knowing the offer quality but it also conveys the fundamentals of a company.
As of 2006, the market regulator, SEBI or Securities And Exchange Board of India in its circular declared that the IPO grading of different companies could be carried out by CRISIL or Credit Rating Information Services, Fitch Ratings, ICRA or CARE or Credit Analysis And Research. Earlier IPO gradingwas optional however, as of 2007, has made it obligatory forIPO grading.

The IPO of the companies are graded to ascertain the strength of the fundamentals of the different companies as far as the performance is concerned. The grading is done prior to the shares of the companies being listed on the stock exchanges of the country.

Grading scale:
IPO grading usually comprises grades from 1 to 5 where companies are rated in this range. Experts are of the opinion that IPO grading will make way only for the well performing firms to list their shares.
This would be beneficial especially for investors, whose incidence of losing money in the capital markets may be minimized. This holds true particularly at a time when markets are volatile and there is an increasing liquidity crunch.

In addition to the above, the investors will also know about the quality of offer and will stand a better chance of investing money in the investment vehicle of that company, which will give more ROI or return on investment.

The first companies to have the IPO grading of their offer done by CRISIL include:

  • Shree Ashtavinayak Cine Vision
  • Minar International

In both the cases, the rate assigned to the IPOs of both the companies were 2 out of 5. IPO grading is beneficial particularly for the retail buyers.

However, there are many parameters, which are not taken into account when IPO grading is carried out. Hence, IPO grading alone should not be a deciding factor for an individual to decide upon his investment preferences.

More Information on IPO
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IPO Book Building Recent IPO
IPO Allocation IPO Filings
IPO Analysis SEBI Scam
Pre IPO IPO Stocks

Last Updated on : 30th July 2013

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