Primary vs Secondary Market & IPOs

Q1. (3 marks) — 1 mark per correct differentiation point.

Why: Primary = capital raising directly by the company; secondary = investor-to-investor trading with no new capital to company.

Q2. (4 marks) — 1 mark each. (a) IPO — First-ever public sale of shares by an unlisted company to become listed. (b) FPO — Follow-on Public Offer; an already-listed company issues additional shares to the public. (c) OFS — Offer for Sale; existing shareholders/promoters sell their shares to the public (no new shares/capital to company). (d) QIP — Qualified Institutional Placement; listed company raises capital by selling securities to Qualified Institutional Buyers (QIBs).

Q3. (3 marks) — 1 mark per valid point.

Q4. (4 marks) — 1 mark each (any four):

• Advising on issue structure, size, and pricing.
• Preparing and filing DRHP/prospectus with SEBI.
• Underwriting — guaranteeing subscription / buying unsold shares.
• Marketing & roadshows to institutional investors.
• Coordinating with regulators, registrar, and exchanges.
• Determining price band and managing book building.

Q5. (4 marks) — Definition 1 mark; any three items 1 mark each (max 3). DRHP is a preliminary prospectus filed with SEBI before an IPO; it is "red herring" because it does not contain the final issue price or exact number of shares. (1) Investor should look for: business model & industry, financial statements/performance, risk factors, use of IPO proceeds, promoter holding, litigation/legal issues. (3)

Q6. (6 marks) (a) Applying at cut-off price means the investor agrees to pay whatever final price is decided within the band (typically the upper end). (2) (b) Cut-off = upper band = ₹100. Amount = $100 \times 150 = ₹15{,}000$. (2) (c) Minimum application = 1 lot at lower band = $95 \times 150 = ₹14{,}250$. (2)

Why: Retail applications require the full upper-band amount blocked (ASBA); minimum outlay uses lower price × 1 lot.

Q7. (6 marks) (a) Shares = $2 \times 80 = 160$. Cost = $160 \times 250 = ₹40{,}000$. (2) (b) Sale value = $160 \times 310 = ₹49{,}600$. Listing gain = $49{,}600 - 40{,}000 = ₹9{,}600$. (2) (c) Listing gain % = $\dfrac{310-250}{250}\times 100 = \dfrac{60}{250}\times 100 = 24\%$. (2)

Q8. (3 marks) GMP is the premium (₹) at which IPO shares trade unofficially in the grey market before listing, indicating expected listing price. (2) It is not official or regulated by SEBI/exchanges and is only an informal sentiment indicator. (1)

Q9. (4 marks) — Definition 2 marks; any two features 1 mark each. Anchor investors are large institutional (QIB) investors who are allotted shares one day before the IPO opens, to build confidence. (2) Features: minimum application typically ₹10 crore; portion carved out of QIB quota; subject to a lock-in period; price/allotment disclosed before issue opens. (2)

Q10. (3 marks) Shares applied = $4 \times 10{,}00{,}000 = 40{,}00{,}000$ shares. (2) Oversubscription means demand exceeds shares on offer, so allotment is done on a proportionate/lottery basis and not all applicants receive full allotment. (1)

[
  {"claim":"Q6b cut-off amount = 15000","code":"result = (100*150 == 15000)"},
  {"claim":"Q6c minimum application = 14250","code":"result = (95*150 == 14250)"},
  {"claim":"Q7 cost=40000, gain=9600, gain%=24","code":"cost=160*250; sale=160*310; gain=sale-cost; pct=(310-250)/250*100; result = (cost==40000 and gain==9600 and pct==24)"},
  {"claim":"Q10 shares applied = 40 lakh","code":"result = (4*1000000 == 4000000)"}
]