Initial Public Offer The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. More than 7000 companies listed in NSE and BSE. Total number of companies listed from 2008 to 2012 is 166 IPO Grades are assigned to each company by the credit rating agencies (CARE, ICRA, CRISIL etc) IPO Grade 5 strong fundamentals IPO Grade 4 above average fundamentals IPO Grade 3 average fundamentals IPO Grade 2 below average fundamentals IPO Grade 1 poor fundamentals IPO Grading is designed to provide investors an independent, reliable and consistent assessment of the fundamentals of new public issues. It includes an assessment of business and financial prospects, management quality and corporate governance. It is a rating assigned by the Securities and Exchange Board of India-registered credit rating agencies to initial public offerings (IPOs) of various firms. The grade indicates an assessment of business fundamentals and market conditions in comparison to other listed equities at the time of the issuance. These ratings are generally assigned on a five-point scale, with a higher score indicating stronger companies. IPO grading can be done either before filing the draft offer documents or thereafter. However, the red herring prospectus must have the grades given by all the rating agencies. Why is it important? IPO grading was introduced to make additional information about unlisted companies or those without any track record of their performance available to the investors, helping them assess the issue before investing and burning their fingers. Grading is additional investor information and assistance to enable informed investment decisions and more realistic pricing of shares. It helps issuing companies in that if they are given a higher score — indicating stronger fundamentals — they command a higher premium for their issue. How does it help? IPO grading by a professional credit rating agency informs investors about the issuing company after analysing factors like business and financial prospects, management quality and corporate governance practices etc. The grade is not a recommendation to subscribe to the IPO. It needs to be read with the disclosures, including risk factors