PRESENTED BY:Akrati

Swati Shivani

Mansi Agarwal

Vishal Mittal

Anand Mishra

Chetan Gupta

Saurabh Sharma

Himanshu Chauhan

INDIAN PRIMARY MARKETMYTH &

REALITIES

INTRODUCTION OF PRIMARY MARKET

Primary market provides opportunity to issuers of securities, Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation. The issuers create and issue fresh securities in exchange of funds through public issues and/or as private placement. When equity shares are exclusively offered to the existing shareholders it is called ‘Rights Issue’ and when it is issued to selected mature and sophisticated institutional investors as opposed to general public it is called ‘Private Placement Issues’. Issuers may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt or some hybrid instruments. The issuers may issue securities in domestic market and /or international market through ADR/GDR/ECB

ROLE OF PRIMARY MARKETS

*This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).

* In a primary issue, the securities are issued by the company directly to investors.

*The company receives the money and issues new security certificates to the investors.

*Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.

*The primary market performs the crucial function of facilitating capital formation in the economy.

*The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."

*The financial assets sold can only be redeemed by the original holder.

INITIAL PUBLIC OFFERING

An initial public offering (IPO), is the first sale of stock by a formerly private company. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises. Many companies that undertake an IPO also request the assistance of an Investment Banking firm acting in the capacity of an underwriter to help them correctly asses the value of their shares, that is, the share price .

ROLE OF UNDERWRITERS

Merchant banker can work as lead manager co lead manager investment banker underwriter etc.lead managers are fully responsible for the content and correctness of the prospectus. They must ensure the commencement to the completion of the IPO. Certain guidelines are laid down in section 30 of the SEBI act 1992 on the maximum limits of the intermediaries associated with the issue.

FOLLOW ON PUBLIC OFFERING

*An issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.

RIGHT ISSUE*A rights issue is an issue of additional shares by a

company to raise capital under a seasoned equity offering. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time.[1] A rights issue is in contrast to an initial public offering, where shares are issued to the general public through market exchanges. Closed-end companies cannot retain earnings, because they distribute essentially all of their realized income, and capital gains each year. [2] They raise additional capital by rights offerings. Companies usually opt for a rights issue either when having problems raising capital through traditional means or to avoid interest charges on loans.

Private placement

*The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.

Preferential issue

*The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.

Qualified Institutional Placement

*(QIP) is a capital raising tool, primarily used in India, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a Qualified Institutional Buyer (QIB).

*Apart from preferential allotment, this is the only other speedy method of private placement whereby a listed company can issue shares or convertible securities to a select group of persons. QIP scores over other methods because the issuing firm does not have to undergo elaborate procedural requirements to raise this capital.

QUESTION-1

*DISCUSS THE RESOURCE MOBILIZATION THROUGH IPO’s AND FPO’s FROM 2004-2005 TO 2007-2008?

Year 1.Public Issues(i)+(ii)

Total(i)+(ii)

2Right Issues

Total Issues

Memo Item

Offer for sale

(a)IPOs

(b)FPO

(i)Public Issues (a)+(b)

(ii)PublicIssues(Bond/NSD)

April 1, 2013

2004-05

NO. 23 11 34 - 34 26 60 - 3

Amount 12382(R)

12258

24640 - 24640 3616 28256 - 3200

% share in total amount

43.82 43.38

87.20 - 87.20 12.80 100 - 11.32

Year 1.Public Issues(i)+(ii)

Total(i)+(ii)

2Right Issues

Total Issues

Memo Item

Offer for sale

(a)IPOs

(b)FPO

(i)Public Issues (a)+(b)

(ii)PublicIssues(Bond/NSD)

April 1, 2013

2005-06

NO. 79 24 103 - 103 36 139 - 3

Amount 10936 12358

23294 - 23294 4088 27382 - 296

% share in total amount

39.94 45.13

85.07 - 85.07 14.93 100 - 1.08

% increase or decrease

-11.67 +0.81

-5.46 - -5.46 +13.05

-3.09 - -90.75

Year 1.Public Issues(i)+(ii)

Total(i)+(ii)

2Right Issues

Total Issues

Memo Item

Offer for sale

(a)IPOs

(b)FPO

(i)Public Issues (a)+(b)

(ii)PublicIssues(Bond/NSD)

April 1, 2013

2006-07

NO. 77 8 85 - 85 39 124 - 6

Amount 28504(R)

1293 29797 - 29797 3711 33508 - 587

% share in total amount

85.07 3.86 88.93 - - 11.07 100 - 1.75

% increase or decrease

+130.20

-89.45

+20.92 - +20.92

+2.62 +18.58

- -81.65

Year 1.Public Issues(i)+(ii)

Total(i)+(ii)

2Right Issues

Total Issues

Memo Item

Offer for sale

(a)IPOs

(b)FPO

(i)Public Issues (a)+(b)

(ii)PublicIssues(Bond/NSD)

April 1, 2013

2007-08

NO. 85 07 92 0 92 32 124 - 7*

Amount 42595 11916

54511 0.00 54511 32518 87029 - 2152

% share in total amount

48.94 13.69

62.63 0.00 62.63 37.37 100.00 - 2.47

% increase or decrease

+244.00

-2.79 +121.22 - +121.22

+799.28

+208.00

- -32.75

QUESTION-2

WHAT MAY BE THE POSSIBLE REASONS OF OVER-SUBSCRIPTION IN IPO’s SPECIALLY IN RECENT TIMES?

ANSWER-2

*Over subscription of an IPOs occurs when the market demand for shares is more the supply or the actual number of shares.

*Firms go public in “hot markets”, which in turn creates the appearance of overpricing in the long run as market levels taper off.

*Investing in an IPOs can be an easy way to make a good return in a short period of time. It is a standard practice for underwriters to price the IPOs below fair market value so the stock prices in value immediately upon issue, making a nice profit for the initial share holders.

QUESTION-3

*ALSO WITH REFERENCE TO THE ABOVE CASE,ANALYSE THE DOWNFALL OF IPO MARKET IN 2009?

ANSWER-3

*The main reason behind the downfall of the primary market specially in IPOs segment was the aggressive IPOs pricing and poor post listing performances that have made retail investors highly cautious in 2009.the retail investors have taken out over rupees 14000cr from the secondary market in the second part of 2008-09 and have left the half, the initial public offerings undersubscribed. These investors have also accorded a tepid response to equity schemes of mutual funds.

*As the market dipped due to economic slow down and corporate earnings worries, retail investors played it safe by depositing their money in banks and post offices.

CONCLUSION

*THE PRIMARY MARKET WAS IN A DEPRESSED STATE IN A LONG TIME .IT WAS DUE TO SUBDUED DUE TO LACK OF INVESTORS CONFIDENCE .MANY FRADULENT PROMOTERS TOOK ADVANTAGE OF THE FREE PRICING REGIME AND DUPED INVESTORS.THE PRIMARY MARKET RIVIVED DURING 2004-05 AS MANY GOOD QUALITY SCRIPTS FROM PRIVATE SECTOR COMPANIES WERE SUBSCRIBED TO ENTHUSIATICLLY BY THE INVESTORS.

*IF THE MERCHANT BANKERS APPROPRIATELY PRICE THE ISSUE ,THIS WILL GO A LONG WAY IN SUSTAINING THE RIVIVAL OF THE PRIMARY MARKET.IT IS THE GOOD FAITH OF THE SMALL INVESTORS ,REGULATOR,AND PROMOTER WHICH CAN HELP THESE ISSUES TO BECOME A SUCCESS.

THANK YOU!!!ANY

QUERIES???