Study of Underwriting of Public Issue by Merchant Bank (Recovered)

Study of underwriting of public issue by merchant bank
PROJECT REPORT ON:
STUDY OF UNDERWRITING OF PUBLIC ISSUE BY MERCHANT BANK
SUBMITTED BY:
MEET PANKAJ CHITRODA
T.Y. BANKING & INSURANCE (SEMESTER V)
SUBMITTED TO:
UNIVERSITY OF MUMBAI
PROJECT GUIDE:
Mrs.RAJESHRI SONI
ACADEMIC YEAR:
2016-17
1
Thakur College of Science and Commerce
DECLARATIONS
I MEET PANKAJ CHITRODA from THAKUR COLLEGE OF SCIENCE &

COMMERCE, student of T.Y. BANKING &INSURANCE (SEMESTER V),
hereby submit my project report STUDY OF UNDERWRITING OF
PUBLIC ISSUE BY MERCHANT BANK .
I also declare that this project which is the partial fulfillment of the requirement
for the degree of T.Y.B.Com (Banking & Insurance) of the MUMBAI
UNIVERSITY is the result of my own efforts with the help of experts.
DATE: MEET PANKAJ CHITRODA
PLACE:
2
CERTIFICATE
This is to certify that the project entitled is successfully done by MEET

PANKAJ CHITRODA during Third Year FIFTH SEMSETER of B.COM
(BANKING & INSURANCE) under the University of Mumbai through the
Thakur Collage of Science and Commerce, Kandivali, Mumbai-400101.
Co-ordinator Project Guide Principal
Date:
Place:
Complete
Internal Examiner External Examiner
3
ACKNOWLEDGEMENT
It gives me immense pleasure in presenting the project on Study of Underwriting of

Public Issue by Merchant Bank. Firstly, I take the opportunity in thanking our very dear
principal Dr. C.T. CHAKRABORTY then I would like to thank the almighty and my
parents without whose continuous blessings, I would not have been able to complete this
project.
I would like to thank my Project GuideMrs.RAJESHRI SONI and our Co.OrdinatorProf.

Nirav.R.GODA for supporting me & providing me with the material and knowledge to
make this project a success. I convey my deep appreciation to him for sparing his valuable
time and efforts, so as to make me capable of presenting this project.
I am thankful to our college for all the possible assistance and support, specially our library
by making available the required books and internet room which have proved useful to me
in successful completing my project.
I hope that I have succeeded in presenting this project to the best of my abilities.
4
INDEX
CHAPTER TOPIC PAGE NO.

NO.
1 INTRODUCTION 6-9
2 REVIEW OF LITERATURE 10-12
3 RESEARCH METHODOLOGY 13-15
3.1 OBJECTIVE OF STUDY 13

3.2 SCOPE OF STUDY 13
3.3 SIGNIFICANCE OF STUDY 13
3.4 DATA COLLECTION 14
3.5 LIMITATION OF STUDY 15
4 OVERVIEW OF MERCHANT BANK 16-40
5 DATA ANALYSIS & FINDING 41-45

6 OBSERVATION & SUGGESTION 46
7 CONCLUSION, BIBLIOGRAPHY 47-49
5
CHAPTER- I
INTRODUCTION
The financial system of a country is a complex and closely integrated set of sub systems of
financial institutions, markets, instruments and financial services which facilitate the transfer and
allocation of funds efficiently and effectively. The Indian financial system consists of both organized
(formal) and unorganized (informal) segments. The formal financial system comes under the purview of
Ministry of Finance, Reserve Bank of India, Securities and Exchange Board of India and other regulatory
bodies.
Financial institutions are the intermediaries who facilitate in mobilizing savings and allocation of
funds in an efficient manner and include banking and non banking institutions. Financial markets provide
the transmission mechanism whereby various participants demands and requirements interact to set a
price for financial claims. The main financial markets in India include the market for short term securities
(money market) and for long term securities (capital market). Financial markets are also classified as
primary and secondary markets. While the primary market deals in new issue of securities, the secondary
market is meant for trading in existing securities (stock exchange and over the counter market). Primary
equity market includes public issues, right issues, offer for shares and private placement of shares.
Financial instruments represent the claims against a person or an institution for the payment at a future
date, a sum of money and/or a periodic payment in the form of interest or dividend. Financial securities are
classified as primary (direct) and secondary (indirect) securities. The primary securities are issued by the
ultimate borrower of funds to the ultimate investor as shares and debentures while secondary securities are
issued by the financial intermediaries to the ultimate savers (bank deposits, insurance policies, mutual
funds etc.).
Financial services are the services which facilitate financial transactions of individuals and
institutional investors resulting in the resource allocation activities through time. These services bridge the
gap between lack of knowledge on the part of investors and increasing sophistication of financial
instruments and markets. Since the liberalization and deregulation of Indian economy, the financial
services have found more scope of growth serving the investors and corporates in a big way. The Indian
th
economy, as a matter of fact, has experienced the last decade of 20 century as the decade of financial
services. There has been a major shift from bank finance to capital market for meeting the financial
requirements of the corporate sector during this period. The emergence of different financial institutions
and regulatory agencies has transformed the financial service sector from being a conservative industry to
6
a very dynamic one. The financial service today is emerging as a strong industry world over and is termed
as a Sunrise industry.
One of the oldest and specialized financial services in the Indian capital market has been merchant
banking service. The merchant bankers have not only helped in promoting trade and commerce between
nations, but have also served the financial needs of the Kings, Monarchs and State Governments engaged
in the continental wars.
Origin of Merchant Banking
The origin of merchant banking is traceable to the developments of foreign trade and finance
th
during the 13 century. During this period, a few firms engaged in coastal trade and finance spread
throughout the European continent were engaged both in commercial activities and banking activities.
These firms also acted as the bankers to the Kings of the European States, financial coastal trade among
European nations, bore exchange risk and security risk in financing the Kings, Monarchs and
Governments engaged in continental wars. The main centre for world trade and finance at that time was
Amsterdam, where the Dutch traders relied upon the expertise of merchant bankers (then known as
commission agents) for financing of trade.
During the seventeenth and eighteenth century, the Italian grain merchants also started merchant
banking activities in Italy and France. It comprised of merchant bankers who intermediated in financing
the transactions of the traders and their own trade also. The Italian merchant bankers introduced into
England not only the bill of exchange, but also all the institutions and techniques connected with the
organized money market. Thus, the modern merchant banking started from London where the merchants
started to finance the foreign trade through acceptance of bill of exchange. The industrial revolution in
England gave further boost to the merchant banking due to the growth of the home industry.
7
(a) Meaning of Merchant Banking
The term merchant banking is easier to understand than to define because one can only make an
attempt to identify the services and activities coming within its purview. Very commonly, the merchant
1
banking has been defined as to what a merchant banker does. As stated by Sir Edward Reid, the term
merchant bank is sometimes applied to banks who are not merchants, sometimes to merchants who are not
2
banks, and sometimes to houses who are neither merchants nor banks . According to Michael T. Skully,
Merchant banking within the same country may cover wide range of financial activities and in process
3
include a number of different financial institutions . John Dick was of the view that due to the dynamic
nature of functions of merchant banks, the meaning and definition of merchant banking has been changing.
He has stated, of its very nature as merchant banking is always evolving the definitions supplied today
4
would perhaps not be the same as they were three or four years ago . Hans- Peter Bauer has suggested that
merchant bank should contain some eleven characteristics: high portion of decision-makers as a
percentage of total staff, quick decision process, high density of information, intense contact with the
environment, loose organizational structure, concentration of short and medium term engagements,
emphasis on fee and commission income, innovative instead of repetitive operation, sophistical services on
5
national and international level, low rate of profit distribution and high liquidity ratio .
In the Indian context, merchant bank has been defined by V. Gangadhar and M. Sunder as a service
activity. Accordingly, banking departments rendering non-fund based services of arranging funds rather
6
than providing them to the needing industrial concerns is called merchant banking . As per the Securities
and Exchange Board of India (Merchant Banker) Regulation, 1992, a merchant banker has been defined as
Any person who is engaged in the business of issue management either by making arrangements
regarding selling, buying or subscribing to securities as manager, consultant, adviser or rendering
corporate advisory services in relation to such issue management.
8
(b)Merchant Banking in India
Agency houses were the traditional name given to the merchant trading in India and Far East.
During 1813, trade and commerce developed in India through the agency houses based in London. John
Palmer & Co. was the leading agency house during this period and it operated the banking activities from
Calcutta. These agency houses had employed their growing capital in trade and commerce.
Thomas Skinners annual directories London Banks (1880) traces the origin and growth of
merchant banking activities in India and Far East. An Anglo-American merchant bank (Baring Brothers)
moved into the financing of India and Far Eastern trade during 1830. When the First World War broke out,
there were as many as twenty one financial firms with considerable commitment in Central Europe and at
least eighteen firms with major interest in India and Far East.
1.4 Meaning Of IPO
Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a
company usually are sold to institutional investors that in turn, sell to the general public, on a securities
exchange, for the first time. Through this process, a privately held companytransforms into a public
company. Initial public offerings are mostly used by companies to raise the expansion of capital, possibly
to monetize the investments of early private investors, and to become publicly traded enterprises. A
company selling shares is never required to repay the capital to its public investors. After the IPO, when
shares trade freely in the open market, money passes between public investors. Although IPO offers many
advantages, there are also significant disadvantages, chief among these are the costs associated with the
process and the requirement to disclose certain information that could prove helpful to competitors. The
IPO process is colloquially known as goingpublic.
Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document
known as aprospectus. Most companies undertake an IPO with the assistance of an investment
banking firm acting in the capacity of an underwriter. Underwriters provide several services, including
help with correctly assessing the value of shares (share price) and establishing a public market for shares
(initial sale). Alternative methods such as the dutch auction have also been explored. In terms of size and
public participation, the most notable example of this method is the IPO.
9
CHAPTER- II
REVIEW OF LITERATURE
A number of studies have been conducted from time to time to understand the different aspects
relating to primary market and merchant banking activities in India. However, most of them have focused
upon the primary market in India only. Research in the area of merchant banking in India and its role in
the primary market is very limited and that too is descriptive in nature and deals with procedural aspects,
organization and management and marketing aspects of merchant bankers. A review of important studies
is presented below:
2.1Literature Survey
1
Verma(1990) conducted research on merchant banks in India with the purpose toanalyse their
organization structure and management pattern and to assess their suitability for medium and small size
corporate and non corporate enterprises. The suitability of merchant banking services in reducing
investors risk and corporate capital structure has also been examined. The information was collected from
a sample of 32 merchant bankers through questionnaire and the study covered the period 1978 to 1984.
The researcher found a number of weaknesses in the existing divisional form organization and
management pattern of merchant banks in India. This included deep concentration of decision making
power, lack of co-ordination, lack of appropriate skill, inadequate training programme, strict dependence
on the bureaucratic framework, blocked communication channels and misdirected accountability.
The study revealed that 90 percent of the resources of all merchant banks were devoted only to the
management of public issues. A negligible performance of merchant banks was found in other areas of
services including loan syndication, merger and amalgamation, inter corporate investments and corporate
counselling. Further, merchant banking activities were found to have remained concentrated with only a
few top merchant bankers, while stock brokers managed very small sized issues covering just 15% of the
total amount of public issues.
A good public response was found to the issues managed by category I merchant bankers including
merchant bankers of public sector banks, whereas the category II merchant bankers which included private
firms had the public response of second order.
10
The researcher highlighted the merchant banks contribution in causing risk reduction both to investors
(through portfolio management) as well as the industry (through project counseling and corporate
counseling). Empirical results also highlighted that corporate enterprises which sought merchant bankers
assistance were financially sounder and less prone to sickness as compared to those not assisted by the
merchant banks.
2
Murthy (1993) in his paper examined the cost of raising capital from the publicissues floated during
1992-93. During 1992-93, an amount of Rs. 4677.74 crore was raised through 514 public issues. The
estimated expenses on these issues were Rs. 473 crore. Analysis of 506 public issues showed that issue
expenditure as percentage of net public offer was 10.10% and the proportion of issue expenses declined
with the increase in offer size. The study found that smaller projects tend to spend a higher proportion as
issue expenditure compared to the larger ones. The researcher also compared the cost of raising capital of
issues through the OTC (over the counter) route and regular stock exchange option and found that the cost
of raising capital through OTC route was lower than the issues that opted for regular stock exchange route.
The study pointed out that no uniform format existed for reporting the issue expenditure in the
prospectus. The researcher has suggested that the total issue expenditure as percentage to the total issue
amount be reported prominently in the prospectus and abridged prospectus cum application form.
3
Shah (1995) conducted an empirical study on the data set of 2056 Indian IPOs listedon the BSE from
January 1991 to May 1995 with the objective to examine the under pricing of IPOs and to establish the
empirical regularities about Indias IPO market. He examined six factors underlying under pricing, namely
asymmetric information between firms and investors, fixing the offer price too early, the interest rate float,
loss of liquidity on the amount paid at issue date (liquidity premium), building loyal shareholders and
merchant bankers rewarding favoured clients as an incentive to under price.
Empirical study found that the average price on first listing day was 105.6% above the offer size,
average delay between issue dates and listing day was 11 weeks
and weekly excess return on market index (BSE Sensex) was 3.8%. The study further found that
correlation between the volume of IPOs under pricing and the return on BSE Sensex was positive, under
pricing among the smaller issues was high, average long run trading frequency of IPO was lower than A
group companies and return on IPOs during the first 200 trading days was more than market return.
4
Srivastava (1995) in his paper highlighted the need for efficient marketing of publicissues because of the
transformation of new issue market from sellers market to buyer dominated market as the geographical
and demographical range of investors has widened. According to him, the process of public issue
marketing starts with the selection of the issue by the merchant banker. Then the merchant banker plays
11
the role of a guide for the appointment of underwriters, brokers and an expert advertising agency. The
researcher has listed the current practices in public issue marketing which include the application of data
base marketing research, direct approach to investors ( like insurance, UTI ), seeking services of marketing
experts as issue specialists, branding the issues like mutual funds, and effective advertising through
extensive and intensive use of media. The author concluded that the future dimensions of public issue
marketing will include the after sale service to investors and giving instant services of selling.
5
Aggarwal (1995) traced the origin, growth and history of merchant banking in Indiaand abroad. The
objectives of the study included the analysis of organizational structure, management pattern and
performance evaluation of SEBI registered category I merchant bankers during the period 1989- 90 to
1993-94.
The study found that merchant banking institutions lack skill development programmes for training
the staff, up to date information and more concentration of decision making power. Despite this, the study
highlighted the important role of merchant bankers in the growth of capital market and mobilization of
resources from public through issue management activities. The author recommended for stopping the
turnover of personnel in merchant banking divisions of nationalized banks due to transfers, who have up to
date market information and adopt professional attitude for providing services as merchant bankers.
12
CHAPTER - III
RESEARCH METHODOLOGY
Research methodology is a way to solve the research problem systematically. It includes the
methods required for systematic analysis and logical interpretation of empirical evidence. So, it covers the
scope/population of the study, sample size, selection of sample, source of data collection, tools and
techniques used for the analysis, interpretation and presentation of data and limitations of study.
3.1Objectives of the Study
1. To examine the role of merchant banking in promoting capital market in India.
2. To study the rules and regulations of SEBI for merchant bankers as issue managers.
3. To evaluate the performance of the merchant bankers.
4. To study the marketing aspects of the merchant bankers relating to the issue.
5. To study the effectiveness of pricing of the issues (as determined by issuing company and the
merchant banker).
6. To make appropriate recommendations to merchant bankers for improving their performance
3.2Scope of the Study
In order to examine the role of merchant bankers in the management of public issues in India, a
period of twelve years from 1997-98 to 2008-09 has been taken. During this period, a total of 685 public
issues (618 equity issues and 67 debt issues) and 330 rights issues have been floated. All these have been
considered for evaluation of performance of merchant bankers. Similarly, a number of merchant bankers
stood registered with SEBI at different points of time during the period under review. All these merchant
bankers form the universe of the present study. Major thrust of the study has been on the performance
evaluation of merchant bankers in the management of public issues.
3.3 Significance Of Study
Merchant Bankers play a very important role in the IPO process of EMERGE and also have a role
in Post listing phase. Their responsibilities are higher on the EMERGE platform as in addition to the
conventional role of managing and underwriting the IPO, they are also responsible for ensuring market
making for a period of three years from the IPO.
13
1. Educating the applicant company
To inform and educate the applicant about capital market rules & regulations, the IPO process and
post listing requirements.
2. Due diligence & DRHP Preparation

The merchant banker would be closely associated in preparing the new applicant's prospectus and
other related listing documents. The Merchant Banker shall conduct a due diligence on the applicant
and provide due diligence certificate as per Form A of Schedule VI of the ICDR including additional
confirmations as provided in Form H of Schedule VI along with the offer document to the exchange.
The other certifications as mentioned in ICDR, Schedule VI will be provided, if applicable.
3. Display of offer document on website.

The merchant banker shall display the offer document on its website after the final approval is
obtained and the RHP is filed with RoC and SEBI.
4. Market Making arrangement

The Merchant banker shall ensure compulsory market making through the stock brokers of
SME exchange in the manner specified by the Board in chapter XB, for a minimum period of three
years from the date of listing of specified securities on SME exchange.
5. Underwriting arrangement
The merchant banker shall ensure that the issue is 100% underwritten and 15% of the
underwriting should be by the merchant banker in own books.
6. Arrangement with nominated investors

In terms of provisions of Chapert XB of the ICDR, merchant bankers could enter into
arrangements with nominated investors (PE funds & QIBs as defined therein) for facilitating market
making and underwriting. The merchant banker shall disclose their arrangements with Nominated
investors to the exchange in the Final Offer document.
3.4 Data Collection
The present study is based on secondary data. Data have been collected from the offer documents/
Red Herring Prospectuses of the issuer companies, BSE official Directories, SEBI Annual Reports, SEBI
Bulletins, Handbook of Statistics on the Indian Securities Market of SEBI, Annual Reports of RBI,
Reports on Currency &
Finance, RBI Handbook of Statistics on Indian economy, Prime Directories, Economic Survey and
NSEs Indian Securities markets- A Review etc.
A good amount of data has also been collected from different journals like Capital Market Review,
SEBI Bulletin, Dalal Street, Chartered Financial Analyst, Portfolio Organiser, Economic & Political
Weekly, Economic Survey, Chartered Accountant and Finance India etc. Various financial newspapers,
press notes, publications of various merchant bankers have also been consulted. Besides this, the websites
14
of SEBI, NSE, BSE, RBI and a number of other agencies has been searched for getting the latest data and
information related to the study.
3.5 Limitation Of Study

The followings are the limitations of the present study:
1. The study is based on secondary data. So, the limitations of secondary data may also creep in and
have an impact on the present study also.
2. The study covers the public issues of equity and debt in India. Private Placement and Euro issues
have not been covered by the study.
3. All the figures have been taken at current prices. The impact of price level accounting has not been
taken care of.
15
CHAPTER- IV
Overview Of Merchant Bank
The focus of this chapter is on the role played by merchant bankers in the primary capital market
in India both in public issues and right issues. It is mandatory under SEBI rules that every issuing
company must appoint one or more SEBI registered merchant bankers as lead manager(s) for the
management of issue. Merchant bankers play an important role as one of the intermediaries in the
primary capital in India. They help companies in the total management of issue of securities. Therefore,
they are called Issue Managers (Lead Managers). They undertake all activities related to capital issues
and play different roles as lead managers, co-managers, underwriters, consultants and advisors to the
issue. They also perform the duties as portfolio managers.
In the case of book building process, the issuer appoints SEBI registered merchant bankers as
book runner(s) and the lead merchant banker acts as the lead book runner and other eligible merchant
bankers appointed by the issuer and lead managers are termed as co-book runners. The book runners and
other intermediaries associated with the book building process maintain records of the book building
process but primary responsibility of maintaining proper books is that of lead book runner.
As an advisor to the issue, merchant bankers advise the company on the matters relating to the
quantum of the issue, timing of the issue, pricing of the issue, structuring of capital and debt, marketing
strategy of the issue and the selection of other intermediaries to assist in the process of raising funds.
Regulation 19 of SEBI (Merchant Bankers) Regulations, 1992, as modified from time to time,
places restrictions on the appointment of lead managers. The number of lead merchant bankers may not
exceed the following :-
Size of Public issues (Rs. In crores) No. of Merchant bankers
Less than Rs. 50 crores Two
16
Rs 50 crore but less than Rs. 100 crore Three
Rs 100 crore but less than Rs 200 crore Four
Rs 200 crore but less than Rs. 400 crore Five
Rs 400 crores and above Five or more as may be agreed by the
SEBI
However, the limit to the maximum number of lead managers to be appointed in a single issue was
omitted through amendment in this regulation as on April 19, 2006.
Further, clause 20 (1) of the above Regulations requires that where there are more than one lead
managers/ lead merchant bankers to the issue, the responsibility of each of such merchant banker shall be
clearly demarcated and a statement clearly defining such responsibilities shall be furnished to SEBI at least
one month before the opening of the issue for subscription. So, it is in the interest of the issuing company
to obtain from the lead merchant banker a statement of allocation of duties/ responsibilities which shall be
discharged by different merchant bankers.
This chapter evaluates the merchant bankers on the basis of their activities performed in managing
capital issues as book runner lead managers/ lead managers, co-lead managers and advisors to the issues in
public issues as well as rights issues separately. The performance of merchant bankers has been evaluated
in terms of number of issues handled, amount raised, percentage of amount raised through individual
merchant bankers to the total amount in a particular year over the period of study.
4.1Management of Public issues
Consequent upon MS Shoes scandal and CRB fiasco, SEBI took a number of measures in 1997-98
relating to primary market with the objective of safeguarding and stimulating investors interest in capital
issues. SEBI (Merchant Bankers) Regulations, 1992 was amended on December 9, 1997 to streamline and
strengthen the role of SEBI to impart more transparency to merchant banking activities in India. The
amended Regulations abolished different categories of merchant bankers to one and segregated fund based
and fee based activities of merchant bankers. Merchant bankers were prohibited from carrying on any fund
based activity, such as acceptance of deposits, leasing and discounting of bills. A number of stringent entry
barriers were imposed by SEBI to punish fly-by- night operators in the primary capital market. As a result
of the this, there was a sharp decline in the number of different categories of merchant bankers registered
17
with SEBI and in the number of public issues since 1997-98. The number of merchant bankers registered
with SEBI during the period under review has been shown in table 4.1
Number of Merchant Bankers Registered with SEBI
Years Number
1997 98 802
1998 99 415
1999-00 186
2000-01 233
2001-02 145
2002-03 124
2003-04 123
2004-05 128
2005-06 130
2006-07 152
2007-08 155
2008-09 137
Source: - SEBI Annual Reports, 1997-98 to 2008-09.
18
For the purpose of analysis and evaluation of performance of merchant banks in public issues and
right issues, the merchant banks which acted as lead manager(s) have been considered. The lead
manager/BRLM is the manager to the issue, who is responsible for furnishing Due Diligence Certificate
to SEBI in accordance with SEBI (Merchant Bankers) Regulations,1992 and also performs mainly pre
issue obligations as lead manager.
Analysis of data has revealed that generally a single merchant banker has been appointed as lead
manager to the issue. In case of multiple merchant banks in a single issue, one of the merchant bankers
has acted as lead manager/BRLM to the issue. However, in some large sized issues, more than one
merchant bankers have been appointed as lead managers who have been jointly made responsible for
furnishing due diligence certificate to SEBI. They also performed pre issue obligations jointly. In order to
calculate the number and amount of issues managed by individual merchant banks, the amount of issues
having multiple lead managers were apportioned equally to all lead managers and the number of that
particular issue was assigned to the first lead manager in the list of such issues.
4.1.1 Public Issues and Number of Merchant Banks Involved
The number of public issues floated by joint stock companies together with amount raised
and the number of merchant banks involved in the management of public issues for the period from
1997-98 to 2008-09 has been presented in the table 4.2.
A glance at the table 4.2 shows that a total of 685 public issues have been floated by
companies which mobilized funds to the tune of Rs.1,90,515.19 crore. The largest number of 124
public issues were floated in the year 2000-01 followed by 102 issues in 2005-06 and 91 issues
during 2007-08. It has been revealed in the table that primary capital market remained subdued
during the year 2001-02, 2002-03 and 2008-09 with respect to both number and amount of public
issues. Year 2007-08 saw maximum amount of funds mobilised at Rs. 53,219 crore followed by Rs.
25,526.41 crore raised in 2004-05. The minimum amount of funds raised was in 1997-98, when
Indian companies could raise Rs. 3061.22 crore only.
19
Merchant Banks Involved in Public Issues Floated by Joint Stock Companies
Merchant Banks Involved

Total Total Average
Years Issues Amount Issue As Lead As Co- Lead Total
Floated (Rs. Crore) Size Managers/ Managers/ Merchant
(Rs. BRLM Co- Managers Banks
Crore) Managers/ Involved
Advisors
1997-98 62 3,061.22 49.37 41 23 64

1998-99 32 7,910.74 247.21 14 28 42
1999-00 65 7,673.14 118.04 21 37 58
2000-01 124 6,622.90 53.41 34 29 63
2001-02 19 6,422.57 338.00 6 18 24
2002-03 14 5,731.57 409.39 6 18 24
2003-04 35 22,144.57 632.70 15 11 26
2004-05 34 25,526.41 750.77 20 20 40
2005-06 102 23,675.70 232.11 39 2 41
2006-07 85 24,993.37 294.04 37 9 46
2007-08 91 53,219.00 584.82 37 4 41
2008-09 22 3,534.00 160.64 18 8 26
Total 685 1,90,515.19 322.34 288 207 -
Source: - Compiled from offer documents, SEBI website and Prime Directories ofrelevant years.
After the introduction of SEBI (Merchant Bankers) Amendments Regulations, 1997, the number of
merchant banks has declined and only the qualified and professional bodies have remained in the field.
This is evident from the table as well. In the initial four years period of the study, the number of merchant
banks involved in primary capital market activities was higher than the number, although the resources
mobilization was much higher in the latter year
20
4.1Merchant Banks as Lead Managers to Public Issues of Equity
4.2.1 Public Equity Issues Management by Indian and Foreign Merchant

Banks
Total merchant banks involved in the management of public issues of equity and deferred equity
has been classified into Indian and foreign merchant banks. Table 4.3, Chart 4.1 and 4.2 present the year
wise number of issues and the amount of equity issues handled by Indian merchant banks and foreign
merchant banks operating in India. As revealed by the table, out of 618 equity issues floated during the
period under review, as many as 544 were handled by Indian merchant banks while foreign merchant
banks were the lead managers to 72 equity issues. However, 544 issuer mobilized an aggregate amount of
Rs. 78,840.63 crore (52.08%) crore through Indian merchant banks and the amount of equity issues
managed by foreign merchant banks were of Rs. 72,549.70 crore (47.92%). A glance at the average issue
size of both categories of merchant banks depicts the higher average issue size in case of foreign merchant
banks in all years except 1997-98. It shows the involvement of foreign merchant banks in the management
of comparatively large sized issues. The aggregate average issue size of foreign merchant banks was
798.77 crore while it was only 145.19 crore in case of Indian merchant banks.
21
Public Equity Issue Management by Indian andForeign Merchant Banks

( Rs. in Crores)
Indian Merchant Banks Foreign Merchant Banks Total

No. of Amount Average No. of Amount Average No. of Amount Average
Year
Issues Rs. Amount Issues Rs. Amount Issues Rs. Rs.
Rs. Rs.
1997-98 53 1122.03 21.17 03 9.97 3.32 58 1132 19.52
(99.10) (0.9)
1998-99 20 407.82 20.39 02 96.2 48.1 22 504.02 22.91
(80.92) (19.08)
1999-00 46 1954.41 42.48 09 1020.84 113.43 55 2975.25 54.1
(65.69) (34.31)
2000-01 105 1930.71 18.36 10 553.05 55.3 115 2483.76 21.6
(77.73) (22.27)
2001-02 05 247.98 49.60 01 834.02 834.02 06 1082 180.33
(22.92) (77.08)
2002-03 05 828.71 165.74 01 209.97 209.97 06 1038.68 173.11
(79.8) (20.20)
2003-04 23 8588.84 373.40 06 9232.16 1538.69 29 17821 614.51
(48.20) (51.80)
2004-05 24 10532.28 438.84 05 10899.3 2179.85 29 21431.56 739.02
(49.15) (50.85)
2005-06 93 13135.22 141.24 09 10540.5 1171.16 102 23675.7 232.11
(55.48) (44.52)
2006-07 72 11261.73 156.41 13 13731.6 1056.28 85 24993.37 294.03
(45.06) (54.94)
2007-08 77 27,004.56 350.71 13 25,214.44 1939.57 90 52,219 580.11
(51.71) (48.29)
2008-09 21 1826.34 86.87 - 207.66 207.66 21 2034 96.86
(89.80) (10.20)
22
Total 544 78840.63 145.19 72 72549.7 798.77 618 1,51,390.34 244.97
(52.08) (47.92)
Note: - Figures in parentheses show percentage of total amount mobilised throughpublic issues.
Source: -Compiled from offer documents of Companies, SEBI Website and Prime Directories of
Percentage share of foreign and Indian merchant banks in the management of
public issue of equity and year wise amount managed has also been shown in the
following charts.
23
Further, the Indian merchant banks have the significant higher proportion of total equity amount managed
form 1997-98 to 2002-03 with the exception of 2001-02, when one foreign merchant bank was able to
manage a single issue of Rs. 834.02 crore. From the year 2003-04 onward, both types of merchant banks
were able to manage almost equal proportion of total resource mobilised through equity and deferred
equity issues. On the other hand, the foreign merchant bankers were almost absent in the issue
management activities of equity issues in 2008-09. Only one foreign merchant banker joined Indian
merchant bankers for one public issue management.
The analysis of the table leads to the conclusion that issuer companies with large issue size relied
more on foreign merchant banks than on Indian merchant banking companies. This was because of the
vast international network of foreign originated merchant banks as compared to Indian merchant banks.
4.2.2 Year wise Number of Equity Public Issues Managed by Merchant Banks
24
All the merchant banks registered with SEBI have not been involved in the activites of
management of public issues. Even those merchant banks involved in these activities, have not played an
equal role as lead managers, co-lead managers and advisors to the equity shares. Some lesser known
merchant bankers were involved in even single issue in a year while some others were the managers for
more than ten public equity issues also.
Table 4.4 reveals the year wise number of merchant banks who acted as lead managers/co-lead
manager/advisors to different number of public equity issues. It has been depicted in the table that total
merchant banks 404 involved in the management of equity issues during the period under review.
Of the total merchant banks involved, 227 (56.2%) lead merchant banks managed 1-2 issues only
in a year while 48 (11.9%) handled more than ten public issues of equity share. However, majority of the
merchant banks have handled less than four public issues. In 1997-98, out of 65 merchant banks involved
as managers to the public issues, as many as 52 (80%) handled one or two issues only. Similarly 23
(57.5%) merchant banks in 1999-2000 and 18 ( 62.1%) in 2004-05 managed only 1-2 issues. 52 (12.9%)
secured the business of 3-4 equity issues during the period of study. However, 8 (25.8%) lead managers
managed more than ten equity issues in 2005-06, while three lead managers each were able to secure the
confidence of more than 10 issuer companies in 2006-07 and 2007-08.
25
Table 4.4Year wise Number of Equity Public Issues Managed by Merchant Banks(Merchant
Bankers as Lead Manager/ Co- Lead Managers/ Advisors)
Years 1-2 3 -4 56 78 9 10 Above Total

Issues Issues Issues Issues Issues 10 MBs
Issues Involved
1997-98 52 05 05 02 01 - 65
(80.0) (9.6) (9.6) (3.8) (1.9)
1998-99 14 06 - 01 02 05 28
(50.0) (21.4) (3.6) (7.1) (17.8)
1999-00 23 04 02 03 03 05 40
(57.5) (10.0) (5.0) (7.5) (7.5) (12.5)
2000-01 27 10 03 01 04 08 53
(50.9) (18.9) (5.7) (1.9) (7.5) (15.1)
2001-02 06 03 - 01 01 06 17
(35.3) ((17.6) (5.9) (5.9) (35.3)
2002-03 04 02 01 03 03 02 15
(26.7) (13.3) (6.7) (20.0) (20.0) (13.3)
2003-04 09 03 02 02 02 04 22
(40.9) (13.6) (9.1) (9.1) (9.1) (18.2)
2004-05 18 - 04 02 01 04 29
(62.1) (13.8) (6.9) (3.4) (13.8)
2005-06 13 04 02 01 03 08 31
(41.9) (12.9) (6.4) (3.2) (9.7) (25.8)
2006-07 24 04 04 03 04 03 42
(57.1) (9.5) (9.5) (7.2) (9.5) (7.2)
2007-08 17 10 05 03 02 03 40
(42.5) (25.0) (12.5) (7.5) (5.0) (7.5)
2008-09 21 01 01 - - - 23
(91.4) (4.3) (4.3)
Total 227 52 29 22 26 48 404
(56.2) (12.9) (7.2) (5.4) (6.4) (11.9)
26
Note: - Figures in parentheses show the percentage of total merchant bankersinvolved during the
relevant year.
Source: - Compiled from offer documents issued by companies during the relevantyears.
The declining number of merchant banks engaged in issue management
activities in the latter years of the study period shows that only efficient and
professional merchant banks have remained in this field.
4.2.3 Indian Merchant Banks as Lead Managers in Public Issues of Equity
The performance of individual Indian merchant banks on the basis of number and amount of
equity issues managed has been shown in Table 4.5 and Chart 4.3
On the basis of average issue size of equity managed by Indian merchant banks, Kotak Mahindra
Capital Co. managed largest sized issues with an average size of Rs. 787.71 crore. On the other hand,
Keynote Corporate Services managed minimum sized issues with average size of Rs. 30.49 crore only
during the period under study. This merchant banker was found active in the latter part of the period under
review.
A number of tiny equity issues have been managed by many small merchant banks, included in
other merchant banks category. The number of such issues stood at 275 involving an amount of Rs.
10,021.56 crore during the period of twelve years.
It is revealed from the table that Indian merchant banks were able to manage a total of 544 equity
issues with an aggregate of Rs. 78,840.63 crore. This amount constituted 52.08% of total amount
mobilized through equity issues during the period under study.
Kotak Mahindra Capital Co. Ltd managed a total of 30 equity issues which mobilized Rs. 23,631.22 crore
during the period from 1997-98 to 2008-09. On the basis of amount of issues managed, Kotak Mahindra
performed better than other Indian merchant banks covered by the study. However, it was SBI Capital
Markets Ltd (SBI Caps.), which managed a maximum number of 43 equity issues during the period under
review. EnamSecurities Ltd managed 11.15% of total funds mobilized through equity with a total of 35
public issues during the same period.
27
It has been highlighted by the table that ICICI Securities Ltd remained the preferred choice of 32 issuer
companies with Rs.13,938.44 crore mobilization through them. However, SBI Capital Markets handled the
largest number of issues amounting to Rs. 6,868.31 crore during the period of the study. Karvy Investor
Services Ltd was approached by 34 issuer companies and this mechant banker could manage Rs. 1,336.59
crore contributing 0.8% to the pool of resources mobilized during the period under review. It remained
active in public issue management services for six years only.
It is depicted by the table that IDBI Ltd. and IDBI Capital Markets managed only 12 public equity
issues which mobilized funds amounting to Rs. 818.06 crore, whereas Keynote Corporate Services
managed 26 equity issues which involved minimum funds amounting to Rs. 792.80 crore. IL&FS
Investsmart showed their presence in the latter part of the study period and managed 14 equity issues with
an aggregate amount of Rs. 1733.74 crore (1.14%).
It is revealed from the table that Indian merchant banks were able to manage a total of 544 equity issues
with an aggregate of Rs. 78,840.63 crore. This amount constituted 52.08% of total amount mobilized
through equity issues during the period under study.
Kotak Mahindra Capital Co. Ltd managed a total of 30 equity issues which mobilized Rs.
23,631.22 crore during the period from 1997-98 to 2008-09. On the basis of amount of issues managed,
Kotak Mahindra performed better than other Indian merchant banks covered by the study. However, it was
SBI Capital Markets Ltd (SBI Caps.), which managed a maximum number of 43 equity issues during the
period under review. Enam Securities Ltd managed 11.15% of total funds mobilized through equity with a
total of 35 public issues during the same period.
It has been highlighted by the table that ICICI Securities Ltd remained the preferred choice of 32
issuer companies with Rs.13,938.44 crore mobilization through them. However, SBI Capital Markets
handled the largest number of issues amounting to Rs. 6,868.31 crore during the period of the study. Karvy
Investor Services Ltd was approached by 34 issuer companies and this mechant banker could manage Rs.
1,336.59 crore contributing 0.8% to the pool of resources mobilized during the period under review. It
remained active in public issue management services for six years only.
It is depicted by the table that IDBI Ltd. and IDBI Capital Markets managed only 12 public equity
issues which mobilized funds amounting to Rs. 818.06 crore, whereas Keynote Corporate Services
managed 26 equity issues which involved minimum funds amounting to Rs. 792.80 crore. IL&FS
Investsmart showed their presence in the latter part of the study period and managed 14 equity issues with
28
an aggregate amount of Rs. 1733.74 crore (1.14%).On the basis of average issue size of equity managed
by Indian merchant banks, Kotak Mahindra Capital Co. managed largest sized issues with an average size
of Rs. 787.71 crore. On the other hand, Keynote Corporate Services managed minimum sized issues with
average size of Rs. 30.49 crore only during the period under study. This merchant banker was found active
in the latter part of the period under review.
A number of tiny equity issues have been managed by many small merchant banks, included in other
merchant banks category. The number of such issues stood at 275 involving an amount of Rs. 10,021.56
crore during the period of twelve years.
The table further reveals that the top lead merchant bankers were generally absent in 2008-09 because of
depressed market conditions.
Kotak Mahindra Capital Co. was again on the top of the list with the management of 15.61%
resources mobilized through equity issuers by Indian merchant banks. It was followed by Enam Securities
and ICICI Securities Ltd. with 11.15% .
29
From the above analysis, it may be concluded that Kotak Mahindra Capital Co. and EnamSecurities Ltd.
performed better than other Indian merchant banks on the basis of total amount managed. However, on the
basis of number of issues, SBI Capital Markets performed better than other Indian merchant banks during
the period under study.
30
The table shows that the largest amount of Rs. 32,518 crores was mobilised in 2007-08. This
amount included a sum of Rs. 16736.30 crore raised by State bank of India alone. The year 2008-09
further saw a declining trend in rights issues market and only 12, 622 crores could be raised through 23
issues during this year. However, only Rs. 431 crore could be raised through 12 issues in 2002-03. The
largest number of issues (49) were witnessed in 1997-98 and the lowest number of 12 issues took place in
2002-03.
Average size of the issue also showed a fluctuating trend during this period. It was 34.75 crore in
1997-98, courtesy the largest rights issue of Rs. 799.29 crore by Ispat Industries Ltd., which individually
contributed 47% of years total mobilization. In 1998-99, average issue size declined to the lowest figure
of Rs. 21.84 crore. A recovery in rights issue market in 1999-2000 increased the average issue size to Rs.
27 crore in 2000-01. Average issue size further increased to 80.07 crore during the year 2001-02 due to a
single rights issue of debentures of Rs. 671.63 crore by Tata Engineering & Locomotive Co. Ltd. It again
increased in 2004-05 to Rs. 139.07 crore after a decline in previous two years. The year 2007-08 witnessed
the highest average issues size of Rs. 1083.93 crores due the largest issue of Rs. 16,736.30 crore by State
Bank of India. Overall, the average size of the issue was 192.80 crore.
The table 4.14 further shows the number of merchant banks involved in the management of rights issues in
the role of lead managers and co lead managers/ advisors to the issue. In all, 286 merchant banks (220 as
lead managers and 66 as co-lead managers/advisors) were involved in the management of 330 rights issues
during the period under review. The largest number of merchant bankers involved was in the year 1997-98
which was 57 for 49 rights issues. On the other hand, only 14 merchant banks were involved in 12 rights
issues during the year 2002-03. A declining number of merchant banks involved in the management of
rights issues were noticed during the latter period of study. The trend shows that only reputed and
professional merchant banks with good track record has remained in the management activities of rights
issues.
Management of Rights Issues
Table 4.15 and chart 4.6 depicts the year wise involvement of both foreign and Indian merchant
banks in rights issues.
As revealed in the table, out of aggregate Rs. 63,624.39 crore mobilised through rights issues, a
sum of Rs. 27,375.44 crore was managed by Indian merchant banks while foreign merchant banks was
able to manage a sum of 36,248.95 crore. The amount of rights issues managed by foreign merchant
bankers was in the range of Rs. 7.83 crore in 2002-03 to Rs. 21,956.80 crore in 2007-08, while the range
31
of amount managed through Indian merchant bankers varied from Rs. 172.46 crore in 2001-02 to Rs.
10,561.72 crore in 2007-08.
A glance at the number of rights issues managed by foreign and Indian Merchant banks reveals that
while only 57 issues were managed by foreign merchant banks, Indian merchant Banks were the preferred
choice of 273 issuers of rights shares. During the period under review, foreign merchant banks were
noticed to have managed in the range of one to nine rights issues and this range in case of Indian Merchant
Banks was from eight rights issues in 2001-02 to 40 issues in 1997-98
Rights Issue Management by Lead Merchant Bankers
(Amount in Rs. crore)
Years Foreign Merchant Banks Indian Merchant Banks Total

No. of Amount Average No. of Amount Average No. of Amount Average
Issues amount Issues amount Issues amount
1997-98 09 239.38 26.60 40 1,463.64 36.59 49 1,703.02 34.75

(14.05) (85.95)
1998-99 06 279.04 46.51 20 288.52 14.43 26 567.56 21.83

(49.16) (50.84)
1999-00 07 728.56 104.08 21 831.68 39.6 28 1,560.24 55.72

(46.70) (53.30)
2000-01 04 115.33 28.83 23 614.08 26.7 27 729.41 27.01

(15.81) (84.19)
2001-02 05 868.8 173.76 08 172.46 21.56 13 1,041.26 80

(83.43) (16.57)
2002-03 01 7.83 7.83 11 423.43 38.49 12 431.26 35.94

(1.81) (98.19)
2003-04 03 258.94 86.31 19 746.86 39.31 22` 1,005.80 45.72

32
(25.74) (74.26)
2004-05 04 274.38 68.59 22 3,341.62 151.89 26 3,616.00 139.08

(7.59) (92.41)
2005-06 04 2,471.49 617.87 32 1,654.33 51.7 36 4,125.82 114.6

(59.90) (40.10)
2006-07 04 1,292.96 323.24 34 2,410.54 70.9 38 3,703.50 97.46

(34.91) (65.09)
2007-08 06 21,956.80 3659.47 24 10,561.72 440.07 30 32,518.52 1,083.95

(67.52) (32.48)
2008-09 04 7,755.44 1938.86 19 4,866.56 256.13 23 12,622.00 548.78

(61.44) (38.56)
Total 57 36,248.95 635.95 273 27,375.44 100.27 330 63,624.39 192.8

(56.97) (43.03)
Note: - Figures in parentheses show percentage of total amount mobilised throughrights

issues
Source: - Compiled from Letters of Offer of Companies, SEBI Website.
33
The following chart also shows the comparative share of foreign and Indian merchant bankers in
the year wise amount mobilization through right issues.
Further, the table reveals that 43.03% of total amount mobilized through rights issues was managed
by Indian merchant bankers. This share was 56.97% in case of foreign merchant banks. Foreign merchant
banks were able to secure the business of 83.43% of total amount in 2001-02, which went down to 7.59%
only in 2004-05. In 2002-03, foreign merchant banks were able to manage only one rights issue of a small
amount of Rs. 7.83 crore. On the other hand, the proportion of total amount of rights issues managed by
Indian merchant banks was 16.57% in 2001-02 which increased to as high as 98.19% in 2002-03.
The analysis of average issue size of right issues managed by both categories of merchant bankers
shows that foreign merchant banks handled comparatively higher issue size in all the years except 2004-
05. So, foreign merchant banks were the preferred choice of issuers of comparatively large amount of
rights issues.
34
Indian Merchant Banks as Lead Managers in Rights Issues
The performance of top Indian merchant bankers in the management of right issues on the basis of
number of issues and total amount managed has been shown in Table
It is visible from the table that Indian merchant banks were the lead managers to 273 rights issues with an
aggregate amount of Rs. 27,375.44 crore. Thus Indian merchant banks contributed 43.03% to the pool of
total funds mobilized through rights issues.
The table 4.16 further shows that SBI Capital Markets Ltd. was on the top rank with the
management of Rs. 5,780.79 crore through 25 rights issues. This was followed by ICICI Securities and
Kotak Mahindra Capital Co. Ltd. with Rs. 5,296.03 crore and Rs. 4444.14 crore respectively. Among the
top ranking merchant banks, Enam Securities managed a sum of Rs. 3479.31 crore through 15 rights issues
and Ambit Corporate Finance secured the busniess of Rs. 1125.55 crore through five issues. Keynote
Corporate Services Ltd. was able to participate in 31 issues of Rs. 650.22 crores. Other merchant bankers
involved as lead managers were Karvy Investor Services for Rs. 172.69 crore, IL&FS Investsmart with
five issues of Rs.
(e) crore Rs. 301.49 crore and Lodha Capital three issues of Rs. 179.22 crore. On the basis of number
of rights issues managed, Keynote Corporate Services
was the preferred choice of the largest number of issuers (31 rights issues) with an average size of Rs.
20.97 crore. ICICI Securities and SBI Capital Markets Ltd were the other top ranking players with the
involvement in 28 and 25 rights issues respectively. Lodha Capital participated in only three issues while
IL&FS Investsmart was able to manage five rights issues.
The analysis of average size of rights issues managed by different Indian merchant bankers showed
that Kotak Mahindra Capital Co. managed largest sized rights issues (eleven in number) with an average
issue size of Rs. 404.14 crore. It was followed by Enam Securities with an average issue size of Rs. 231.95
crore from 15 rights issues. On the other hand, Karvy Investors Services and Keynote Corporate Securities
Ltd. managed minimum sized issues during the period under review with average issue size of Rs. 17.26
crore and Rs 20.97 crore respectively.
35
ICICI Securities was the manager of rights issues to the tune of 8.32% of total fund mobilised
during the period of study. It managed 60.92% of total rights issue amount in 1997-98 and 62.70% in
2004-05. However, its share declined to 1.12% in 2007-08 and less than one percent in 2006-07. Similarly
SBI Capital Markets Ltd showed their presence by managing 9.08% of total resource mobilised through
rights issues and participated continuosly during the entire period under review except in 1997-98.
Enam Securities managed an aggregate 5.47% of amount through rights issues with its major share
in 2006-07. Kotak Mahindra Capital Co. was able to manage 6.98% of the fund mobilised through rights
issues. It was the lead manager, along with other five merchant bankers, to the largest issue of Rs.
16,736.30 crore by State Bank of India in 2007-08. On the other hand, the share of IL&FS Investsmart,
Lodha Capital Ltd. and Karvy Investors Services Ltd. in the total funds raised through rights issues was
less than one percent.
A number of tiny rights issues have been managed by various small merchant banks covered in
other merchant banks category. This included a total of 140 rights issues mobilizing an aggregate sum of
Rs. 5879.59 crore (9.24%) during the period of study.
From the analysis of above table, it may be concluded that SBI Capital Markets Ltd. performed
better than other Indian merchant banks. It was the preferred choice of 25 issuers of rights shares with an
aggregate amount of Rs. 5780.79 crore. Similarly issuers with small issue size preferred Keynote
Corporate Services as their lead merchant banker
Amount managed by Indian merchant banks as lead managers during the period from 1997-98 to
2008-09 has been presented in the following chart.
36
Foreign Merchant Banks as Lead Managers in Rights Issues
A small number of foreign merchant banks registered with SEBI have also played a leading role in
the management of public and rights issues floated by joint stock companies during the period under
review.
Table 4.17 shows the year wise participation of individual foreign based merchant bankers in the
management of rights issues as lead managers.
Out of 57 rights issues with an aggregate amount of Rs. 36,248.95 crore lead managed by foreign
merchant banks, DSP Merrill Lynch secured the confidence of 12 issuer companies with an aggregate
amount of Rs. 10,129.42 crore. This amount was 15.92 % of the total resource mobilised through rights
issues during the period of study. Another foreign merchant bank, JM Morgan Stanley was the lead
manager in 19 rights issues with the total amount of Rs. 10,112.15 crore (15.89%). It managed 67.65% of
the total funds in 2001-02 and 18.14% of the funds mobilised through rights issues in 2006-07. HSBC
Securities & Capital (India) Ltd. participated in the management of rights issues for four years only and
managed a sum of Rs. 304.28 crore through 7 issues. Citigroup Global Markets helped to contribute 13.55
% of total funds through four rights issues.
In the category of other foreign merchant banks, Deutsche Equities (India) was the lead manager
along with other merchant bankers for the rights issue of Rs. Rs. 16,736.30 crore by State bank of India in
2007-08. Similarly, JP Morgan and ABN Amro Securities (India) Ltd participated as lead managers for the
largest issue of Rs. 5,047.70 crore and 4,145.81 crore by Hindalco Industries and Tata Motors respectively
in 2008-09. Standard Chartered Grindley Bank acted as lead managers in two rights issues of Rs. 117.09
crore and UNO Asia Investment Banque Ltd. was the lead manager for a single rights issue of Rs. 5.00
crore. The amount of rights issues managed by foreign merchant bankers has been shown in the following
chart also.
37
Public Sector Banks and their Subsidiaries as Managers to the Rights Issues
From an analysis of letters of offers issued by companies for rights issues
during the period under review, a dismal performance of public sector banks and their subsidiaries was
witnessed in the management of rights issues with the exception of SBI Capital Markets Ltd. This
38
merchant bank competed with other top ranking merchant banks in India by handling 25 rights issues for
Rs. 5,780.79 crore as a lead manager.
Number and amount of rights issues managed by all public sector banks in the
capacity of lead merchant banker is presented in Table 4.18
Public Sector Banks and Their Subsidiaries as Lead Managers in Rights Issues
S. No Merchant Banks No. of rights Amount

Issues (Rs. In crore)
1. SBI Capital Markets Ltd. 25 5,780.79
2. Punjab National Bank 01 74.93
3. Canara Bank 03 73.29
4. Indian Overseas Bank 02 63.85
5. Indbank Merchant Banking Services 02 38.44
6. BOB Capital Markets 03 36.21
7. BOI Finance 02 7.47
8. Vijay Bank 01 5.27
9. Central Bank of India 01 1.35
Total 40 6,081.6
Source: - Compiled from Letters of Offer by Issuer Companies, SEBI website andPrime Database.
39
As revealed in the table, out of total 40 rights issues lead managed by merchant banks divisions/
subsidiaries of public sector bank, SBI Capital Markets Ltd had a share of 25 right issues involving a toal
amount of Rs. 6,081.60 crore. All other merchant banker were the lead manager for one or two right
issues of very small size. Two right issues managed by Indbank Merchant Banking Services Ltd included
one issue of Rs. 60.50 crore jointly lead managed by private merchant banker, AK Capital Services. Ltd.
In addition to this, Canara Bank was the co-lead manager to four rights issues for an aggregate
amount of Rs. 921.09 crore, including a largest issue of Rs. 977.29 crore in 1997-98. BOB Capital
Markets Ltd., a subsidiary of Bank of Baroda, acted as co-lead manager in one rights issue of Rs. 8.96
crore only in 1997-98.
Analysis of offer documents showed that the large size issues were managed by multiple lead
managers while single merchant banker acted as lead manager in small size issues. Appointment of
merchant bankers as advisors to the issue was not the common practice among issuer companies. A
number of lead managers, co-lead managers, co-managers were appointed by both ICICI Ltd and IDBI
Ltd. for their bond issues to public. Further, merchant banking divisions/ subisidiaries of public sector
banks showed as very limited participation in public issue management of equity and debt during the
period under review. With the exception of SBI Capital Markets and Canara Bank, no other public sector
bank performed a significant role in the issue management activities.
40
CHAPTER-V
Data Analysis
Tools and Techniques used for Analysis and Presentation

In the present study, statistical tools such as average, percentage, rate of return, standard deviation,
coefficient of variation and simple regression analysis have been employed for the analysis of data and to
draw meaningful conclusion therefrom. A number of analytical tables and charts have been constructed for
the effectivepresentation of the results of analysis. Various tools and techniques used in the study
have been discussed below:
Performance Evaluation in Management of Public Issues
The performance of individual Indian and foreign based merchant bankers, who acted as lead
managers to the public and rights issues have been analysed with respect to number of issues handled,
amount raised, percentage of total amount raised during the period under review.
Generally a single merchant banker has been appointed as lead manager to the issue. However,
multiple lead managers/ book runners lead managers having equal role in the issue management activities
have also been appointed in a number of large issues. In order to avoid duplication in such cases, the
amount raised has been apportioned equally to all lead managers and the number of that particular issue
has been assigned to the first lead manager in the list of such lead managers.
Performance of Merchant Bankers in Underwriting of Public Issues
Under this part of the study, pattern of underwriting of public issues has been analysed. The offer
documents of companies stated the actual amount underwritten by different merchant bankers in a
particular issue. Year wise total amount and percentage of this amount to total amount underwritten has
been found for individual merchant bankers in the category of Indian and foreign based merchant bankers.
The merchant bankers have been ranked on the basis of total amount and proportion of total amount
underwritten during the period under review.
Rights issues have not been considered for this purpose as only a few of the rights issues have been
found to have underwritten during the period of study.
Rate of Return Analysis
Performance of individual lead managers on the basis of average return obtained by investors
(difference of issue price and market price) from NSE listed IPOs at six points of time, that is, return on
first trading day (listing day), after one week, one month, three months, six months and twelve months
from the first trading day has been measured with the help of following steps:
(a) Number of IPOs managed by individual merchant bankers
Total number of NSE listed IPOs managed by individual merchant banker
during the period under review has been assigned to that merchant bankers, whether
they have managed it individually or jointly with other merchant bankers. Merchant bankers acting as lead
managers(s)/Book runner lead manager(s) only have been considered for this analysis.
(c) Return from individual IPO
The simple return from individual IPO of equity share has been found out at
six intervals of time as stated above with the help of the following formula:
Simple return = (closing market price on return date issue price) 100 Issue Price
Share prices of NSE at the return date have been taken for this purpose. When a return date
happens to be a holiday or no trading day at NSE, then share prices of the next available date have been
taken for finding out the return. Closing market price on the stated day has been taken for this purpose.
(c) Average return of IPOs managed by individual merchant bankers
Separate positive and negative average returns of IPOs managed by individual
merchant bankers have been calculated at different intervals of time. This average has been measured with
the following formula:
Sum of (+ve)/ (-ve) annual return No. of IPOs showing (+ve)/ (-ve) return
Further, average annual return has been calculated at each point of time for the respective lead
manager (merchant banker). Then total average annual return from IPOs managed by individual merchant
banker has been measured by dividing the total of average returns for the period under review at each time
interval by the number of years, individual merchant banker participated as lead manager in sample IPOs.
(d) Average Market Return from NSE IPOs
For this purpose, first of all annual average return from total NSE listed IPOs
have been calculated for each time intervals, that is, return on first trading day (listing day), after one
week, one month, three months, six months and twelve months from the first trading day. Then total
average return is calculated by aggregating the average annual return at each point of time and dividing it
by the number of years of study i.e. ten. This has been shown in the annexur.
(f) Average annual index return (based on NIFTY)

Average annual index return for each financial year during the period under
review (based on NIFTY) for the purpose of comparative analysis has been calculated
as follows:
(Index at the close of the year Index in the opening of the year) 100 Opening Index
(f) Simple linear regression Analysis
Regression is the determination of a statistical relationship between two or
more variables. A simple linear regression is confined to two variables only. In this type of regression
analysis, the value of one variable is estimated on the basis of the value of another variable. In the present
study, this analysis is used to measure the impact of average annual index return and average annual
market return of IPOs on the average annual returns of IPOs managed by individual merchant bankers.
The regression equation takes the form of:-
Y = bo + bi X
Where Y represents average annual return from IPOs managed by individual merchant bankers
(dependent variable), X the average annual index return and annual market return of IPOs (independent
variable), bo is the intercept and bi is the regression co-efficient of independent variable in the
regression model.
Analysis of Investors response to the Public Issue
Year wise and lead manager wise subscription ratio (number of times issue subscribed) have been
analysed separately by retail investors and by all categories of investors with the help of following
statistical tools:
(a) Arithmetic Mean
It is the most common measure of central tendency and may be defined as the
value which is obtained by dividing the sum of the values of various given items in a series by the total
number of items.
X (Arithmetic Mean) = X1 + X2 + X3 + .....Xn

N
Where
X1, X2 Xn = Value of items
N = total number of items
This method has been used to measure the year wise and merchant banker wise subscription ratio
of public issues of equity by retail investors and by all categories of investors. Subsciption ratio has been
calculated as follows:
Annual Subscription Ratio = Sum of number of times oversubscription of all public issues in a year
Number of Public Issues in a year.
Subscription ratio of public issues managed by individual merchant banker has been calculated as:
Sum of times of subscription of all public issues managed by individual merchant banker No. of
public issues managed by particular merchant banker.
(b)Standard Deviation
Standard deviation is the commonly used measure of dispersion. It is defined as the square root of
the average of squares of deviations, when such deviations for the values of individual items in a series are
obtained from the arithmetic mean. It is calculated as under:
Where
=the standard deviation
=each value in the population
=the mean of the values

N = the number of values (the population)
This method has been used to measure the dispersion in the subscription (scatterness in the level)
of public issues. It has been calculated on yearly basis separately for subscription level of retail investors
and for all categories of investors.
Similarly standard deviation and co-efficient of variation of subscription level of public issues
managed by individual merchant bankers during the period under review has also been calculated for
retail investors and for all categories of investors.
(c) Co-efficient of Variation

Coefficient of variation is a relative meausure of dispersion and is often used
for comparing the similar measures of other series. It is calculated as follows:
Co-efficient of Variation = Standard deviation 100

Arithmetic Mean
The standard deviation alongwith relative measure like co-efficient of variation is regarded as a
very satisfactory measure of the scatteredness of a series. It has been used to measure the year wise and
merchant wise scatterness in the subscription of public issues during the period under review. A high
degree of standard deviation and coefficient of variation in the subscription ratio of public issues indicates
that wide variation in the subscription of different public issues in a year and also by different public
issues managed by individual merchant bank.
CHAPTER-VI
OBSERVATION AND SUGGESTATIONS
Time and again the Merchant Banking Industry in India witnessed, experienced and underwent significant
changes, The very purpose for which these firms are commenced their services should be taken care of and
they should mould their policy decisions and activities to move in tune with the main objective of
Investors protection and to create a healthy environment in capital markets. No doubt, Merchant Banking
firms are subject to a host of control measures, regulations and rules framed and guided by SEBI. To some
extent, frequent changes and / or amendments to policies and control measures, though needed for smooth
working of the securities Industry, proves to be detrimental to the very existence of the Merchant Banking
system in the country. The SEBI's Act, 1992 confers power upon SEBI to supervise and control the affairs
of the Merchant Banking firms in India. It exercises control over the all activities of the Merchant Banking
firms through different measures. Assessment of the Merchant Banking firms performance is beset with
many difficulties on account of the diverse commercial objectives that influence their performance.
Notification of Merchant Banking Regulations and amendments to it from time to time by SEBI brought
the Merchant Banking Industry to a new dimension.
The various studies which had been undertaken in India for evaluating the performance of
Merchant Banking firms and the implications of these on securities Industry. No single study has been
emerged so far pertaining to the evaluation of Merchant Banking firms and in-depth study on their
activities as well as operational and financial performance in the light of changing regulatory environment.
Hence, the Research Study captioned Merchant Banking in India- A study with Special Reference to
Evaluation of Functions and Performance", is an attempt in the direction
of penetrating in to the subject and to emerge with truth and illuminating comments.
This concluding Chapter, besides, covering various issues related to role, responsibilities and future trends
of Merchant Banking Industry, also covers the opinions and remarks made by the industry professional in
the field about the Merchant Banking. Last but not least, this Chapter also covers the conclusions drawn
and possible suggestions, based on the study, were made with the objective of smooth functioning of the
Merchant Banking system in the country.In recent past, the small investor has turned his back on the
primary capital market. Issue after issue as failed to capture his imagination, rekindle his enthusiasm, and
reinforce his faith. He has
lost ail hopes of appreciation of his investment. And this when all these years millions have though capital
market, ate capital market and dreamt capital market. It needed an extraordinary effort and skill the drive
the small investor away! High premiums, false premiums and gray market operations. The professed
protector of his interests first laid down the dictum of propooonate allotment, then of minimum
subscription, all working against his interests. This would make an observant student of the stock market
infer that there is some game plan afoot to dethrone the small investor from his pre- eminent position in
the capital market. In the traditional Indian market.
Chapter-VII
CONCLUSION
An IPO is the first sale of stock by a company to the public.
Broadly speaking, companies are either private or public. Going public means a company is
switching from private ownership to public ownership.
Going public raises cash and provides many benefits for a company.
The dot com boom lowered the bar for companies to do an IPO. Many startups went public without
any profits and little more than a business plan.
Getting in on a hot IPO is very difficult, if not impossible.
The process of underwriting involves raising money from investors by issuing new securities.
Companies hire investment banks to underwrite an IPO.
The road to an IPO consists mainly of putting together the formal documents for thE SEC and
selling the issue to institutional clients.
The only way for you to get shares in an IPO is to have a frequently traded account with one of the
investment banks in the underwriting syndicate.
An IPO company is difficult to analyze because there isn't a lot of historical info.
Periods prevent insiders from selling their shares for a certain period of time. The end of the lockup
period can put strong downward pressure on a stock.
Flipping may get you blacklisted from future offerings.
Road shows and red herring are marketing events meant to get as much attention as possible. Don't
get sucked in by the hype.
A tracking stock is created when a company spins off one of its divisions into a separate entity
through an IPO.
Don't consider tracking stocks to be the same as a normal IPO, as you are essentially a second-class
shareholder.
Bibliography
Websites
www.bain.in
www.baljitsecurities.com
www.bseindia.com
www.bullishindian.com
www.capitalmarket.com
www.chittorgarh.com
www.cmie.com
www.cmlinks.com
www.debtonnetindia.com
www.dsml.com
www.economictimes.com
www.epw.org.in
www.ficci.com
www.financeindia.com
www.finmin.nic.in
www.finquestonline.com
www.greymarket.co.in
www.icai.org
www.icicidirect.com
www.icicisecurities.com
www.idbicapital.com
www.indiafoline.in
www.indiaipo.com
www.indianshareholdersonline.com
www.investorhelpline.in
www.ipo.com
www.ipoind.com
www.ipomonitor.com
www.ipo-oversubscription.com
www.iseindia.com
www.jpmorgan.com
www.karvy.com
www.keynoteindia.com
www.kjmc.com
www.kmcc.co.in
www.marketresearch.com
www.mca.gov.in
www.merchantbanking.fortis.com
www.moneycontrol.com
www.nseindia.com
www.outlookmoney.com
www.pacefin.com
www.primedatabase.com
www.publicissue.info
www.rbi.org.in
www.sbicaps.com
www.sebi.gov.in
www.smcindiaonline.com

Study of Underwriting of Public Issue by Merchant Bank (Recovered)

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Study of Underwriting of Public Issue by Merchant Bank (Recovered)

Uploaded by

Copyright:

Available Formats

Study of underwriting of public issue by merchant bank

PROJECT REPORT ON:

STUDY OF UNDERWRITING OF PUBLIC ISSUE BY MERCHANT BANK

MEET PANKAJ CHITRODA

T.Y. BANKING & INSURANCE (SEMESTER V)

I MEET PANKAJ CHITRODA from THAKUR COLLEGE OF SCIENCE &

DATE: MEET PANKAJ CHITRODA

This is to certify that the project entitled is successfully done by MEET

Co-ordinator Project Guide Principal

Internal Examiner External Examiner

It gives me immense pleasure in presenting the project on Study of Underwriting of

I would like to thank my Project GuideMrs.RAJESHRI SONI and our Co.OrdinatorProf.

CHAPTER TOPIC PAGE NO.

3.1 OBJECTIVE OF STUDY 13

4 OVERVIEW OF MERCHANT BANK 16-40

5 DATA ANALYSIS & FINDING 41-45

7 CONCLUSION, BIBLIOGRAPHY 47-49

1.4 Meaning Of IPO

2. Due diligence & DRHP Preparation

3. Display of offer document on website.

4. Market Making arrangement

6. Arrangement with nominated investors

3.4 Data Collection

3.5 Limitation Of Study

Overview Of Merchant Bank

Size of Public issues (Rs. In crores) No. of Merchant bankers

Less than Rs. 50 crores Two

Rs 50 crore but less than Rs. 100 crore Three

Rs 100 crore but less than Rs 200 crore Four

Rs 200 crore but less than Rs. 400 crore Five

Rs 400 crores and above Five or more as may be agreed by the

4.1Management of Public issues

Number of Merchant Bankers Registered with SEBI

Source: - SEBI Annual Reports, 1997-98 to 2008-09.

4.1.1 Public Issues and Number of Merchant Banks Involved

Merchant Banks Involved in Public Issues Floated by Joint Stock Companies

Merchant Banks Involved

1997-98 62 3,061.22 49.37 41 23 64

4.2.1 Public Equity Issues Management by Indian and Foreign Merchant

Public Equity Issue Management by Indian andForeign Merchant Banks

Indian Merchant Banks Foreign Merchant Banks Total

Percentage share of foreign and Indian merchant banks in the management of

Years 1-2 3 -4 56 78 9 10 Above Total

The declining number of merchant banks engaged in issue management

professional merchant banks have remained in this field.

4.2.3 Indian Merchant Banks as Lead Managers in Public Issues of Equity

Management of Rights Issues

Rights Issue Management by Lead Merchant Bankers

(Amount in Rs. crore)

Years Foreign Merchant Banks Indian Merchant Banks Total

1997-98 09 239.38 26.60 40 1,463.64 36.59 49 1,703.02 34.75

1998-99 06 279.04 46.51 20 288.52 14.43 26 567.56 21.83

1999-00 07 728.56 104.08 21 831.68 39.6 28 1,560.24 55.72

2000-01 04 115.33 28.83 23 614.08 26.7 27 729.41 27.01

2001-02 05 868.8 173.76 08 172.46 21.56 13 1,041.26 80

2002-03 01 7.83 7.83 11 423.43 38.49 12 431.26 35.94

2003-04 03 258.94 86.31 19 746.86 39.31 22` 1,005.80 45.72

2004-05 04 274.38 68.59 22 3,341.62 151.89 26 3,616.00 139.08

2005-06 04 2,471.49 617.87 32 1,654.33 51.7 36 4,125.82 114.6

2006-07 04 1,292.96 323.24 34 2,410.54 70.9 38 3,703.50 97.46

2007-08 06 21,956.80 3659.47 24 10,561.72 440.07 30 32,518.52 1,083.95

2008-09 04 7,755.44 1938.86 19 4,866.56 256.13 23 12,622.00 548.78

Total 57 36,248.95 635.95 273 27,375.44 100.27 330 63,624.39 192.8

Note: - Figures in parentheses show percentage of total amount mobilised throughrights