Jaipuria Institute of Management

Assignment of
FINANCIAL MARKET

TO Satyendra P Singh

On NEW ISSUE MARKET IN INDIA:RECENT TREND

SUBMITTED By-
• AMIT KUMAR (FS004)
 NEW ISSUE MARKET IN INDIA:RECENT
TREND
Write-up

The primary market is that part of the capital markets that deals with
the issuance of new securities. Companies, governments or public
sector institutions can obtain funding through the sale of a
new stock or bond issue. This is typically done through a syndicate of
securities dealers. The process of selling new issues to investors is
called underwriting. In the case of a new stock issue, this sale is
an initial public offering (IPO). Dealers earn a commission that is built
into the price of the security offering, though it can be found in
the prospectus.

Features of primary markets are:

 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.

Methods of issuing securities in the primary market are:

 Initial public offering

 Rights issue (for existing companies)
 Private Placement

Initial Public Offering (IPO)

An initial public stock offering (IPO) referred to simply as an

"offering" or "flotation," is when a company issues common
stock or shares to the public for the first time. They are often issued
by smaller, younger companies seeking capital to expand, but can
also be done by large privately-owned companies looking to
become publicly traded.
In an IPO the issuer may obtain the assistance of
an underwriting firm, which helps it determine what type of security to
issue (common or preferred), best offering price and time to bring it to
market.
An IPO can be a risky investment. For the individual investor, it is
tough to predict what the stock or shares will do on its initial day of
trading and in the near future since there is often little historical data
with which to analyze the company. Also, most IPOs are of
companies going through a transitory growth period, and they are
therefore subject to additional uncertainty regarding their future value.

The movement of 285 stocks that were launched between January

2002 and August 2009, only a handful gave compounded annual
returns over 100 percent while the majority of them gave negative
returns. Investors will also be discouraged to learn that half of the
IPOs presently trade at prices far below their issue price.
Reasons for listing of IPO
When a company lists its shares on a public exchange, it will almost
invariably look to issue additional new shares in order at the same
time. The money paid by investors for the newly-issued shares goes
directly to the company (in contrast to a later trade of shares on the
exchange, where the money passes between investors). An IPO,
therefore, allows a company to tap a wide pool of stock market
investors to provide it with large volumes of capital for future growth.
The company is never required to repay the capital, but instead the
new shareholders have a right to future profits distributed by the
company and the right to a capital distribution in case of a dissolution.
The existing shareholders will see their shareholdings diluted as a
proportion of the company's shares. However, they hope that the
capital investment will make their shareholdings more valuable in
absolute terms.
In addition, once a company is listed, it will be able to issue further
shares via a rights issue, thereby again providing itself with capital for
expansion without incurring any debt. This regular ability to raise
large amounts of capital from the general market, rather than having
to seek and negotiate with individual investors, is a key incentive for
many companies seeking to list.

Benefits of being a public company-

• Bolster and diversify equity base.

• Enable cheaper access to capital
• Exposure and prestige
• Attract and retain the best management and employees
• Facilitate acquisitions
• Create multiple financing opportunities: equity, convertible debt,
cheaper bank loans, etc.
 Rights issue (for existing companies)
Under a secondary market offering or seasoned equity offering of
shares to raise money, a company can opt for a rights issue to raise
capital. 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 (primary market offering), where shares are
issued to the general public through market exchanges.

How does Right issue works

A rights issue is directly offered to all shareholders of record or
through broker dealers of record and may be exercised in full or
partially. Subscription rights may either be transferable, allowing the
subscription-right-holder to sell them privately, on the open market or
not at all. A right issuance to shareholders is generally issued as a
tax-free dividend on a ratio basis (e.g. a dividend of one subscription
right for one share of Common stock issued and outstanding).
Because the company receives shareholders' money in exchange for
shares, a rights issue is a source of capital.

Private Placement

A '''private placement''' (or non-public offering) is a funding

round of securities which are sold without a initial public offering,
usually to a small number of chosen private investors. In the United
States, although these placements are subject to the Securities Act of
1933, the securities offered do not have to be registered with
the Securities and Exchange Commission if the issuance of the
securities conforms to an exemption from registrations as set forth in
the Securities Act of 1933 and SEC rules promulated thereunder.
Private placements may typically consist of stocks, shares of
common stock or preferred stock or other forms of membership
interests, warrants or promissory notes (including convertible
promissory notes), and purchasers are often institutional
investors such as banks, insurance companies or pension funds.

In current scenario

In current there was a IPO of Cox and Kings (India) Limited Which
was issued on 18th nov, 2009 – 20th nov, 2009. and was 6.39 times
subscribed and yet to be listed on stock exchange, its price band was
RS.316/- to 330/-. ISSUE SIZE-584.49 - 610.39 CRORE.

Before that there was a IPO of Astec LifeSciences Limited which was
issued on 29th oct, 2009- 4th nov, 2009. and was 2.39 times
subscribed and yet to be listed on stock exchange, its price band was
Rs. 77/- to 82/-. ISSUE SIZE-57.75 - 61.50 CRORE.

Table below shows performance of some of the

current IPO’s performance are as given below:-
 Introduced
No. of Issue Size Issue
Sr. Name of the Book Running Date of No. of Price Date of in F&O Rating Grade
LTP Bidding (lakh Price
No. issue Lead Manager Issue members Range Listing alongwith agency assigned
centers shares) (Rs.)
IPO $
COX AND
INDIA 18/11/2009 Rs. 316
KINGS IPO
1 - INFOLINE to 99 58 184.9664 To Rs. * * - CARE
(INDIA) GRADE 4
LIMITED 20/11/2009 330.
LIMITED
ALMONDZ
GLOBAL
SECURITIES
ASTEC 29/10/2009 Rs.77
LIMITED, CO IPO
2 LIFESCIENCES - to 108 49 75 To 82 * - CARE
BRLM IDBI GRADE 2
LIMITED 04/11/2009 Rs.82
Capital Market
Services
Limited
Duetsche
Equities India
DEN 28/10/2009 Rs. 195
Private IPO
3 NETWORKS - to 91 45 200 To Rs. 195 * - ICRA
Limited,Antique GRADE 3
LIMITED 30/10/2009 205.
Capital Markets
Private Limited
INDIABULLS Morgan Stanley 12/10/2009 Rs.40 30-
IPO
4 POWER 33.05 Company India to 142 48 3398 To 45.00 Oct- - CRISIL
GRADE 3
LIMITED Private Limited, 15/10/2009 Rs.45 2009
THINKSOFT
Karvy Investor 22/09/2009 Rs.115 26-
GLOBAL IPO
5 294.10 Services to 88 49 36.46 To 125.00 Oct- - ICRA
SERVICES GRADE 2
Limited 01/10/2009 Rs.125 2009
LIMITED
EURO Anand Rathi 22/09/2009 Rs.70
IPO
6 MULTIVISION - Advisors to 96 30 88 To 75 * - CARE
GRADE 3
LTD Limited 24/09/2009 Rs.75
JM Financial
Consultants
Private Limited,
Citigroup
Global Markets
PIPAVAV 16/09/2009 Rs.55 09-
India Private IPO
7 SHIPYARD 57.90 to 179 57 854.50225 To 58.00 Oct- - CARE
Limited, Enam GRADE 3
LIMITED 18/09/2009 Rs.60 2009
Securities
Private Limited
and SBI Capital
Markets
Limited
JM Financial
Consultants
Private Limited,
Morgan Stanley
Company India
Private Limited,
Citigroup 07/09/2009 Rs.950 30-
OIL INDIA IPO
8 1210.75 Global Markets to 143 56 264.4998 To 1050.00 Sep- - CRISIL
LIMITED GRADE 4
India Private 10/09/2009 Rs.1050 2009
Limited and
HSBC
Securities and
Capital Markets
(India) Private
Limited
Keynote
Corporate
GLOBUS 31/08/2009 Rs.90 23-
Services IPO
9 SPIRITS 84.00 to 80 50 75 To 100.00 Sep- - CARE
Limited ,SREI GRADE 3
LIMITED 2/09/2009 Rs.100 2009
Capital Markets
Limited
Brickwork
Saffron Capital 27/08/2009 Rs.70 22- Ratings
JINDAL COTEX BWR IPO
10 90.55 Advisors to 94 57 112.5 To 75.00 Sep- - India
LIMITED 3
Private Limited 1/09/2009 Rs.75 2009 Private
Limited
Performance of IPO’s in Recent years:-
In the various sectors across the Indian primary market from the
period January 2005 till March 31, 2007 140 public issues were
floated. Forty two issues were floated in 2005, 65 in 2006, and 33 in
2007 (till March 31,2007). They gave a return of 33% on average
after being listed on the Indian stock exchanges. Due to good returns,
IPOs are increasingly becoming an attractive investment avenue for
wealth creation. In such a scenario, it is important for the investor to
know the sector-wise performance of IPOs, as investors would prefer
to take informed decisions and plan their investments in different
sectors according to the risk-return characteristics of various sectors.
Moreover, in order to gauge the performance of the primary market,
development of an IPO index in the Indian context is necessary. The
present study throws light on the development of an IPO index and
on structuring a model IPO index for the Indian primary market.

In the year 2007 after the DLF issue,four mega issues (DLF, ICICI
Bank, RPL and Carin) which accounted for 50% of all money raised
through IPOs.

The listing gains for the 16 construction and real estate IPOs on
average stood at robust 71.5%, while overall gains for the 134
companies that launched initial public offers were 22.6%.

The manufacturing sector on the other hand despite having over 50%
of all IPOs in this period gave the poorest return. The average return
was only about 13%. Unlike realty where the present value of the
land banks reflects in the valuations of the companies, manufacturing
is more a cyclical business and observes slow and steady progress."

Besides these two, oil and gas which saw two mega issues, Reliance
Petroleum (RPL) and Cairn India has returned close to 40% largely
on the gains by the former. In IT IPOs it was 25%, slightly better than
the average overall returns.
For instance, IPOs that delivered handsome returns to investors
include sectors such as IT, banking, infrastructure and power while
the stocks that have lost the most include sectors like infrastructure,
metals, financial stocks and textiles.

IT telecom and other services, which includes media and

entertainment, saw a total of 36 issues. However in IT, a sector that
was once the darling of the investors, not much action has been seen
in the IPO space. The IT sector witnessed 11 IPOs collecting Rs
2,000 crore, not even 5% of the total IPO amount raised.

However, "In the current regime of proportionate allotment the issues

are priced at top end of the band in bull markets and at bottom end in
bear markets. There is no incentive for an investor to indicate a
higher price. Internationally the allocations are finalized depending on
the size, price and timing of the bid from investors, and hence, there
is a price tension for getting higher allocation," he said.

"Another pitfall of this is that most investors (institutional and retail

alike) participate on the last date of the issue thereby putting
additional pressure on the administrative infrastructure and also
leaves the retail investors without any price guidance," he added.

Though in 2008, valuations crumbled in a bearish market triggered by

a global financial meltdown, yet, 2009 looks hopeful and the stock
markets are already on a roll amid positives such as revival of the
monsoon, strong global cues and improved industrial production
numbers. The advance tax numbers and excise duty collections also
indicate that the quarterly performance of most companies would be
better than expected.

However, according to market analysts, the timing of investing in an

IPO depends on whether a person is someone genuinely interested
in the company and intends to hold the shares for a medium to long
term or someone who is interested in subscribing to an IPO with the
intention of making gains on listing.
If it is the former i.e. in the case of a retail investor, it is extremely
important to understand the business fundamentals of the company
and how it compares with its peers in the industry. For instance, by
comparing the pricing with respect to peers in the industry, one can
judge whether the issue is underpriced or over-priced.

Likewise, the track record of the management, past performance of

the company, risks that the company faces and the purpose of raising
finance along with expected returns on investment are other crucial
factors to be considered and can be compared with its peers.

The grade given by the credit rating agency may also be a good
indicator about the company's prospects. However, grading does not
indicate if the issue is priced at a fair level.

Recent Amendment
• Inorder to have maximum participation of retail
Investor SEBI has increased the limits of
divestment.
• Even certain rebate is also being allowed on bidding
other than QIBS & HNIS.
• Even different pricing is being done for making
BIDS.
• New methods such as differential pricing have came
into force so that new people could participate for
making investment.
• Inorder to lower their shareholding in several
profitmaking PSUS Govt. is coming out with FPOS.
• Atleast 25% of issue size has been reserved for retail
Investors & certain rebate is also been given to
them.