CURRENT SCENARIO OF PRIMARY MARKET IN INDIA

Meaning of Primary Market :

new issue market securities are issued directly to investors used by companies for the purpose of setting up new ventures/business or for expanding or modernizing the existing business. performs the crucial function of facilitating capital formation in the economy. governed by the provisions of the Companies Act, 1956, which deals with issues, listing, and allotment of securities.

MECHANISM FOR RAISING CAPITAL Domestic market Initial Public Offer (IPO) Rights Issue Private Placement International market ADRs GDRs FCCBs

Mobilisation via primary market dismal in FY12(Financial Express, Mar 29, 2012) Nearly Rs.24,000 crore was raised by way of initial public
offerings (IPOs) and follow-on public offerings (FPOs) in FY12 i.e. almost half of Rs.46,267 crore mobilised in the preceding year.

The number of IPOs during the period was 37 as against 57 IPOs during FY11.
PSUs and PSU banks raised Rs.17,453 crore or 73% of the total amount compared with R27,537 crore raised by them in FY11. Amount of capital mobilized through private placement in corporate debt in 2011-12 has also reduced as compared to 2010-11.

MCX IPO May Revive Primary Market:

The Multi Commodity Exchange's (MCX) ongoing IPO may mark the revival in sentiments for the primary market after a monthslong dry period. The MCX IPO, estimated to raise Rs 663 crore, also happens to be the first public offer of 2012 in the Indian market and has already attracted bids worth over Rs 1,300 crore The first ever public offer by an Indian bourse also indicated towards an end to a long-running lull in the primary market, which has remained mostly weak for many months now. It is perhaps the first big issue since Coal India and MOIL in the recent times.

REVIEW OF TRENDS AND OPERATIONS

Trends in Primary Market

The issuers mobilize resources through public issues and private placements.

The resources that are raised by corporates and the government from domestic as well as international markets decreased by 15 percent as compared to the figures for the previous year. The resources mobilized in 20102011 amounted to Rs. 8,561,863 million as against Rs.10,083,446 million in 20092010.

Resource Mobilisation by Government and Corporate Sector

Developments in the primary market for corporate securities

Equity and Debt Issue
During January 2012, an aggregate amount of 6,300 crore was mobilised through one public debt issue compared to three debt issues worth 10,759.3 crore in December 2011. January 2012, like the last three months, did not see a single equity issue made in the primary market.

The cumulative amount mobilised for the financial year 2011-12, stands at Rs.34,463.4 crore through 52 issues as against Rs. 54,097.9 crore raised through 70 issues during the corresponding period in 2010-11.

PRIMARY MARKET TRENDS

Primary Market (Equity Issues) Trends through Public and Rights Issues

Sector-wise Distribution of Resources Mobilised

Industry-wise Classification of Capital Raised through Public and Rights Issues

Size-wise Distribution of Resources Mobilized

Source: SEBI

About 97.23 percent of the resource mobilization was through public issues of issue size above Rs. 100 crore. In terms of the number of issues, there were only 55 issues out of 91 that were above Rs. 100 crore.

MEGA ISSUES
There were 41 mega issues (Rs.300 crore and above) during April 2010September 2011.
The largest being the IPO issue of Coal India Ltd (Rs. 151,994 million), followed by the FPO issue of the Power Grid Corporation of India Ltd(Rs. 74,423 million). The 41 mega issues mobilized 81.79 percent of the total resources.

Mega Issues in April 2010September 2011

 QIPs Listed at BSE and NSE During January 2012, one listed company raised capital of Rs. 3 crore from Primary Market through QIP channel compared to Rs. 68 crore raised through one issue in December 2011. The cumulative mobilised amount for the financial year 2011-12, was at Rs. 1,043 crore through eight issues.

Private Placement of Corporate Debt Reported to BSE and NSE In the corporate debt market, Rs.25,414 crore was raised through 158 issues by way of private placement listed at BSE and NSE during January2012 compared to Rs. 31,896 crore raised through 232 issues in December 2011. The cumulative privately placed amount for the financial year 2011-12, stood at Rs.2,13,945 crore through 1,562 issues

NSE

BSE Amt. No. of Issues Amt.

COMMON NO. Of Amt. Issues

TOTAL No. Of Amt. Issues

Month

No. of Issues

1.

2.

3.

4.

5.

6.

7.

8.

9.

Issuer-wise Distribution of Private Placement of Debt

Growth of Private Placement of Debt

Sectoral Distribution of Resources Mobilized through Private Placement

The sectoral distribution shows that the banking and financial services sector continued to dominate the private placement market, raising 71 percent in 20102011, followed by the power sector, which accounted for 9.90 percent during the year.

Sectoral Distribution of Resources Mobilized through Private Placement

Resource mobilisation through international markets

Indian companies raise resources from international markets through the issue of Foreign Currency Convertible Bonds(FCCBs), and through GDRs, ADRs, GDS, ADS. In 20102011, as a result of the turbulent global financial market, there was a steep decline in the resources mobilized through Euro issues, which decreased to Rs. 94,410 million compared to Rs.159,670 million raised in 20092010. In the current fiscal year, six companies mopped up Rs.8,648 million collectively, with an average issue size of Rs. 1,441 million, 40.89 percent down from the issue size of Rs.2,438 million in 2010 2011.

Trends of primary market in Government Securities

Gross borrowings of the central and the state governments taken together were budgeted 6.43 percent lower, from Rs. 6,236,190 million in 20092010 to Rs.5,835,210 million in 2010 2011. Net borrowings also decreased by 18.55 percent, from Rs.5,092,410 million (US $ 112,814 million) in 20092010 to Rs. 4,147,960 million in 20102011. Major challenge for the RBI in 20102011 was the management of the government market borrowing program in a situation of tight liquidity conditions and a rise in inflationary expectations. thus, in order to control inflationary pressures, the RBI increased the key policy rates, which had an impact on the cost of the governments market borrowings.

Market Borrowings of Central and State Governments

Source: RBI

REVIEW OF POLICY DEVELOPMENTS

Policy Developments
1. ASBA facility in public issues extended to QIBsThe Securities and Exchange Board of India (SEBI) decided to extend the Application Supported by Blocked Amount (ASBA) facility to QIBs in public issues opening. 2. Reduction in time between issue closure and listingEarlier, it took an average of 22 days to list the securities after an issue closed, SEBI reduced the time between issue closure and listing to 12 working days.

3. Entities seeking listing of their securities post-IPO have to submit their shareholding pattern one day prior to the date of listing

to the Equity Listing Agreementa) Entities that seek listing of their securities post-IPO shall mandatorily submit their shareholding pattern as per Clause 35 of the Listing Agreement one day prior to the date of listing. b) With a view to ensuring public dissemination of the shareholding pattern pursuant to capital restructuring in listed entities, in all cases wherein the change in capital structure due to such restructuring exceeds +/- 2 percent of the paid up share capital of the entities, the listed entities shall file a revised shareholding pattern with the stock exchanges within 10 days from the date of allotment of shares pursuant to such change in the capital structure. c) In the case of listed entities that have issued Depository Receipts (DRs) overseas, ownership details of DRs shall be further segregated as those pertaining to the promoter/promoter group and to the public.

4. Amendments

5. ASBA facility mandatory for QIBs and NIIsThe ASBA facility was made mandatory for non-retail investors, i.e., Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs) making applications in public/rights issues with effect from May 01, 2011.
6. Eligibility criteria for companies coming out with IPOs through the profitability track recordIn the case of a pure Offer for Sale, the requirement that not more than 50 percent of the net tangible assets shall be held as monetary assets, shall not be applicable. The requirement of track record of distributable profits for at least three of the immediately preceding five years shall be complied with on both a stand-alone as well as a consolidated basis.

7. Amendment to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 for revision of Bidcum Application Form and Abridged ProspectusIn order to ensure that materially important information is provided in a structured, logical, and user-friendly manner that will aid the investor in making his/her investment decision, SEBI revised the structure, design, format, contents, and order of information of the Bid-cum-Application Form and Abridged Prospectus. 8. Disclosure of price information of past issues handled by merchant bankers The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 was revised to specify that the price information of past issues handled by merchant bankers should be disclosed along with the Due Diligence Certificate in the Draft Red Herring Prospectus/Red Herring Prospectus/Prospectus filed with the SEBI/Registrar of Companies on or after November 01, 2011

9. Market intermediaries to have proper internal controls to govern the conduct of their employees SEBI observed that unauthenticated news were being circulated in blogs, chat forums, e-mails, etc. by the employees of broking houses/other intermediaries, thus market intermediaries were informed that: a) Proper internal code of conduct & controls should be put in place. b) Employees/temporary staff/voluntary workers employed/working in the offices of market intermediaries should not encourage or circulate rumours or unverified information obtained from clients, industry, any trade, or any other sources without verification. c) Access to blogs, chat forums, messenger sites, etc. should either have restricted access under supervision or access should not be allowed. d) any market-related news received by them in their official or personal mail/blog , should be forwarded only after the same has been seen and approved by the Compliance Officer of the intermediary concerned

10. Amendment to public shareholding requirement: a) The minimum threshold level of public holding will be 25 percent for all listed companies. b) Existing listed companies having less than 25 percent public holding have to reach the minimum 25 percent level by an annual addition of not less than 5 percent to public holding. c) For new listings, if the post-issue capital of the company calculated at offer price is more than Rs.4000 crore, the company may be allowed to go public with 10 percent public shareholding, and it shall comply with the 25 percent public shareholding requirement by increasing its public shareholding by at least 5 percent per annum. d) A company may increase its public shareholding by less than 5 percent in a year if such increase brings its public shareholding to the level of 25 percent in that year.